The Hartford Financial Services Group
Annual Report 2020

Plain-text annual report

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS, PROXY STATEMENT AND 2020 ANNUAL REPORT NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS Date and Time Wednesday, May 19, 2021 12:30 p.m. EDT Access* Our Annual Meeting can be accessed virtually at: www.virtualshareholdermeeting.com/HIG2021 Voting Items Shareholders will vote of the following items of business: 1. Elect a Board of Directors for the coming year; 2. Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021; 3. Consider and approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement; and 4. Act upon any other business that may properly come before the Annual Meeting or any adjournment thereof. Board Recommendation Page Reference FOR FOR FOR 13 33 35 Record Date You may vote if you were a shareholder of record at the close of business on March 22, 2021. The Hartford’s proxy materials are available via the internet at http://ir.thehartford.com** and www.proxyvote.com, which allows us to reduce printing and delivery costs and lessen adverse environmental impacts. We hope that you will participate in the Annual Meeting, either by attending and voting at the virtual meeting or by voting through other means. For instructions on voting, please refer to page 72 under “How do I vote my shares?” We urge you to review the proxy statement carefully and exercise your right to vote. Dated: March 29, 2021 By order of the Board of Directors VOTING By internet www.proxyvote.com By toll-free telephone 1-800-690-6903 By mail Follow the instructions on your proxy card At the Annual Meeting Follow the instructions on the virtual meeting site IMPORTANT INFORMATION IF YOU PLAN TO ATTEND THE ANNUAL MEETING: You are entitled to participate (i.e., submit questions and/or vote) in the Annual Meeting if you were a shareholder of record at the close of business on March 22, 2021, the record date, or hold a legal proxy for the meeting provided by your bank, broker, or nominee. To participate, you will need the 16-digit control number provided on your proxy card, voting instruction form or notice. Shareholders may also vote or submit questions in advance of the meeting at www.proxyvote.com using their 16-digit control number. If you are not a shareholder or do not have a control number, you may still access the meeting as a guest, but you will not be able to participate. If you have difficulty accessing the Annual Meeting, please call the number on the registration page of the virtual meeting site. Technicians will be available to assist you. Donald C. Hunt Corporate Secretary * In light of the ongoing COVID-19 pandemic, to support the health and well-being of our shareholders, employees, partners and communities, the Annual Meeting will be held in a virtual meeting format via audio webcast only, and will not be held at a physical location. **References in this proxy statement to our website address are provided only as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this this proxy statement. 2021 Proxy Statement 1 LETTER FROM OUR CHAIRMAN & CEO AND LEAD DIRECTOR Dear fellow shareholders: The year 2020, and all it brought, will not soon be forgotten. In last year’s letter to shareholders, we reported that the company was in the midst of transitioning our workforce to nearly all-remote status because of the global pandemic. That unusual work environment persists, with the health, safety and well-being of employees remaining paramount. At the same time, our dedication to The Hartford’s core purpose – underwriting human achievement – has remained steadfast through the personal toll of hardship and loss, market uncertainty, and the detours from normal life and work we have experienced during the last 12 months. Most of all, the past year proved that, together, the team at The Hartford can overcome some of the greatest challenges we have seen in 100 years. And working in our respective communities, across the United States and around the globe, we can positively impact all our stakeholders. The Hartford’s business fundamentals withstood the disruption of 2020 as we pursued our objective of creating long-term shareholder value. The pillars of our business remain solid and our balance sheet is strong. The Small Commercial segment is more robust than ever, with our next-generation Spectrum product leading the way. The Navigators acquisition has proven ideally timed to allow Middle & Large Commercial and Global Specialty to unlock synergies; those lines are emerging from re-underwriting their books of business, and pivoting to growth and margin expansion in an exceptional pricing environment. Group Benefits, with integration work from the Aetna acquisition now complete, is also well positioned to sustain its performance post-pandemic and succeed in the marketplace. Plans to implement new products and technology in Personal Lines also continue apace. Our Hartford Next transformation initiative is expected to provide $500 million in expense savings across the enterprise by the end of 2022. In light of overall economic uncertainty going into the pandemic, we prudently decided to suspend share repurchase activity in favor of added liquidity and capital accumulation. Now that the economic landscape is stabilizing, we are acting to return capital to our shareholders, marked by the Board’s authorization of a $1.5 billion share repurchase program in December and an 8% increase in our common stock dividend in February. In sum, we believe The Hartford is poised to emerge from 2020 stronger than ever. But the past year was not only about the business. In particular, the racial reckoning of 2020 deepened our dedication to the American promise of equity. We have redoubled our existing internal commitment to racial equity with concrete steps and transparent goals. For starters, today we disclosed EEO-1 data, reflecting the diversity of our workforce, and will set benchmarks for diverse representation across our senior leadership ranks. Through our Compensation and Management Development Committee, we have built diversity criteria into our long-term incentive metrics going forward. We intend to lead through action on this vital front, internally and in the industry. The Hartford’s environmental sustainability mission also continued in 2020, with the Board’s guidance and oversight. Our TCFD report articulates our public commitment to manage and mitigate the impacts of climate change. Additionally, we intend to publish our first SASB report later this year. Our environmental goals are clear and we are on track to meet them. Across the company, we are working to address the risks and opportunities presented by climate change in our risk management programs, strategic business decisions and investment portfolio allocations. And, we have committed to enterprise benchmarks on reductions in greenhouse gas emissions, water and energy use, and increased deployment of electric vehicles. Our efforts across these and other critical issues continue to gain notice in the industry and beyond. In 2020, The Hartford was recognized as the highest-ranked insurance company on Forbes’ list of Most “Just” Companies. We also received a perfect score on the Human Rights Campaign Foundation’s Corporate Equality Index, we were named to Bloomberg’s Gender Equality Index, and Forbes designated our company as one of America’s Best Employers for Diversity. Additionally, The Military Times named us a Military Friendly Employer. We are honored by the recognition of our core values, and inspired to do more. The Hartford’s deep, experienced, and active Board met the unforeseen challenges of 2020 with enhanced engagement. As Chair and Lead Director, our direct collaboration was closer than ever. The Hartford’s leadership team provided weekly Board updates addressing the market, regulatory, underwriting and operational impacts of COVID-19 on our business through the first wave of the pandemic, and the Board increased its regular meeting cadence in that same time period to stay current. The Board’s committees also focused on the challenges at hand. Our Finance, Investment and Risk Management Committee intently focused on the pandemic’s potential consequences for the company’s risk profile, as well as the impact of ongoing market volatility on our investments. Similarly, the Audit Committee continued to monitor the pandemic’s operational and financial impacts. Meanwhile, the Nominating and Corporate Governance Committee’s ongoing work to optimize Board composition – by maximizing business 2 www.thehartford.com leadership and corporate governance experience, substantive insurance and audit expertise, and ensuring diverse perspectives and views – resulted in Donna James’ recent election to the Board. We are confident her addition will strengthen us further. Finally, The Hartford expanded its shareholder outreach program to foster deeper dialogue on sustainability, compensation, and governance innovations and issues. In a year as volatile as 2020, the program proved especially crucial to understanding shareholder priorities, and key takeaways are reflected in the enhanced disclosures in this proxy statement. We continue to depend on and value this annual touchpoint with shareholders, which informs our priorities as a Board. Due to ongoing public health risks, The Hartford will again conduct our annual meeting virtually, offering the same transparency and participatory access for shareholders that was provided for the 2020 virtual meeting. Acting together, The Hartford’s senior leadership and Board met the challenges of 2020, with employees delivering on our purpose and inspiring us at every turn. Throughout the past year, we all have stayed true to our objective of keeping The Hartford’s engine running at full strength – relying on hard work, strong ethics and effective governance to inform our actions. We thank you for your ongoing support of The Hartford in this endeavor. Sincerely, Christopher J. Swift Chairman and Chief Executive Officer Trevor Fetter Lead Director 2021 Proxy Statement 3 TABLE OF CONTENTS PROXY SUMMARY BOARD AND GOVERNANCE MATTERS Item 1: Election of Directors Governance Practices and Framework Board Composition and Refreshment Committees of the Board The Board's Role and Responsibilities Director Compensation Certain Relationships and Related Party Transactions Communicating with the Board Director Nominees AUDIT MATTERS Item 2: Ratification of Independent Registered Public Accounting Firm Fees of the Independent Registered Public Accounting Firm Audit Committee Pre-Approval Policies and Procedures Report of the Audit Committee COMPENSATION MATTERS Item 3: Advisory Vote to Approve Executive Compensation Compensation Discussion and Analysis Executive Summary Components of the Compensation Program Process for Determining Senior Executive Compensation (Including NEOs) Pay for Performance Compensation Policies and Practices Effect of Tax and Accounting Considerations on Compensation Design Compensation and Management Development Committee Interlocks and Insider Participation Report of the Compensation and Management Development Committee Executive Compensation Tables CEO Pay Ratio INFORMATION ON STOCK OWNERSHIP Directors and Executive Officers Certain Shareholders INFORMATION ABOUT THE HARTFORD’S ANNUAL MEETING OF SHAREHOLDERS Householding of Proxy Materials Frequently Asked Questions Other Information APPENDIX A: RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 5 13 13 13 16 18 20 23 25 25 26 33 33 33 34 34 35 35 36 36 42 51 51 53 54 54 54 55 67 69 69 70 71 71 71 74 75 4 www.thehartford.com PROXY SUMMARY This summary highlights information contained elsewhere in this proxy statement. It does not contain all the information you should consider and you should read the entire proxy statement carefully before voting. NAVIGATING THE CHALLENGES AND OPPORTUNITIES OF 2020 The COVID-19 pandemic and the increased focus on racial inequity in the U.S. greatly affected our employees, customers, communities and shareholders. In the face of these challenges, the company took the following actions to support all of our stakeholders: Ensuring Business Resiliency and Employee Health, Safety & Well-being • • • • Previous technology investments enabled approximately 95% of in-office staff to immediately go remote Provided additional benefits and support services to employees (e.g., free COVID testing, telehealth visits, weekly self-care guidance and remote work transition support) Implemented appropriate safety measures (e.g., masks, distancing protocols, contact tracing and enhanced cleaning) Increased focus on mental health Offering Customer Support • • • • • Instituted a moratorium on cancellation of policies for non-payment of premium through May 31, 2020 and waived late fees Provided billing accommodations, including offering installment payment plans and deferred installment billing Facilitated mid-term endorsements to commercial policies to adjust for changes in risk, reflecting reductions in payroll, revenue, sales and miles driven Provided personal auto insurance customers a 15% refund on April, May and June premiums Provided leniency in enforcement of certain policy provisions (e.g., claim notice requirements and vacancy provisions) Giving to Communities • Donated $1 million to national and local organizations focused on the pandemic • Donated $1.5 million to aid in the recovery efforts to support U.S. small businesses – 50% of funding benefited diverse-owned businesses • Matched hospitals across the country with local restaurants to sponsor meals for their front-line workers • • • Supported more than 2,500 of our small business customers across the country by making multiple holiday shopping guides and an internal shopping directory available to our 18,500 employees Live-streamed fire safety and prevention education to more than 51,000 students, educators and parents in 750 cities and towns across the country as part of The Hartford’s first-ever National Junior Fire Marshal Day Provided adaptive fitness kits to 750 individuals with physical disabilities to enable exercise and physical activity at home Reinforcing our Support for Racial Equity • Utilized established courageous conversation framework and brand messaging to show support for our Black colleagues, educate all employees, and demonstrate our commitment to fighting bias and racism • • • Reaffirmed our ongoing support of vital Black institutions including the National Museum of African American History and Culture Intensified CEO leadership internally through all-employee panel discussions and externally through the CEO Action for Diversity & Inclusion, the CEO Action for Racial Equity, and the Corporate Call to Action convened by the Connecticut State Treasurer Fast tracked elements of our diversity and inclusion strategy, including adopting diversity and inclusion goals for each business and functional area, with progress considered as part of the leadership performance and compensation assessment processes • Released EEO-1 data at the end of the first quarter of 2021 2021 Proxy Statement 5 PROXY SUMMARY BOARD AND GOVERNANCE HIGHLIGHTS ITEM 1 ELECTION OF DIRECTORS Each director nominee has an established record of accomplishment in areas relevant to overseeing our businesses and possesses qualifications and characteristics that are essential to a well-functioning and deliberative governing body. ✓ The Board recommends a vote "FOR" each director nominee Director Nominee, Current Age and Present or Most Recent Experience Independent Director since Current Committees(1) Other Current Public Company Boards Robert B. Allardice III, 74 Former regional CEO, Deutsche Bank Americas Larry D. De Shon, 61 Former President, CEO and COO, Avis Budget Group Carlos Dominguez, 62 Vice Chairman and Lead Evangelist, Sprinklr Trevor Fetter,(2) 61 Senior Lecturer, Harvard Business School Donna James, 63 President and CEO, Lardon & Associates Kathryn A. Mikells, 55 Chief Financial Officer Diageo plc Michael G. Morris, 74 Former Chairman, President and CEO, American Electric Power Company Teresa W. Roseborough, 62 Executive Vice President, General Counsel and Corporate Secretary, The Home Depot Virginia P. Ruesterholz, 59 Former Executive Vice President, Verizon Communications Christopher J. Swift, 60 Chairman and CEO, The Hartford Matthew E. Winter, 64 Former President, The Allstate Corporation Greig Woodring, 69 Former President and CEO, Reinsurance Group of America ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 2008 • Audit • FIRMCo* • Ellington Residential Mortgage REIT 2020 2018 2007 • Audit • FIRMCo • NCG • Comp • FIRMCo • NCG • Comp • FIRMCo • PROS Holdings 2021 • FIRMCo • Boston Scientific • L Brands 2010 • Audit* • FIRMCo • Diageo plc 2004 2015 2013 • Audit • FIRMCo • NCG* • Comp • FIRMCo • NCG • Comp* • FIRMCo • NCG • Alcoa • L Brands • Bed Bath & Beyond 2014 • FIRMCo  • Citizens Financial Group 2020 • FIRMCo • Comp • ADT • H&R Block 2017 • Audit • FIRMCo * Denotes committee chair. (1) Full committee names are as follows: Audit – Audit Committee; Comp – Compensation and Management Development Committee; FIRMCo – Finance, Investment and Risk Management Committee; NCG – Nominating and Corporate Governance Committee. (2) Mr. Fetter serves as the Lead Director. For more details on the Lead Director’s role, see page 14. 6 www.thehartford.com   CURRENT BOARD COMPOSITION PROXY SUMMARY GOVERNANCE BEST PRACTICES The Board and management regularly review best practices in corporate governance and modify our governance policies and practices as warranted. Our current best practices are highlighted below. Independent Oversight Engaged Board / Shareholder Rights Good Governance ✓ All directors are independent, other than the CEO ✓ Independent key committees (Audit, Compensation, Nominating) ✓ Empowered and engaged independent Lead Director ✓ All directors elected annually  ✓ Majority vote standard (with plurality carve-out for contested elections) ✓ Proxy access right with market terms ✓ Director resignation policy ✓ Over-boarding policy limits total public company boards, including The Hartford, to five for non-CEOs and two for sitting CEOs ✓ Rigorous Board and committee self-evaluation conducted annually; third-party Board and individual director evaluations conducted triennially ✓ Meaningful Board education and training on recent and emerging governance and industry trends ✓ Annual shareholder engagement program focused on sustainability, compensation and governance issues ✓ Board diversity of experience, tenure, age, gender, race and ethnicity ✓ Mandatory retirement age of 75 ✓ Diversity policy or "Rooney Rule" commitment to ensure diverse candidates are included in the pool from which board and external CEO candidates are selected ✓ Annual review of CEO succession plan by the independent directors with the CEO ✓ Annual Board review of senior management long-term and emergency succession plans ✓ Stock-ownership guidelines of 6x salary for CEO and 4x salary for other named executive officers ✓ Annual Nominating Committee review of The Hartford's political and lobbying policies and expenditures ✓ Board oversight of sustainability matters; Nominating Committee oversight of sustainability governance framework Commitment to Sustainability ✓ Sustainability Highlight Report published, tying enterprise commitments to tangible goals and reporting progress; first TCFD report published in 2020; SASB report for 2020 expected to be published in 2021 ✓ Sustainability Governance Committee comprised of senior management charged with overseeing a comprehensive sustainability strategy and ensuring the full Board is briefed at least annually 2021 Proxy Statement 7 7 Years Average Tenure5340-5 years5-10 years>10 years33% Women48WomenMen25% People of Color39Black, Latinx or AsianWhite PROXY SUMMARY SUSTAINABILITY PRACTICES We believe that having a positive impact on the world is the right thing to do and a business imperative. Fostering and safeguarding human achievement has been our business for over two hundred years, and sustainability considerations are integral to our strategy. We recognize that people want to work for, invest in, and buy from an organization that shares their values. Our sustainability efforts address environmental, social and governance ("ESG") impacts as highlighted in four key areas: ENVIRONMENT SOCIAL GOVERNANCE As an insurance company, we understand the risks that environmental challenges present to people and communities. As stewards of the environment, we are committed to mitigating climate change and reducing our carbon footprint incrementally each year. We help individuals and communities prevail by building safe, strong and successful neighborhoods through targeted philanthropic investments, by partnering with like- minded national and local organizations, and by harnessing the power of our more than 18,500 employees to engage in their communities. We are committed to building an inclusive and engaging culture where people are respected for who they are, recognized for how they contribute and celebrated for growth and exceptional performance. We value the diversity of our employees' skills and life experiences and invest deeply in their development so they can deliver on our strategy and propel our company forward. We believe that doing the right thing every day is core to our character, and we are proud of our reputation for being a company that places ethics and integrity above all else. To learn more, please access our Sustainability Highlight Report, which presents our sustainability goals and provides data on our sustainability practices and achievements, and our Global Reporting Initiative (GRI) Standards Response, which offers greater detail on our sustainability activities at: https://www.thehartford.com/about-us/corporate-sustainability. AUDIT HIGHLIGHTS ITEM 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM As a matter of good corporate governance, the Board is asking shareholders to ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for 2021. ✓ The Board recommends a vote "FOR" this item 8 www.thehartford.com PROXY SUMMARY COMPENSATION HIGHLIGHTS ITEM 3 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION The Board is asking shareholders to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement. Our executive compensation program is designed to promote long-term shareholder value creation and support our strategy by (1) encouraging profitable growth consistent with prudent risk management while maintaining a commitment to the company’s ethics and values, (2) providing market-competitive compensation opportunities designed to attract and retain talent needed for long-term success, and (3) appropriately aligning pay with short- and long-term performance. ✓ The Board recommends a vote "FOR" this item STRATEGIC PRIORITIES The Hartford’s strategy focuses on realizing the full potential of our product capabilities and underwriting expertise, becoming an easier company to do business with, and attracting, retaining and developing the talent needed for long-term success. The company endeavors to expand its insurance product offerings and distribution and capitalize on the strength of its brand. The company is also working to increase efficiencies through investments in technology. In 2020, we were focused on increasing shareholder value through a number of initiatives and investments: • • • • • Integrating the acquisition of The Navigators Group, Inc. ("Navigators Group") successfully, and maximizing our combined potential by deepening our distribution relationships, capitalizing on a broader product portfolio and meeting a wider array of customer needs. Increasing the speed and ease of our interactions and business processes through data, digital technology and voice of customer, including expanded use of robotics and continued enhancements to underwriting and quoting platforms. Continuing investment in new products and business models such as Spectrum, our next-generation package offering for small businesses, which offers customers tailored coverage recommendations as well as the ability to customize their own coverage, including real-time quote pricing. We are investing to maintain market leadership in small commercial as existing competitors and new entrants increase their focus on this business. Through a planned roll out of new automobile and homeowners insurance products for AARP members, we are investing in our Personal Lines segment to return that business to top line growth. Improving the employee experience by investing in our workforce and striving to attract, retain and develop the best talent in the industry, enhance our industry-leading position in diversity and inclusion, and sustain our ethical culture. We see the benefits of this commitment in our sustained top-decile employee engagement scores. Becoming more cost efficient and competitive along with enhancing the experience we provide to agents and customers through an operational transformation and cost reduction plan we commenced in July 2020 called Hartford Next. Relative to 2019, we expect to achieve a reduction in annual insurance operating costs and other expenses of approximately $500 million by 2022, reducing the Property & Casualty ("P&C") expense ratio by 2.0 to 2.5 points, the Group Benefits expense ratio by 1.5 to 2.0 points and the claims expense ratio by approximately 0.5 points. 2020 FINANCIAL RESULTS Like all companies, we faced unprecedented challenges in 2020, but through extraordinary team efforts, we persevered and delivered strong results. Full year 2020 net income available to common stockholders and core earnings* were $1.7 billion ($4.76 per diluted share) and $2.1 billion ($5.78 per diluted share), respectively. Net income and core earnings return on equity ("ROE")*† were 10.0% and 12.7%, respectively. * Denotes a non-GAAP financial measure. For definitions and reconciliations to the most directly comparable GAAP measure, see Appendix A. † Net income ROE represents net income available to common stockholders ROE. 2021 Proxy Statement 9 PROXY SUMMARY Highlighted below are year-over-year comparisons of our net income available to common stockholders and core earnings performance and our net income ROE and core earnings ROE results for each of the past three years. Core earnings is the primary determinant of our annual incentive plan ("AIP") funding, as described on page 42, and average annual core earnings ROE over a three-year performance period is the metric used for 50% of performance shares granted to Senior Executives, as described on page 45 (in each case, as adjusted for compensation purposes). TOTAL SHAREHOLDER RETURNS The following chart shows The Hartford's total shareholder return ("TSR") relative to  the S&P 500, S&P 500 Insurance Composite and S&P P&C indices and our 2020 Corporate Peer Group (provided on page 52). Includes reinvestment of dividends. COMPONENTS OF COMPENSATION AND PAY MIX NEO compensation is heavily weighted towards variable compensation (annual and long-term incentives), where actual amounts earned may differ from target amounts based on company and individual performance. Each NEO has a target total compensation opportunity that is reviewed annually by the Compensation Committee (in the case of the CEO, by the independent directors) to ensure alignment with our compensation objectives and market practice. 10 www.thehartford.com $ (Millions)Net IncomeAvailable toCommonStockholders$2,064$1,71620192020$ (Millions)Core Earnings$2,062$2,08620192020Net Income ROE13.7%14.4%10.0%201820192020Core Earnings ROE11.6%13.6%12.7%201820192020(17)%(6)%(3)%8%0%14%7%28%18%49%The Hartford (HIG)2020 Corporate Peer GroupS&P 500 Insurance CompositeS&P 500 Property and CasualtyS&P 500ONE-YEAR (2020)THREE-YEAR (2018-2020) PROXY SUMMARY Compensation Component Description Base Salary • Fixed level of cash compensation based on market data, internal pay equity, experience, responsibility, expertise and performance. Annual Incentive Plan • Variable cash award based primarily on annual company operating performance against a predetermined financial target and achievement of individual performance goals aligned with the company's strategic priorities. Long-Term Incentive Plan • Variable awards granted based on individual performance, potential and market data. • Designed to drive long-term performance, align senior executive interests with shareholders, and foster retention. • Award mix (50% performance shares and 50% stock options) reflects stock price performance, peer-relative shareholder returns (stock price and dividends) and operating performance. Approximately 91% of CEO target annual compensation and approximately 84% of other NEO target annual compensation are variable based on performance, including stock price performance: Target Pay Mix — CEO Salary 9% Annual Incentive 24% Long-Term Incentive 67% Variable with Performance: 91% Target Pay Mix — Other NEOs Salary 16% Annual Incentive 30% Long-Term Incentive 54% Variable with Performance: 84% 2020 COMPENSATION DECISIONS 2020 Compensation Decisions Rationale The Compensation Committee updated the payout curves for 2020 AIP and 2020-2022 performance share awards. As a result of shareholder feedback received in 2019, the Compensation Committee made the following changes for 2020 awards: • Updated the AIP curve for 2020 awards to expand the range from +/- 15% to +/-20% of target, requiring greater outperformance to achieve above target awards. (page 42) • Updated the TSR payout curve for performance share awards granted in 2020 to target the 55th percentile. (pages 45-46) The Compensation Committee approved an AIP funding level of 80% of target. Performance against the pre-established Compensation Core Earnings target produced a formulaic AIP funding level of 80% of target. The Compensation Committee undertook its qualitative review of performance and concluded that the formulaic AIP funding level appropriately reflected 2020 performance. Accordingly, no adjustments were made. (page 43) The Compensation Committee certified a 2018-2020 performance share award payout at 75% of target. The company's average annual Compensation Core ROE during the performance period was 12.8%, resulting in a payout of 151% of target for the ROE component (50% of the award). Because the company's TSR during the performance period was below threshold, there was no payout for the TSR component (50% of the award). (page 46) The Compensation Committee (and, in the case of the CEO, the independent directors) approved the following compensation for each active NEO: Base Salary AIP Award LTI Award Total Compensation NEO 2020 Change from 2019 2020 Change from 2019 2020 Change from 2019 2020 Change from 2019 Christopher Swift $ 1,150,000 Beth Costello $ 725,000 Douglas Elliot $ 950,000 William Bloom $ 625,000 0% 0% 0% 0% $ 2,400,000 (45.9)% $ 8,500,000 $ 1,000,000 (45.9)% $ 1,850,000 $ 1,520,000 (45.9)% $ 5,310,000 $ 800,000 (46.7)% $ 1,300,000 David Robinson $ 600,000 NA* $ 580,000 NA* $ 1,300,000 3.0% 4.2% 3.1% 4.0% NA* $ 12,050,000 (12.9) % $ 3,575,000 $ 7,780,000 $ 2,725,000 $ 2,480,000 (17.8) % (12.7) % (19.3) % NA* *Mr. Robinson was not previously an NEO. 2021 Proxy Statement 11 PROXY SUMMARY This table provides a concise picture of compensation decisions made in 2020, and highlights changes from 2019. In each case, Total 2020 Compensation was lower than 2019 compensation due to the lower AIP awards for 2020. Another view of 2020 compensation for the NEOs is available in the Summary Compensation Table on page 55. COMPENSATION BEST PRACTICES Our current compensation best practices include the following: WHAT WE DO ✓ Compensation heavily weighted toward variable pay ✓ Senior Executives generally receive the same benefits as other full-time employees ✓ Double-trigger requirement for cash severance and equity vesting upon a change of control* ✓ Cash severance upon a change of control limited to 2x base salary + bonus ✓ Independent compensation consultant ✓ Risk mitigation in plan design and annual review of compensation plans, policies and practices ✓ Claw-back provisions in compensation and severance plans ✓ Prohibition on hedging, monetization, derivative and similar transactions with company securities ✓ Prohibition on Senior Executives pledging company securities ✓ Stock ownership guidelines for directors and Senior Executives ✓ Periodic review of compensation peer groups ✓ Competitive burn rate and dilution for equity program * Double-trigger vesting for equity awards applies if the awards are assumed or replaced with substantially equivalent awards. WHAT WE DON'T DO û No Senior Executive tax gross-ups for perquisites or excise taxes on severance payments û No individual employment agreements û No granting of stock options with an exercise price less than the fair market value of our common stock on the date of grant û No re-pricing of stock options û No buy-outs of underwater stock options û No reload provisions in any stock option grant û No payment of dividends or dividend equivalents on equity awards until vesting SAY-ON-PAY RESULTS At our 2020 annual meeting, we received 96% support on Say-on-Pay. The Compensation Committee considered the vote to be an endorsement of The Hartford’s executive compensation programs and policies, and recent program changes. They took this strong level of support into account in their ongoing review of those programs and policies. Management also discussed the vote, along with aspects of its executive compensation, diversity and inclusion and corporate governance practices, during our annual shareholder outreach program to gain a deeper understanding of shareholders’ perspectives. Feedback regarding the compensation program was generally positive, with many shareholders expressing support for the Compensation Committee's changes to the payout curves for 2020 AIP and 2020-2022 performance share awards. For further discussion of our shareholder outreach program, see pages 20-21. 12 www.thehartford.com BOARD AND GOVERNANCE MATTERS ITEM 1 ELECTION OF DIRECTORS The Nominating Committee believes the director nominees possess qualifications, skills and experience that are consistent with the standards for the selection of nominees for election to the Board set forth in our Corporate Governance Guidelines described on pages 16-17 and have demonstrated the ability to effectively oversee The Hartford’s corporate, investment and business operations. Biographical information for each director nominee is described beginning on page 27, including the principal occupation and other public company directorships (if any) held in the past five years and a description of the specific experience and expertise that qualifies each nominee to serve as a director of The Hartford. ✓ The Board recommends a vote "FOR" each director nominee GOVERNANCE PRACTICES AND FRAMEWORK At The Hartford, we aspire to be an exceptional company celebrated for financial performance, character, and customer value. We believe good governance practices and responsible corporate behavior are central to this vision and contribute to our long-term performance. Accordingly, the Board and management regularly consider best practices in corporate governance and shareholder feedback and modify our governance policies and practices as warranted. Our current best practices include: Independent Oversight Engaged Board / Shareholder Rights Good Governance ✓ All directors are independent, other than the CEO ✓ Independent key committees (Audit, Compensation, Nominating) ✓ Empowered and engaged independent Lead Director ✓ All directors elected annually  ✓ Majority vote standard (with plurality carve-out for contested elections) ✓ Proxy access right with market terms ✓ Director resignation policy ✓ Over-boarding policy limits total public company boards, including The Hartford, to five for non-CEOs and two for sitting CEOs ✓ Rigorous Board and committee self-evaluation conducted annually; third-party Board and individual director evaluations conducted triennially ✓ Meaningful Board education and training on recent and emerging governance and industry trends ✓ Annual shareholder engagement program focused on sustainability, compensation and governance issues ✓ Board diversity of experience, tenure, age, gender, race and ethnicity ✓ Mandatory retirement age of 75 ✓ Diversity policy or "Rooney Rule" commitment to ensure diverse candidates are included in the pool from which board and external CEO candidates are selected ✓ Annual review of CEO succession plan by the independent directors with the CEO ✓ Annual Board review of senior management long-term and emergency succession plans ✓ Stock-ownership guidelines of 6x salary for CEO and 4x salary for other named executive officers ✓ Annual Nominating Committee review of The Hartford's political and lobbying policies and expenditures ✓ Board oversight of sustainability matters; Nominating Committee oversight of sustainability governance framework Commitment to Sustainability ✓ Sustainability Highlight Report published, tying enterprise commitments to tangible goals and reporting progress; first TCFD report published in 2020; SASB report for 2020 expected to be published in 2021 ✓ Sustainability Governance Committee comprised of senior management charged with overseeing a comprehensive sustainability strategy and ensuring the full Board is briefed at least annually 2021 Proxy Statement 13 BOARD AND GOVERNANCE MATTERS The fundamental responsibility of our directors is to exercise their business judgment to act in what they reasonably believe to be the best interests of The Hartford and its shareholders. The Board fulfills this responsibility within the general governance framework provided by the following documents: • • • • • • Articles of Incorporation By-laws Corporate Governance Guidelines (compliant with the listing standards of the New York Stock Exchange ("NYSE") and including guidelines for determining director independence and qualifications) Charters of the Board’s four standing committees (the Audit Committee; the Compensation and Management Development Committee ("Compensation Committee"); the Finance, Investment and Risk Management Committee ("FIRMCo"); and the Nominating and Corporate Governance Committee ("Nominating Committee")) Code of Ethics and Business Conduct Code of Ethics and Business Conduct for Members of the Board of Directors Copies of these documents are available on our investor relations website at http://ir.thehartford.com or upon request sent to our Corporate Secretary (see page 73 for details). DIRECTOR INDEPENDENCE The Board annually reviews director independence under applicable law, the listing standards of the NYSE and our Corporate Governance Guidelines. In addition, per our Corporate Governance Guidelines, in order to identify potential conflicts of interest and to monitor and preserve the independence, any director who wishes to become a director of another for-profit entity must obtain the pre-approval of the Nominating Committee. The Board has affirmatively determined that all directors other than Mr. Swift are independent. BOARD LEADERSHIP STRUCTURE Board Chair Independent Lead Director The roles of CEO and Chairman of the Board (“Chairman”) are held by Christopher Swift. Mr. Swift has served as CEO since July 1, 2014, and was appointed Chairman on January 5, 2015. In late 2014, before Mr. Swift assumed the role of Chairman, the Board deliberated extensively on our board leadership structure, seeking feedback from shareholders and considering corporate governance analysis. The Board concluded then, and continues to believe, that our historical approach of combining the roles of CEO and Chairman while maintaining strong, independent board leadership is the optimal leadership structure for the Board to carry out its oversight of our strategy, business operations and risk management. The Board believes other elements of our corporate governance structure ensure independent directors can perform their role as fiduciaries in the Board’s oversight of management and our business, and minimize any potential conflicts that may result from combining the roles of CEO and Chairman. For example: • All directors other than Mr. Swift are independent; • An empowered and engaged Lead Director provides independent Board leadership and oversight; and • At each regularly scheduled Board meeting, the non- management directors meet in executive session without the CEO and Chairman present (six such meetings in 2020). As part of its evaluation process, the Board has committed to undertaking an annual review of its leadership structure to ensure it continues to serve the best interests of shareholders and positions the company for future success. Whenever the CEO and Chairman roles are combined, our Corporate Governance Guidelines require the independent directors to elect an independent Lead Director. Trevor Fetter was elected our Lead Director in May 2017. The responsibilities and authority of the Lead Director include the following: • Presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors; • Serving as a liaison between the CEO and Chairman and the non-management directors; • Regularly conferring with the Chairman on matters of importance that may require action or oversight by the Board, ensuring the Board focuses on key issues and tasks facing The Hartford; • Approving information sent to the Board and meeting agendas for the Board; • Approving the Board meeting schedules to help ensure that there is sufficient time for discussion of all agenda items; • Maintaining the authority to call meetings of the independent non-management directors; • Approving meeting agendas and information for the independent non-management sessions and briefing, as appropriate, the Chairman on any issues arising out of these sessions; • If requested by shareholders, ensuring that they are available, when appropriate, for consultation and direct communication; and • Leading the Board’s evaluation process and discussion on board refreshment and director tenure. The Board believes that these duties and responsibilities provide for strong independent Board leadership and oversight. 14 www.thehartford.com BOARD AND GOVERNANCE MATTERS ANNUAL BOARD EVALUATION PROCESS The Nominating Committee oversees the Board's multi-step evaluation process to ensure an ongoing, rigorous assessment of the Board’s effectiveness, composition and priorities and to inform the Board's succession planning. In addition to the full Board evaluation process, the standing committees of the Board undertake separate self-assessments on an annual basis. As part of a multi-year effort to enhance the evaluation process, the Board has adopted the following changes: • • • 2016 - Adopted individual director interviews led by the Lead Director and a mid-year review of progress against formal Board goals; 2018 - Adopted third-party facilitated evaluations every three years, commencing in 2019, to promote more candid conversations, provide a neutral perspective, and help the Board benchmark its corporate governance practices; and 2020 - Adopted individual director evaluations every three years, commencing in 2022, as part of the third-party facilitated Board evaluation. In each case, the Board sought and considered shareholder feedback on the merits of these changes prior to adoption. Board Evaluation and Development of Goals (May) Annual Corporate Governance Review / Shareholder Engagement Program (October to December) Interim Review of Goals (December) Board Self-Assessment Questionnaires (February) The Lead Director, or third-party evaluator, leads a Board evaluation discussion in an executive session guided by the Board’s self-assessment questionnaire and key themes identified through one-on-one discussions. The Board identifies successes and areas for improvement from the prior Board year and establishes formal goals for the year ahead. The Nominating Committee performs an annual review of The Hartford's corporate governance policies and practices in light of best practices, recent developments and trends. In addition, the Nominating Committee reviews feedback on governance issues provided by shareholders during our annual shareholder engagement program. The Lead Director leads an interim review of progress made against the goals established during the Board evaluation discussion in May. The governance review and shareholder feedback inform the development of written questionnaires that the Board and its standing committees use to help guide self- assessment. The Board’s questionnaire covers a wide range of topics, including the Board’s: • Fulfillment of its responsibilities under the Corporate Governance Guidelines; • Effectiveness in overseeing our business plan, strategy and risk management; • Leadership structure and composition, including mix of experience, skills, diversity and tenure; • Relationship with management; and • Processes to support the Board’s oversight function. One-on-One Discussions (February to May) The Lead Director, or third-party evaluator, meets individually with each independent director on Board effectiveness, dynamics and areas for improvement. Beginning in 2022, third-party led discussions will also include directors' evaluations of their peers. When the Lead Director led the Board evaluation session in May 2020, there was agreement that the Board is effectively overseeing the strategy and risks of the company, and that the Board made several improvements as a result of its 2019-2020 goals, including the appointment of two new directors with CEO or President experience, successful oversight of management succession planning, and more Board time devoted to discussions and questions rather than presentation of pre-read materials. At the same time, the Board identified opportunities for continued improvement and heightened focus in the 2020-2021 Board year as the company continues to navigate the COVID-19 crisis, including continued focus on management succession plans (which led to the internal promotion of a new President of HIMCO and the combination of the Claims and Operations organizations — two of The Hartford's largest customer-facing teams — under common leadership); heightened oversight of the implementation of new Personal Lines products and technology; and continued oversight of the Navigators Group integration. 2021 Proxy Statement 15 BOARD AND GOVERNANCE MATTERS BOARD COMPOSITION AND REFRESHMENT DIRECTOR SUCCESSION PLANNING The Nominating Committee is responsible for identifying and recommending to the Board candidates for Board membership. Throughout the year, the Nominating Committee considers the Board’s composition, skills and attributes to determine whether they are aligned with our long-term strategy and major risks, and each July devotes a session to board succession planning over a longer-term (generally three-year) period. The succession planning process is informed by the results of the Board and committee evaluation processes, as well as anticipated needs in light of The Hartford’s retirement policy (described below). To assist the Nominating Committee in identifying prospective Board nominees when undertaking a search, the company retains an outside search firm. The Nominating Committee also considers candidates suggested by its members, other Board members, management and shareholders. The Nominating Committee evaluates candidates against the standards and qualifications set forth in our Corporate Governance Guidelines as well as other relevant factors, including the candidate's potential contribution to the diversity of the Board. In 2018 the Board amended our Corporate Governance Guidelines to ensure that diverse candidates are included in the pool from which board candidates are selected. The Nominating Committee's most recent director search culminated in the election of Donna James, who brings extensive insurance industry experience gained during a 25-year career as a senior executive at Nationwide Insurance, as well as significant corporate governance experience by virtue of her service on several major public company boards. Ms. James’ election made her the fourth female member, and third member of color, of the current Board. She joined the Board in February 2021. The graphic below illustrates our typical succession planning process, which begins with an assessment the Board's current skills and attributes, and then identifies skills or attributes that are needed, or may be needed in the future, in light of the company's strategy. Overview of Director Search Process Development of Candidate Specification • Develop skills matrix to identify desired skills and attributes, including diversity • Target areas of expertise aligned with our strategy Screening of Candidates Meeting With Candidates Decision and Nomination • • Select outside search firms to lead process and/or consider internal or shareholder recommendations Screen candidates for each specification identified • • Top candidates are interviewed by Nominating Committee members, other directors, and management Finalist candidates undergo background and conflicts checks • Nominating Committee recommendation of candidates and committee assignments to full Board • Board consideration and adoption of recommendation DIRECTOR ONBOARDING AND ENGAGEMENT All directors are expected to invest the time and energy required to gain an in-depth understanding of our business and strategy. In 2019, we enhanced our onboarding program for new directors with the goal of reducing the learning curve for new members and enabling them to provide meaningful contributions to the oversight of the company as early in their tenures as possible. Our enhanced onboarding program consists of two phases. Phase one is designed to provide a solid foundation on our businesses, financial performance, strategy, risk and governance. New directors devote numerous briefing sessions with senior management to review key functional areas of the company and their committee assignment responsibilities. Phase two is an opportunity for new directors to continue learning about the business at their discretion after they have been on the Board for six to twelve months.  Directors are afforded time to familiarize themselves with the company so they can identify areas for additional education and development. In addition, we have formalized our board mentorship program to help integrate members with experienced directors. New directors are also encouraged to attend all committee meetings during their first year to help accelerate their understanding of the company and the Board.  Our Board members also participate in company activities and engage directly with our employees at a variety of events throughout the year, including typically an annual dinner with employees working on key strategic business priorities or engaged with our employee resource groups ("ERGs"). Although the pandemic prevented in-person involvement in 2020, directors participated in virtual town hall meetings and ERG events. DIRECTOR TENURE The Nominating Committee strives for a Board that includes a mix of varying perspectives and breadth of experience. Newer directors bring fresh ideas and perspectives, while longer tenured directors bring extensive knowledge of our complex operations. 16 www.thehartford.com BOARD AND GOVERNANCE MATTERS As part of its annual evaluation process, the Board assesses its overall composition, including director tenure, and does not believe the independence of any director nominee is compromised solely due to Board tenure. Previously, the Board had a tenure policy that provided an independent director may not stand for reelection after serving as a director for 15 years. In 2020, after discussion with shareholders during our annual shareholder engagement program, the Board eliminated this policy in conjunction with its adoption of individual director evaluations (described above). The Board believes that its rigorous self-evaluation process, combined with its mandatory retirement policy at age 75, are effective in promoting Board renewal, as demonstrated by the addition of seven new directors since 2015, none of whom were added as a result of the tenure policy. DIRECTOR DIVERSITY The Board believes a diverse membership with varying perspectives and breadth of experience is an important attribute of a well- functioning board and contributes positively to robust discussion at meetings. The Nominating Committee considers diversity in the context of the Board as a whole and takes into account considerations relating to race, gender, ethnicity and the range of perspectives the directors bring to their Board work. As part of its consideration of prospective nominees, the Board and the Nominating Committee monitor whether the directors as a group meet The Hartford’s criteria for the composition of the Board, including diversity considerations. As part of our continuing efforts to bring diverse perspectives to the Board: • • • • Since 2010, the Board has appointed five women and three people of color as directors; The Board's Audit and Compensation Committees are both chaired by women; In 2018, the Board amended our Corporate Governance Guidelines to ensure that diverse candidates are included in the pool from which board candidates are selected; and In 2021, Donna James joined the Board, increasing the current representation on the Board to four female directors and three directors of color. CURRENT BOARD COMPOSITION SHAREHOLDER PROPOSED NOMINEES The Nominating Committee will consider director candidates recommended by shareholders using the same criteria described above. Shareholders may also directly nominate someone at an annual meeting. Nominations for director candidates are closed for 2021. To nominate a candidate at our 2022 Annual Meeting, notice must be received by our Corporate Secretary at the address below by February 18, 2022 and must include the information specified in our By-laws, including, but not limited to, the name of the candidate, together with a brief biography, an indication of the candidate’s willingness to serve if elected, and evidence of the nominating shareholder’s ownership of our Common Stock. Pursuant to our proxy access By-law, a shareholder, or group of up to 20 shareholders, may nominate a director and have the nominee included in our proxy statement. The shareholder, or group collectively, must have held at least 3% of our Common Stock for three years in order to make a nomination, and may nominate as many as two directors, or a number of directors equal to 20% of the board, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements in our By-laws. Notice of proxy access director nominees for inclusion in our 2022 proxy statement must be received by our Corporate Secretary at the address below no earlier than October 30, 2021 and no later than November 29, 2021. In each case, submissions must be delivered or mailed to Donald C. Hunt, Corporate Secretary, The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. 2021 Proxy Statement 17 7 Years Average Tenure5340-5 years5-10 years>10 years33% Women48WomenMen25% People of Color39Black, Latinx or AsianWhite BOARD AND GOVERNANCE MATTERS COMMITTEES OF THE BOARD The Board has four standing committees: the Audit Committee; the Compensation Committee; FIRMCo; and the Nominating Committee. The Board has determined that all of the members of the Audit Committee, the Compensation Committee and the Nominating Committee qualify as “independent” under applicable law, the listing standards of the NYSE and our Corporate Governance Guidelines. The current members of the Board, the committees on which they serve and the primary functions of each committee are identified below. AUDIT COMMITTEE CURRENT MEMBERS:* R. Allardice L. De Shon K. Mikells (Chair) M. Morris G. Woodring “The Audit Committee assessed the financial and operational impacts of the COVID-19 pandemic on the company, including its ability to maintain operations in a remote work environment and its exposure to insured losses arising from the pandemic. The Committee also continued to assess processes and controls over managing the risk of cyber-attacks and conducted deep reviews of the risk and control environment for several lines of business and functional areas." ROLES AND RESPONSIBILITIES Kathryn Mikells, Committee Chair since 2019 MEETINGS IN 2020: 9 • Oversees the integrity of the company's financial statements. • Oversees accounting, financial reporting and disclosure processes and the adequacy of management’s systems of internal control over financial reporting. • Oversees the company's relationship with, and performance of, the independent registered public accounting firm, including its qualifications and independence. • Oversees the performance of the internal audit function. • Oversees operational risk, business resiliency and cybersecurity. • Oversees the company's compliance with legal and regulatory requirements and our Code of Ethics and Business Conduct. • Discusses with management policies with respect to risk assessment and risk management. * The Board has determined that all members are “financially literate” within the meaning of the listing standards of the NYSE and “audit committee financial experts” within the meaning of the SEC’s regulations. COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE CURRENT MEMBERS: C. Dominguez T. Fetter T. Roseborough V. Ruesterholz (Chair) M. Winter MEETINGS IN 2020: 6 “In 2020, the Committee focused substantial attention on understanding the impact of the COVID-19 pandemic and widespread social unrest on our employees, customers and businesses. In addition, the Committee monitored the responsive actions taken by the company to sustain full operations, build on our inclusive culture and expand our Diversity and Inclusion programs. In that context, the Committee carefully reviewed our compensation programs, including 2020 annual incentive funding, and introduced a Diversity and Inclusion measure in the 2021 long-term incentive program.” ROLES AND RESPONSIBILITIES Virginia Ruesterholz, Committee Chair since 2016 • Oversees executive compensation and assists in defining an executive total compensation policy. • Works with management to develop a clear relationship between pay levels, performance and returns to shareholders, and to align compensation structure with objectives. • Has sole authority to retain, compensate and terminate any consulting firm used to evaluate and advise on executive compensation matters. • Considers independence standards required by the NYSE or applicable law prior to retaining compensation consultants, accountants, legal counsel or other advisors. • Reviews annually the diversity of the company’s workforce, the company’s diversity programs, and the company’s process and analysis for assessing pay equity. • Reviews succession and continuity plans for the CEO and each member of the executive leadership team that reports to the CEO. • Meets annually with a senior risk officer to discuss and evaluate whether incentive compensation arrangements create material risks to the company. • Responsible for compensation actions and decisions with respect to certain senior executives, as described in the Compensation Discussion and Analysis beginning on page 36. 18 www.thehartford.com BOARD AND GOVERNANCE MATTERS FINANCE, INVESTMENT AND RISK MANAGEMENT COMMITTEE CURRENT MEMBERS: R. Allardice (Chair) L. De Shon C. Dominguez T. Fetter D. James K. Mikells M. Morris T. Roseborough V. Ruesterholz C. Swift M. Winter G. Woodring “In 2020, FIRMCo devoted substantial time to reviewing the COVID-19 pandemic’s impact on the risk profile of the company’s businesses, including insurance coverages, as well as the impact on the economy and financial markets caused by the pandemic on the company’s investments. The Committee also focused its oversight on risks associated with the legal and regulatory environment shaped by the COVID-19 pandemic.” Robert B. Allardice III, Committee Chair since 2016 ROLES AND RESPONSIBILITIES • Reviews and recommends changes to enterprise policies governing management activities relating to major risk exposures such as market risk, liquidity and capital requirements, insurance risks and climate change. • Reviews the company's overall risk appetite framework, which includes an enterprise risk appetite statement, risk preferences, risk tolerances, and an associated limit structure for each of the company's major risks. • Reviews and recommends changes to financial, investment and risk management guidelines. MEETINGS IN 2020: 5 • Provides a forum for discussion among management and the entire Board of key financial, investment, and risk management matters. NOMINATING AND CORPORATE GOVERNANCE COMMITTEE Current Members: L. De Shon C. Dominguez M. Morris (Chair) T. Roseborough V. Ruesterholz “In 2020, the Nominating Committee continued its focus on board composition and effectiveness. As a result of Committee recommendations, the Board appointed Donna James as a director, bringing extensive insurance-industry experience to the Board, while also increasing the representation of women and people of color.” ROLES AND RESPONSIBILITIES • Advises and makes recommendations to the Board on corporate governance matters. Michael G. Morris, Committee Chair since 2018 MEETINGS IN 2020: 5 • Makes recommendations on the organization, size and composition of the Board and its • Considers potential nominees to the Board. committees. • Considers the qualifications, compensation and retirement of directors. • Reviews policies and reports on political contributions. • Oversees the establishment, management and processes related to environmental, social and governance activities. 2021 Proxy Statement 19     BOARD AND GOVERNANCE MATTERS THE BOARD’S ROLE AND RESPONSIBILITIES BOARD RISK OVERSIGHT The Board as a whole has ultimate responsibility for risk oversight. We have a formal enterprise Risk Appetite Framework that is reviewed by the Board at least annually and sets forth the company's risk preferences, tolerances, and limits. Throughout 2020 and into 2021, the Board has been focused on the risks arising from the COVID-19 pandemic. As discussed in the letter from our Chairman & CEO and Lead Director on pages 2-3, our leadership team provided weekly updates to the Board on the market, regulatory, underwriting and operational impacts of COVID on the business through the first crest of the pandemic, and the Board increased its regular meeting cadence in that same time period to stay current. The Board’s committees, too, were focused on the risks and challenges arising from the pandemic, including its impact on insurance coverages, investments, and the legal and regulatory environment (FIRMCo); operational and financial impacts (Audit); and impacts on employees (Compensation). The Board exercises its oversight function through its standing committees, each of which has primary risk oversight responsibility for all matters within the scope of its charter. Annually, each committee reviews and reassesses the adequacy of its charter and the Nominating Committee reviews all charters and recommends any changes to the Board for approval. The chart below provides examples of each committee’s risk oversight responsibilities. BOARD OF DIRECTORS AUDIT COMMITTEE • Financial reporting • Operational risk • Cybersecurity • Legal and regulatory compliance COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE FINANCE, INVESTMENT AND RISK MANAGEMENT COMMITTEE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE • Compensation programs • Insurance risk • Governance policies and • Talent acquisition, retention and development • Succession planning • Market risk • Liquidity and capital requirements • Climate risk procedures • Board organization and membership • Sustainability governance The Audit Committee discusses with management risk assessment and risk management policies. FIRMCo oversees the investment, financial, and risk management activities of the company and has oversight of all risks that do not fall within the oversight responsibility of any other standing committee. FIRMCo is also briefed on our risk profile and risk management activities. With respect to cybersecurity risk oversight, senior members of our Enterprise Risk Management, Information Protection and Internal Audit functions provided detailed, regular reports on cybersecurity matters in 2020 (including assessments conducted by, or in conjunction with, third parties) to the full Board; FIRMCo; and the Audit Committee, which oversees controls for the company's major risk exposures, and has principal responsibility for oversight of cybersecurity risk. The topics covered by these reports include The Hartford's activities, policies and procedures to prevent, detect and respond to cybersecurity incidents, as well as lessons learned from cybersecurity incidents and internal and external testing of our cyber defenses. For a detailed discussion of management's day-to-day management of risks, including sources, impact and management of specific categories of risk, see Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2020. BOARD AND SHAREHOLDER MEETING ATTENDANCE The Board met ten times during 2020 and each of the incumbent directors attended 75% or more of the aggregate number of meetings of the Board and the committees on which they served. We encourage our directors to attend the Annual Meeting of Shareholders, and all directors attended the virtual Annual Meeting of Shareholders held on May 20, 2020. SHAREHOLDER ENGAGEMENT Our Board and management value shareholder views and engage with shareholders in different ways throughout the year to solicit feedback. Management and our investor relations team routinely speak with analysts and investors at investor conferences and other formal events, as well as group and one-on-one meetings. In addition, management and our Lead Director engage with shareholders on governance, compensation and sustainability issues to understand their concerns and ensure alignment on our 20 www.thehartford.com BOARD AND GOVERNANCE MATTERS practices in these areas. In the fall of 2020, management reached out to shareholders representing approximately 57% of shares outstanding and had discussions with shareholders representing approximately 37% of shares outstanding. What we heard from shareholders Actions taken Interest in additional transparency on diversity, equity and inclusion metrics and goals • Released EEO-1 data at the end of the first quarter in 2021 • Adopted clear benchmarks for diverse representation in management • Expanded existing Board diversity policy to require that candidates with a diversity of race, gender and ethnicity are included in the pool of candidates from which external CEO candidates are considered Support for existing board composition, refreshment, and evaluation practices Further enhanced Board evaluation processes to include triennial assessments of individual directors as part of third-party Board evaluation TALENT DEVELOPMENT AND SUCCESSION PLANNING Talent development and succession planning are important parts of the Board’s governance responsibilities. The CEO and independent directors conduct an annual review of succession and continuity plans for the CEO. Succession planning includes the identification and development of potential successors, policies and principles for CEO selection, and plans regarding succession in the case of an emergency or the retirement of the CEO. In 2019, we strengthened existing emergency succession plan processes for the CEO. In addition, each year, the Compensation Committee reviews succession and continuity plans for the CEO and each member of the executive leadership team that reports to the CEO. The Compensation Committee’s charter requires that it discuss the results of these reviews with the independent directors and/or the CEO. However, given the importance of the topic and the engagement of the full Board on the issue, all directors are invited to these sessions. The full Board routinely meets and interacts with employees who have been identified as potential future leaders of the company. In recent years, the Board's robust talent development and succession planning efforts have resulted in the seamless and well- managed transition of internal candidates into the company’s most senior roles. BUSINESS ETHICS AND CONDUCT “Always act with integrity and honesty, and be accountable in everything you do.” The Hartford's Code of Ethics and Business Conduct Striving to do the right thing every day and in every situation is fundamental to our culture, and we are proud that we have been recognized twelve times, including in 2020, by The Ethisphere® Institute as one of the “World’s Most Ethical Companies.” We have adopted a Code of Ethics and Business Conduct, which applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. We have also adopted a Code of Ethics and Business Conduct for Members of the Board of Directors (the “Board Code of Ethics”). These codes require that all of our employees and directors engage in honest and ethical conduct in performing their duties, provide guidelines for the ethical handling of actual or apparent conflicts of interest, and provide mechanisms to report unethical conduct. Directors certify compliance with the Board Code of Ethics annually. We provide our employees with a comprehensive and ongoing educational program, including courses on our Code of Ethics and Business Conduct, potential conflicts of interest, privacy and information protection, marketplace conduct, and ethical decision- making. Hotlines and online portals have been established for employees, vendors, or others to raise ethical concerns and employees are encouraged to speak up whenever they have an ethics-oriented question or problem. POLITICAL ACTIVITIES The Nominating Committee reviews the company's political and lobbying policies and reports of political contributions annually. As part of our Code of Ethics and Business Conduct, we do not make corporate contributions to political candidates or parties, and we require that no portion of our dues paid to trade associations be used for political contributions. We do allow the use of corporate resources for non-partisan political activity, including voter education and registration. We have two political action committees (“PACs”), The Hartford Advocates Fund and The Hartford Advocates Federal Fund. The PACs are solely funded by voluntary contributions from eligible employees in management-level roles and directors. The PACs support candidates for federal and state office who are willing to listen to and understand our priorities, and promote practical, reasonable solutions to key public policy challenges. In light of events in early 2021, the PACs decided to pause political contributions to all federal candidates through the end of March. During this time we are reviewing our contribution criteria and processes, and considering potential changes and enhancements. Our website includes information on: (1) contributions made by The Hartford's PACs; (2) our policy on corporate contributions for political purposes; and (3) annual dues, assessments and contributions of $25,000 or more to trade associations and coalitions. To learn more, please access our 2020 Political Activities Report, at https://ir.thehartford.com/corporate- governance/political-engagement. 2021 Proxy Statement 21 BOARD AND GOVERNANCE MATTERS SUSTAINABILITY PRACTICES We believe that having a positive impact on the world is the right thing to do and a business imperative. Fostering and safeguarding human achievement has been our business for over two hundred years, and sustainability considerations are integral to our strategy. We recognize that people want to work for, invest in, and buy from an organization that shares their values. Our sustainability efforts address environmental, social and governance ("ESG") impacts as highlighted in four key areas: ENVIRONMENT SOCIAL GOVERNANCE As an insurance company, we understand the risks that environmental challenges present to people and communities. As stewards of the environment, we are committed to mitigating climate change and reducing our carbon footprint incrementally each year. We help individuals and communities prevail by building safe, strong and successful neighborhoods through targeted philanthropic investments, by partnering with like- minded national and local organizations, and by harnessing the power of our more than 18,500 employees to engage in their communities. We are committed to building an inclusive and engaging culture where people are respected for who they are, recognized for how they contribute and celebrated for growth and exceptional performance. We value the diversity of our employees' skills and life experiences and invest deeply in their development so they can deliver on our strategy and propel our company forward. We believe that doing the right thing every day is core to our character, and we are proud of our reputation for being a company that places ethics and integrity above all else. We have a proud history of uncompromising commitment to sustainability, delivering on an ESG strategy built around measurable goals and actions intended to both create long-term shareholder value and contribute positively to society at large. We continue to make progress on ESG matters, which in 2020 included the following highlights: • Continuing to increase transparency in our sustainability-related disclosures by: ◦ ◦ Publishing our first Task Force on Climate-related Financial Disclosures (TCFD) report, a global standard for helping investors understand the most material climate-related risks a company faces and how it manages those risks, and Developing our first Sustainability Accounting Standards Board (SASB) report to be published in 2021, communicating financially-material sustainability information to stakeholders; • Donating $1 million in support of organizations combating the COVID-19 crisis including the Centers for Disease Control and Prevention Foundation Emergency Response Fund, the Center for Disaster Philanthropy COVID-19 Response Fund, Hartford Foundation for Public Giving COVID-19 Community Fund, and Feeding America; • • Selecting two employees to participate in the CEO Action for Racial Equity Public Policy Fellowship to work on public policy issues in the areas of health care, education, economic empowerment and public safety, in support of social justice; and Achieving gender pay equity and driving toward our other published 2022 sustainability goals to achieve top quartile industry representation in leadership roles for women and people of color, reduce greenhouse gas emissions by at least 2.1% each year, and positively impact the lives of 10 million people through our philanthropic programs. To learn more, please access our Sustainability Highlight Report, which presents our sustainability goals and provides data on our sustainability practices and achievements, and our Global Reporting Initiative (GRI) Standards Response, which offers greater detail on our sustainability activities at: https://www.thehartford.com/about-us/corporate-sustainability. ESG Governance Under our Corporate Governance Guidelines, the full Board has oversight responsibility for The Hartford's corporate reputation and ESG activities. The Board receives a "deep dive" report on at least one ESG topic annually. The 2020 briefing provided a progress report of the company's actions in three priority areas: climate change and environmental stewardship, pay equity and representation, and data protection and customer privacy. In addition to the Board's oversight responsibility of substantive ESG topics, the Nominating Committee retains oversight of the governance framework and processes related to ESG activities. This includes oversight of the company's Sustainability Governance Committee, a management committee comprised of senior leaders from across the enterprise that sets and helps drive execution of the company's sustainability strategy. The Sustainability Governance Committee meets at least four times each year and reports to the full Board at least annually. In 2020, the Sustainability Governance Committee met four times. 22 www.thehartford.com BOARD AND GOVERNANCE MATTERS DIRECTOR COMPENSATION We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on the Board. Members of the Board who are employees of The Hartford or its subsidiaries are not compensated for service on the Board or any of its committees. For the 2019-2020 Board service year, non-management directors received a $100,000 annual cash retainer and a $160,000 annual equity grant of restricted stock units (“RSUs”). In September 2019, following a market assessment, the Board increased the annual cash retainer to $110,000 and the annual equity grant to $180,000 for the 2020-2021 Board service year, the first such increase since 2014. ANNUAL CASH FEES Cash compensation for the 2020-2021 Board service year beginning on May 20, 2020, the date of the 2020 Annual Meeting of Shareholders, and ending on May 19, 2021, the date of the 2021 Annual Meeting, is set forth below. Directors may elect to defer all or part of the annual Board cash retainer and any Committee Chair or Lead Director cash retainer into RSUs, to be distributed as common stock following the end of the director’s Board service. Annual Cash Compensation Annual Retainer Committee Chair Retainer Director Compensation Program $110,000 $35,000 – Audit $25,000 – FIRMCO, Compensation $20,000 – Nominating Lead Director Retainer $40,000 ANNUAL EQUITY GRANT In 2020, directors received an annual equity grant of $180,000, payable solely in RSUs pursuant to The Hartford 2020 Stock Incentive Plan. Directors may not sell, exchange, transfer, pledge, or otherwise dispose of the RSUs. The RSUs vest and are distributed as common stock at the end of the Board service year, unless the director has elected to defer distribution until the end of Board service. Resignation from the Board will result in a forfeiture of all unvested RSUs at the time of such resignation unless otherwise determined by the Compensation Committee. However, RSUs will automatically vest upon the occurrence of any of the following events: (a) retirement from service on the Board in accordance with our Corporate Governance Guidelines; (b) death of the director; (c) total disability of the director; (d) resignation by the director under special circumstances where the Compensation Committee, in its sole discretion, consents to waive the remaining vesting period; or (e) a “change of control,” as defined in the 2020 Stock Incentive Plan. Outstanding RSUs are credited with dividend equivalents equal to dividends paid to holders of our common stock. OTHER We provide each director with $100,000 of group life insurance coverage and $750,000 of accidental death and dismemberment and permanent total disability coverage while they serve on the Board. We also reimburse directors for travel and related expenses they incur in connection with their Board and committee service. STOCK OWNERSHIP GUIDELINES AND RESTRICTIONS ON TRADING The Board has established stock ownership guidelines for each director to obtain, by the third anniversary of the director’s appointment to the Board, an ownership position in our common stock equal to five times the total annual cash retainer (including cash retainers paid for committee chair or Lead Director responsibilities). All directors with at least three years of Board service met the stock ownership guidelines as of December 31, 2020. Our insider trading policy prohibits all hedging activities by directors, and permits directors to engage in transactions involving The Hartford's equity securities only through: (1) a pre-established trading plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934; or (2) during “trading windows” of limited duration following: (a) the filing with the SEC of our periodic reports on Forms 10-K and 10-Q, and (b) a determination by the company that the director is not in possession of material non-public information. Even if pre-clearance is granted, directors must make an independent determination that they do not possess material non-public information. In addition, our insider trading policy grants us the ability to suspend trading of our equity securities by directors. 2021 Proxy Statement 23 BOARD AND GOVERNANCE MATTERS DIRECTOR SUMMARY COMPENSATION TABLE We paid the following compensation to directors for the fiscal year ended December 31, 2020. Name Robert Allardice Larry D. De Shon(3) Carlos Dominguez Trevor Fetter Kathryn A. Mikells Michael G. Morris Teresa W. Roseborough Virginia P. Ruesterholz Matthew E. Winter(3) Greig Woodring Fees Earned or Paid in Cash ($)(1) 135,000 Stock Awards ($)(2) 180,000 135,000 110,000 150,000 145,000 130,000 110,000 135,000 135,000 110,000 220,000 180,000 180,000 180,000 180,000 180,000 180,000 220,000 180,000 All Other Compensation ($) 2,971 1,184 1,291 1,291 1,015 2,971 1,291 1,015 1,172 2,023 Total ($) 317,971 356,184 291,291 331,291 326,015 312,971 291,291 316,015 356,172 292,023 (1) Directors Fetter, Mikells and Morris each elected to receive vested RSUs in lieu of cash compensation. Mr. De Shon and Mr. Winter each received a pro-rated annual cash retainer of $25,000 upon their appointment to the Board on February 19, 2020 and February 24, 2020, respectively; Mr. Winter elected to receive this amount in vested RSUs in lieu of cash compensation. The vested RSUs will be distributed as common stock following the end of the director's Board service. (2) These amounts reflect the aggregate grant date fair value of RSU awards granted during the fiscal year ended December 31, 2020. (3) Mr. De Shon and Mr. Winter each received a pro-rated restricted stock unit award valued at $40,000 on February 25, 2020, the first day of the company’s scheduled trading window following the filing of the company’s 2019 annual report on Form 10-K. The number of RSUs subject to the award was determined by dividing the grant value of $40,000 by $55.27, the closing market price per share of The Hartford common stock on the grant date. These awards fully vested on May 20, 2020, the last day of the 2019-2020 Board year. DIRECTOR COMPENSATION TABLE—OUTSTANDING EQUITY The following table shows the number and value of unvested equity awards outstanding as of December 31, 2020. The value of these unvested awards is calculated using a market value of $48.98, the NYSE closing price per share of our common stock on December 31, 2020. The numbers have been rounded to the nearest whole dollar or share. Name Robert Allardice  Larry D. De Shon Carlos Dominguez Trevor Fetter Kathryn A. Mikells Michael G. Morris  Teresa W. Roseborough  Virginia P. Ruesterholz  Matthew E. Winter Greig Woodring Stock Awards(1)  Number of Shares or Units of Stock That Have Not Vested (#)(3) Market Value of Shares or Units of Stock That Have Not Vested ($) Stock Grant Date(2) 8/3/2020 8/3/2020 8/3/2020 8/3/2020 8/3/2020 8/3/2020 8/3/2020 8/3/2020 8/3/2020 8/3/2020 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 4,352 213,161 213,161 213,161 213,161 213,161 213,161 213,161 213,161 213,161 213,161 (1) Additional stock ownership information is set forth in the beneficial ownership table on page 69. (2) The RSUs were granted on August 3, 2020, the first day of the scheduled trading window following the filing of our Form 10-Q for the quarter ended June 30, 2020. (3) The number of RSUs for each award was determined by dividing $180,000 by $42.00, the closing price of our common stock as reported on the NYSE on the date of the award. The number shown also reflects dividend equivalents credited to outstanding RSUs. The RSUs will vest on May 19, 2021, and will be distributed at that time in shares of the company’s common stock unless the director had previously elected to defer distribution of all or a portion of their annual RSU award until the end of Board service.  Directors Fetter, Mikells, Morris and Winter have made elections to defer distribution of 100% of their RSU award. 24 www.thehartford.com     BOARD AND GOVERNANCE MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Board has adopted a Policy for the Review, Approval or Ratification of Transactions with Related Persons. This policy requires our directors and Section 16 executive officers to promptly disclose any actual or potential material conflict of interest to the Chair of the Nominating Committee and the Chairman for evaluation and resolution. If the transaction involves a Section 16 executive officer or an immediate family member of a Section 16 executive officer, the matter must also be disclosed to our General Auditor or Director of Compliance for evaluation and resolution. We did not have any transactions requiring review under this policy during 2020. COMMUNICATING WITH THE BOARD Shareholders and other interested parties may communicate with directors by contacting Donald C. Hunt, Corporate Secretary of The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. The Corporate Secretary will relay appropriate questions or messages to the directors. Only items related to the duties and responsibilities of the Board will be forwarded. Anyone interested in raising a complaint or concern regarding accounting issues or other compliance matters directly with the Audit Committee may do so anonymously and confidentially by contacting EthicsPoint: By internet By telephone By mail Visit 24/7 www.ethicspoint.com 1-866-737-6812 (U.S. and Canada) 1-866-737-6850 (all other countries) The Hartford c/o EthicsPoint P.O. Box 230369 Portland, Oregon 97281 2021 Proxy Statement 25   BOARD AND GOVERNANCE MATTERS DIRECTOR NOMINEES Twelve individuals will be nominated for election as directors at the Annual Meeting. The terms of office for each elected director will run until the next annual meeting of shareholders and until their successor is elected and qualified, or until their earlier death, retirement, resignation or removal from office. In accordance with our Corporate Governance Guidelines, each director has submitted a contingent, irrevocable resignation that the Board may accept if the director fails to receive more votes “for” than “against” in an uncontested election. In that situation, the Nominating Committee (or another committee comprised of at least three non-management directors) would make a recommendation to the Board about whether to accept or reject the resignation. The Board, not including the subject director, will act on this recommendation within 90 days from the date of the Annual Meeting, and we will publicly disclose the Board's decision promptly thereafter. If for any reason a nominee should become unable to serve as a director, either the shares of common stock represented by valid proxies will be voted for the election of another individual nominated by the Board, or the Board will reduce the number of directors in order to eliminate the vacancy. The Nominating Committee believes that each director nominee has an established record of accomplishment in areas relevant to our business and objectives, and possesses the characteristics identified in our Corporate Governance Guidelines as essential to a well-functioning and deliberative governing body, including integrity, independence and commitment. Other experience, qualifications and skills the Nominating Committee looks for include the following: Experience / Qualification Leadership Relevance to The Hartford Experience in significant leadership positions provides us with new insights, and demonstrates key management disciplines that are relevant to the oversight of our business. Insurance and Financial Services Industries Extensive experience in the insurance and financial services industries provides an understanding of the complex regulatory and financial environment in which we operate and is highly important to strategic planning and oversight of our business operations. Digital/Technology Digital and technology expertise is important in light of the speed of digital progress and the development of disruptive technologies both in the insurance industry and more broadly. Corporate Governance An understanding of organizations and governance supports management accountability, transparency and protection of shareholder interests. Risk Management Risk management experience is critical in overseeing the risks we face today and those emerging risks that could present in the future. Finance and Accounting Finance and accounting experience is important in understanding and reviewing our business operations, strategy and financial results. Business Operations and Strategic Planning An understanding of business operations and processes, and experience making strategic decisions, are critical to the oversight of our business, including the assessment of our operating plan and business strategy. Regulatory An understanding of laws and regulations is important because we operate in a highly regulated industry and we are directly affected by governmental actions. Talent Management We place great importance on attracting and retaining superior talent, and motivating employees to achieve desired enterprise and individual performance objectives. The Nominating Committee believes that our current Board is a diverse group whose collective experiences and qualifications bring a variety of perspectives to the oversight of The Hartford. All of our directors hold, or have held, senior leadership positions in large, complex corporations and/or charitable and not-for-profit organizations. In these positions, they have demonstrated their leadership, intellectual and analytical skills and gained deep experience in core disciplines significant to their oversight responsibilities on our Board. Their roles in these organizations also permit them to offer senior management a diverse range of perspectives about the issues facing a complex financial services company like The Hartford. Key qualifications, skills and experience our directors bring to the Board that are important to the oversight of The Hartford are identified and described below. 26 www.thehartford.com BOARD AND GOVERNANCE MATTERS ROBERT B. ALLARDICE, III INDEPENDENT Professional highlights: • Consultant to Chairman of Supervisory Board, Deutsche Bank (2002-2006) Director since: 2008 Age: 74 • Regional Chief Executive Officer of North and South America, Advisory Director, Deutsche Bank Americas Holding Corp. (1994-1999) Committees: • Audit • FIRMCo (Chair) • Consultant, Smith Barney (1993-1995) • Founder of Merger Arbitrage Department, Chief Operating Officer of Equity Department, Founding member of Finance Committee, Morgan Stanley & Company (1974-1993) Other public company directorships: • Ellington Residential Mortgage REIT (2013-present) • GasLog Partners LP (2014-Jan. 2021) Skills and qualifications relevant to The Hartford: Mr. Allardice has served as a senior leader for multiple large, complex financial institutions, including as regional chief executive officer of Deutsche Bank Americas Holding Corporation, North and South America. He provides over 35 years of experience in the financial services industry, including at the senior executive officer level. His experience leading capital markets-based businesses is relevant to the oversight of our investment management company and corporate finance activities. In addition, Mr. Allardice has experience in a highly regulated industry, including interfacing with regulators and establishing governance frameworks relevant to the oversight of our business. He has extensive corporate governance experience from service as a director and audit committee member for several large companies, including seven years as Chairman of The Hartford's Audit Committee. LARRY D. DE SHON INDEPENDENT Professional highlights: • Avis Budget Group, Inc. – President (2017-2019) – Chief Executive Officer and Chief Operating Officer (2016-2019) – President and Chief Operating Officer (Oct. 2015-Dec. 2015) – President, International (2011-Oct. 2015) – Executive Vice President, Operations (2006-2011) • UAL Corporation (parent of United Airlines) – Positions of increasing responsibility, including Senior Vice President positions in marketing, on- board service and global airport operations (1978-2006) Director since: 2020 Age: 61 Committees: • Audit • FIRMCo • Nominating Other public company directorships: • Avis Budget Group, Inc. (2015-2019) Skills and qualifications relevant to The Hartford: As a former chief executive officer and director of Avis Budget Group, Mr. De Shon provides extensive leadership and corporate governance experience, deep operating skills and international expertise. He has successfully led organizations through times of disruption and global transformations, developed innovative solutions to strengthen his companies’ positions in the marketplace and modernized systems for better customer and employee experiences. At Avis Budget Group Mr. De Shon created the first end- to-end digital car rental experience, migrated the platform to the cloud, and built one of the largest connected car fleets in the world. In addition, he oversaw businesses in Europe, the Middle East, Africa, Asia, Australia and New Zealand. Prior to joining Avis, Mr. De Shon had a 28-year career with United Airlines, most recently leading an organization of 23,000 employees in 29 countries. 2021 Proxy Statement 27 BOARD AND GOVERNANCE MATTERS CARLOS DOMINGUEZ INDEPENDENT Professional highlights: • Sprinklr Inc. – Vice Chairman of the Board and Lead Evangelist (2020-present) – President (2015-2020) – Chief Operating Officer (2015-2018) • Cisco Systems, Inc. – Senior Vice President, Office of the Chairman and Chief Executive Officer (2008-2015) – Senior Vice President, Worldwide Service Provider Operations (2004-2008) – Vice President, U.S. Network Services Provider Sales (1999-2004) – Positions of increasing responsibility in operations and sales (1992-1999) Director since: 2018 Age: 62 Committees: • Compensation • FIRMCo • Nominating Other public company directorships: • PROS Holdings, Inc. (2020-present) • Medidata Solutions, Inc. (2008-2019) Skills and qualifications relevant to The Hartford: Mr. Dominguez has more than 30 years of enterprise technology experience. He provides extensive and relevant digital expertise as The Hartford focuses on data analytics and digital capabilities to continuously improve the way it operates and delivers value to customers. As President of Sprinklr Inc., Mr. Dominguez guided strategic direction and led the marketing, sales, services, and partnerships teams for a leading social media management company. Prior to joining Sprinklr, he spent seven years as a technology representative for the Chairman and CEO of Cisco Systems, Inc. In this role, Mr. Dominguez engaged with senior executives in the Fortune 500 and government leaders worldwide, sharing insights on how to leverage technology to enhance and transform their businesses. In addition, he led the creation and implementation of Cisco's Innovation Academy, which delivered innovation content to Cisco employees globally. TREVOR FETTER INDEPENDENT — LEAD DIRECTOR Professional highlights: • Senior Lecturer, Harvard Business School (Jan. 2019- Director since: 2007 Age: 61 present) • Tenet Healthcare Corporation – Chairman (2015-2017) – Chief Executive Officer (2003-2017) – President (2002-2017) • Chairman and Chief Executive Officer, Broadlane, Inc. (2000-2002) • Chief Financial Officer, Tenet Healthcare Corporation (1996-2000) Committees: • Compensation • FIRMCo Other public company directorships: • Tenet Healthcare Corporation (2003-2017) Skills and qualifications relevant to The Hartford: Mr. Fetter has nearly two decades of experience as chief executive officer of multiple publicly traded companies. He has demonstrated his ability to lead the management, strategy and operations of complex organizations. As a Senior Lecturer at Harvard Business School, he teaches leadership and corporate accountability and financial reporting and control. He provides significant experience in corporate finance and financial reporting acquired through senior executive finance roles, including as a chief financial officer of a publicly traded company. He has experience navigating complex regulatory frameworks as the president and chief executive officer of a highly-regulated, publicly traded healthcare company. Since 2017, Mr. Fetter has served as The Hartford's lead director, providing strong independent Board leadership. He also has extensive corporate governance expertise from his service as director of large public companies, including four years as Chairman of the Board’s Nominating and Corporate Governance Committee. 28 www.thehartford.com BOARD AND GOVERNANCE MATTERS DONNA A. JAMES INDEPENDENT Professional highlights: • Lardon & Associates, LLC – President and Chief Executive Officer (2006- present) • Nationwide Mutual Insurance and Financial Services – President, Nationwide Strategic Investments (2003-2006) – Positions of increasing responsibility, including Executive Vice President – Chief Administrative Officer; Co-President Shared Services; Executive Vice President Human Resource; and Vice President Office of the Chief Executive Officer (1993-2003) Director since: 2021 Age: 63 Committees: • FIRMCo Other public company directorships: • Boston Scientific, Inc. (2015- present) • L Brands, Inc. (2003-present) • Marathon Petroleum (2011-2018) • Time Warner Cable (2009-2016) Skills and qualifications relevant to The Hartford: Ms. James brings to the Board extensive insurance-industry experience in a range of functions, including accounting, investing, operations, treasury and human resources. She is president and CEO of Lardon & Associates, a business-advisory firm specializing in corporate governance, new business development, strategy, and financial and risk management. She had a 25-year career with Nationwide Mutual Insurance Company, culminating in the role of president of strategic investments. Before that, she held a variety of positions, including chief administrative officer, chief human resources officer, assistant to the CEO and director of operations and treasury services. Ms. James has significant corporate governance experience by virtue of her service on several major public company boards, including as audit committee chair. KATHRYN A. MIKELLS INDEPENDENT Professional highlights: • Chief Financial Officer, Diageo plc (2015-present)* • Chief Financial Officer, Xerox Corporation Director since: 2010 Age: 55 (2013-2015) • Chief Financial Officer, ADT Security Services (2012-2013) • Chief Financial Officer, Nalco Company (2010-2011) • UAL Corporation (parent of United Airlines) – Chief Financial Officer, Executive Vice President (2008-2010) – Head of Investor Relations (2007-2008) – Vice President, Financial Planning and Analysis (2006-2007) – Treasurer (2005-2006) Committees: • Audit (Chair) • FIRMCo Other public company directorships: • Diageo plc (2015-present) Skills and qualifications relevant to The Hartford: Ms. Mikells has extensive experience in a variety of executive management positions, with a focus on leading the finance function of global organizations. She has significant experience in corporate finance and financial reporting acquired through senior executive roles in finance, including as a chief financial officer of multiple publicly traded companies. Ms. Mikells provides strong management and transformational skills, demonstrated during ADT’s successful transition into an independent company, as well as significant mergers and acquisitions experience acquired through the sale of Nalco to Ecolab and the merger of United Airlines with Continental Airlines. She has demonstrated risk management skills as a leader responsible for financial and corporate planning for domestic and international organizations. In addition, Ms. Mikells has strong talent development skills acquired through years of leading global finance divisions. *Ms. Mikells is expected to leave her role at Diageo at the end of June 2021. 2021 Proxy Statement 29 BOARD AND GOVERNANCE MATTERS MICHAEL G. MORRIS INDEPENDENT Professional highlights: • American Electric Power Company, Inc. – Non-Executive Chairman (2012-2014) – Chairman, President and Chief Executive Officer (2004-2011) • Chairman, President and Chief Executive Officer, Northeast Utilities (1997-2003) Director since: 2004 Age: 74 Committees: • Audit • FIRMCo • Nominating (Chair) Other public company directorships: • Alcoa Corporation (2002-present) • American Electric Power Company, Inc. (2004-2014) • L Brands, Inc. (2012-present) • Spectra Energy Corp. (2013-2017) • Spectra Energy Partners GP, LLC (2017-2018) Skills and qualifications relevant to The Hartford: Mr. Morris has over two decades of experience as chief executive officer and president of multiple publicly traded companies in the highly regulated energy industry. He brings to the Board significant experience as a senior leader responsible for the strategic direction and management of complex business operations. In addition, he has experience overseeing financial matters in his roles as chairman, president and CEO of AEP, and as chairman, president and CEO of Northeast Utilities. He has proven skills interacting with governmental and regulatory agencies acquired through years of leading various multi-national organizations in the energy and gas industries, serving on the U.S. Department of Energy’s Electricity Advisory Board, the National Governors Association Task Force on Electricity Infrastructure, the Institute of Nuclear Power Operations and as Chair of the Business Roundtable’s Energy Task Force. In addition, Mr. Morris has corporate governance expertise from service as a director and member of the audit, compensation, finance, risk management and nominating/governance committees of various publicly traded companies. TERESA WYNN ROSEBOROUGH INDEPENDENT Professional highlights: • Executive Vice President, General Counsel and Director since: 2015 Corporate Secretary, The Home Depot (2011-present) • Senior Chief Counsel Compliance & Litigation and Deputy General Counsel, MetLife, Inc. (2006-2011) • Partner, Sutherland, Asbill & Brennan LLP (1996-2006) Age: 62 Committees: • Compensation • FIRMCo • Nominating • Deputy Assistant Attorney General, Office of Legal Counsel, U.S. Department of Justice (1994-1996) Other public company directorships: • None Skills and qualifications relevant to The Hartford: Ms. Roseborough has over two decades of experience as a senior legal advisor in government, law firm and corporate settings. She has experience as a senior leader responsible for corporate compliance matters at major publicly traded companies and as an attorney focused on complex litigation matters, including before the U.S. Supreme Court. She provides extensive regulatory experience acquired as a government attorney providing legal counsel to the White House and all executive branch agencies, as well as corporate governance expertise from service as General Counsel and Corporate Secretary of a publicly-traded company. Ms. Roseborough also has in-depth knowledge of the financial services industry gained through senior legal positions at MetLife, Inc., a major provider of insurance and employee benefits. 30 www.thehartford.com BOARD AND GOVERNANCE MATTERS VIRGINIA P. RUESTERHOLZ INDEPENDENT Professional highlights: • Verizon Communications, Inc. Age: 59 Director since: 2013 – Executive Vice President (Jan. 2012-Jul. 2012) – President, Verizon Services Operations (2009-2011) – President, Verizon Telecom (2006-2008) – President, Verizon Partner Solutions (2005-2006) • Positions of increasing responsibility in operations, sales and customer service, New York Telephone (1984-2005) Committees: • Compensation (Chair) • FIRMCo • Nominating Other public company directorships: • Bed Bath & Beyond Inc. (2017- present) • Frontier Communications Corporation (2013-2019) Skills and qualifications relevant to The Hartford: Ms. Ruesterholz has held a variety of senior executive positions, including as Executive Vice President at Verizon Communications and President of the former Verizon Services Operations. As a senior leader of a Fortune 100 company, she has held principal oversight responsibility for key strategic initiatives, navigated the regulatory landscape of large-scale operations, and led an organization with over 25,000 employees. Ms. Ruesterholz provides vast experience in large-scale operations, including sales and marketing, customer service, technology and risk management. Ms. Ruesterholz also brings to the Board substantial financial and strategic expertise acquired as president of various divisions within Verizon and is currently a Trustee of the Board of Stevens Institute of Technology where she served as Chairman of the Board from 2013-2018. CHRISTOPHER J. SWIFT — CHAIRMAN Professional highlights: • The Hartford Financial Services Group, Inc. – Chairman (2015-present) – Chief Executive Officer (2014-present) – Executive Vice President and Chief Financial Officer (2010-2014) • Vice President and Chief Financial Officer, Life and Retirement Services, American International Group, Inc. (2003-2010) • Partner, KPMG, LLP (1999-2003) • Executive Vice President, Conning Asset Management, General American Life Insurance Company (1997-1999) • KPMG, LLP – Partner (1993-1997) – Auditor (1983-1993) Director since: 2014 Age: 60 Committees: • FIRMCo Other public company directorships: • Citizens Financial Group, Inc. (Feb. 2021-present) Skills and qualifications relevant to The Hartford: Mr. Swift has over 30 years of experience in the financial services industry, with a focus on insurance. As Chairman and CEO of The Hartford, he brings to the Board unique insight and knowledge into the complexities of our businesses, relationships, competitive and financial positions, senior leadership and strategic opportunities and challenges. Mr. Swift leads the execution of our strategy, directs capital management actions and strategic investments, and oversees the continuous strengthening of the company’s leadership pipeline. In his prior role as The Hartford's Chief Financial Officer, he led the team that developed the company’s go-forward strategy. He is a certified public accountant with experience working at a leading international accounting firm, including serving as head of its Global Insurance Industry Practice. 2021 Proxy Statement 31 BOARD AND GOVERNANCE MATTERS MATTHEW E. WINTER INDEPENDENT Professional highlights: • The Allstate Corporation – President (2015-2018) – President, Allstate Personal Lines (2013-2015) – President and Chief Executive Officer, Allstate Financial (2009-2012) • American International Group, Inc. – Vice Chairman (Apr. 2009-Oct. 2009) – President and CEO, of AIG American General (2006-2009) • Massachusetts Mutual Life Insurance Company – Executive Vice President (2002-2006) – Positions of increasing responsibility (1996-2002) Director since: 2020 Age: 64 Committees: • Compensation • FIRMCo Other public company directorships: • ADT Inc. (2018-present) • H&R Block, Inc. (2017-present) Skills and qualifications relevant to The Hartford: As President of The Allstate Corporation, Mr. Winter oversaw the complete range of Allstate’s P&C and life insurance products and was responsible for business operations, including field offices located across the U.S. and in Canada, and distribution through Allstate and independent agencies. He brings to the Board significant expertise in areas relevant to our business, including operations, distribution and risk management, gained from over 25 years as a senior leader in the insurance industry. Before joining Allstate, Mr. Winter held numerous senior executive positions at large insurance providers, including as vice chairman of American International Group, where he was responsible for a number of business units with global reach; and executive vice president at Massachusetts Mutual Life Insurance Company, where he led the company's domestic insurance businesses. GREIG WOODRING INDEPENDENT Professional highlights: • Reinsurance Group of America – President and Chief Executive Officer (1993-2016) • General American Life Insurance Company – Executive Vice President (1992-1993) – Head of Reinsurance (1986-1992) – Positions of increasing responsibility (1979-1986) Director since: 2017 Age: 69 Committees: • Audit • FIRMCo Other public company directorships: • Reinsurance Group of America, Incorporated (1993-2016) • Sun Life Financial Inc. (Jan. - April 2017) Skills and qualifications relevant to The Hartford: Mr. Woodring brings significant and valuable insurance industry and leadership experience to the Board, demonstrated by his more than two decades leading Reinsurance Group of America, Incorporated (RGA), a leading life reinsurer with global operations. During his tenure, RGA grew to become one of the world’s leading life reinsurers, with offices in 26 countries and annual revenues of more than $10 billion. Mr. Woodring has demonstrated skills in areas that are relevant to the oversight of the company, including risk management, finance, and operational expertise. Mr. Woodring serves as Chairman of the International Insurance Society, and is a fellow of the Society of Actuaries and a member of the American Academy of Actuaries.  32 www.thehartford.com AUDIT MATTERS ITEM 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM In accordance with its Board-approved charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm retained to audit the company’s financial statements. The Audit Committee has appointed Deloitte & Touche LLP (“D&T”) as the company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. D&T has been retained as the company’s independent registered public accounting firm since 2002. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. In selecting D&T for fiscal year 2021, the Audit Committee carefully considered, among other items: • The professional qualifications of D&T, the lead audit partner and other key engagement partners; • D&T’s depth of understanding of the company’s businesses, accounting policies and practices and internal control over financial reporting; • D&T’s quality controls and its processes for maintaining independence; • The appropriateness of D&T’s fees for audit and non-audit services; and • D&T’s commitment to diversity & inclusion. The Audit Committee oversees and is ultimately responsible for the outcome of audit fee negotiations associated with the company’s retention of D&T. In addition, when a rotation of the audit firm’s lead engagement partner is mandated, the Audit Committee and its chair are directly involved in the selection of D&T’s new lead engagement partner. The members of the Audit Committee and the Board believe that the continued retention of D&T to serve as the company’s independent external auditor is in the best interests of the company and its investors. Although shareholder ratification of the appointment of D&T is not required, the Board requests ratification of this appointment by shareholders. If shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain D&T. Representatives of D&T will attend the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. ✓ The Board recommends that shareholders vote “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021. FEES OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The following table presents fees for professional services provided by D&T, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”) for the years ended December 31, 2020 and 2019. Audit fees Audit-related fees(1) Tax fees(2) All other fees(3) Total Year Ended December 31, 2020 Year Ended December 31, 2019 $ $ $ $ $ 11,151,000 $ 1,099,000 $ 102,000 $ 35,000 $ 12,387,000 $ 11,668,000 1,620,000 316,000 123,000 13,727,000 (1) Fees for the years ended December 31, 2020 and 2019 principally consisted of procedures related to regulatory filings, acquisition or divestiture related services and internal control related services. (2) Fees for the years ended December 31, 2020 and 2019 principally consisted of tax compliance services. (3) Fees for the year ended December 31, 2020 and 2019 pertain to permissible services not related to financial reporting. The Audit Committee reviewed the non-audit services provided by the Deloitte Entities during 2020 and 2019 and concluded that they were compatible with maintaining the Deloitte Entities’ independence. 2021 Proxy Statement 33   AUDIT MATTERS AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES The Audit Committee has established policies requiring pre-approval of audit and non-audit services provided by the independent registered public accounting firm. These policies require that the Audit Committee pre-approve specific categories of audit and audit-related services annually. The Audit Committee approves categories of audit services and audit-related services, and related fee budgets. For all pre- approvals, the Audit Committee considers whether such services are consistent with the rules of the SEC and the PCAOB on auditor independence. The independent registered public accounting firm and management report to the Audit Committee on a timely basis regarding the services rendered by, and actual fees paid to, the independent registered public accounting firm to ensure that such services are within the limits approved by the Audit Committee. The Audit Committee’s policies require specific pre- approval of all tax services, internal control-related services and all other permitted services on an individual project basis. As provided by its policies, the Audit Committee has delegated to its Chair the authority to address any requests for pre-approval of services between Audit Committee meetings, up to a maximum of $100,000. The Chair must report any pre-approvals to the full Audit Committee at its next scheduled meeting. REPORT OF THE AUDIT COMMITTEE The Audit Committee currently consists of five independent directors, each of whom is “financially literate” within the meaning of the listing standards of the NYSE and an “audit committee financial expert” within the meaning of the SEC’s regulations. The Audit Committee oversees The Hartford's financial reporting process on behalf of the Board. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. Deloitte & Touche LLP (“D&T”), our independent registered public accounting firm for 2020, is responsible for expressing opinions that (1) our consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles and (2) we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020. In this context, the Audit Committee has: (1) Reviewed and discussed the audited financial statements for the year ended December 31, 2020 with management; (2) Discussed with D&T the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC; and (3) Received the written disclosures and the letter from D&T required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with D&T the independent accountant’s independence. Based on the review and discussions described in this report, the Audit Committee recommended to the Board that the audited financial statements should be included in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for filing with the SEC. Report Submitted: February 18, 2021 Members of the Audit Committee: Kathryn A. Mikells, Chair Robert B. Allardice, III Larry De Shon Michael G. Morris Greig Woodring 34 www.thehartford.com COMPENSATION MATTERS ITEM 3 ADVISORY APPROVAL OF 2020 COMPENSATION OF NAMED EXECUTIVE OFFICERS Section 14A of the Securities Exchange Act of 1934, as amended, provides our shareholders with the opportunity to vote to approve, on an advisory basis, the compensation of our NEOs as disclosed in this proxy statement in accordance with the rules of the SEC. We currently intend to hold these votes on an annual basis. As described in detail in the Compensation Discussion and Analysis beginning on page 36, our executive compensation program is designed to promote long-term shareholder value creation and support our strategy by: (1) encouraging profitable growth consistent with prudent risk management while maintaining a commitment to the company’s ethics and values, (2) providing market-competitive compensation opportunities designed to attract and retain talent needed for long-term success, and (3) appropriately aligning pay with short- and long-term performance. The advisory vote on this resolution is not intended to address any specific element of compensation; rather, it relates to the overall compensation of our NEOs, as well as the philosophy, policies and practices described in this proxy statement. You have the opportunity to vote for, against or abstain from voting on the following resolution relating to executive compensation: RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the narrative discussion contained in this proxy statement. Because the required vote is advisory, it will not be binding upon the Board. The Compensation Committee will, however, take into account the outcome of the vote when considering future executive compensation arrangements. ✓ The Board recommends that shareholders vote “FOR” the above resolution to approve our compensation of named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables and the narrative discussion contained in this proxy statement. 2021 Proxy Statement 35 COMPENSATION DISCUSSION AND ANALYSIS This section explains our compensation philosophy, summarizes our compensation programs and reviews compensation decisions for the Named Executive Officers (“NEOs”) listed below. It also describes programs that apply to the CEO and all of his executive direct reports, other than senior executives directly supporting our Hartford Funds business who have an independent compensation program (collectively, “Senior Executives”). Name Title Christopher Swift Beth Costello Douglas Elliot William Bloom David Robinson Chairman and Chief Executive Officer Executive Vice President and Chief Financial Officer President Executive Vice President, Claims, Operations, Technology and Data & Analytics Executive Vice President and General Counsel Brion Johnson Former Executive Vice President and Chief Investment Officer; Former President of HIMCO EXECUTIVE SUMMARY STRATEGIC PRIORITIES The Hartford’s strategy focuses on realizing the full potential of our product capabilities and underwriting expertise, becoming an easier company to do business with, and attracting, retaining and developing the talent needed for long-term success. The company endeavors to expand its insurance product offerings and distribution and capitalize on the strength of its brand. The company is also working to increase efficiencies through investments in technology. In 2020, we were focused on increasing shareholder value through a number of initiatives and investments: • • • • • Integrating the acquisition of Navigators Group successfully, and maximizing our combined potential by deepening our distribution relationships, capitalizing on a broader product portfolio and meeting a wider array of customer needs. Increasing the speed and ease of our interactions and business processes through data, digital technology and voice of customer, including expanded use of robotics and continued enhancements to underwriting and quoting platforms. Continuing investment in new products and business models such as Spectrum, our next-generation package offering for small businesses, which offers customers tailored coverage recommendations as well as the ability to customize their own coverage, including real-time quote pricing. We are investing to maintain market leadership in small commercial as existing competitors and new entrants increase their focus on this business. Through a planned roll out of new automobile and homeowners insurance products for AARP members, we are investing in our Personal Lines segment to return that business to top line growth. Improving the employee experience by investing in our workforce and striving to attract, retain and develop the best talent in the industry, enhance our industry-leading position in diversity and inclusion, and sustain our ethical culture. We see the benefits of this commitment in our sustained top-decile employee engagement scores. Becoming more cost efficient and competitive along with enhancing the experience we provide to agents and customers through an operational transformation and cost reduction plan we commenced in July 2020 called Hartford Next. Relative to 2019, we expect to achieve a reduction in annual insurance operating costs and other expenses of approximately $500 million by 2022, reducing the Property & Casualty ("P&C") expense ratio by 2.0 to 2.5 points, the Group Benefits expense ratio by 1.5 to 2.0 points and the claims expense ratio by approximately 0.5 points. 36 www.thehartford.com COMPENSATION MATTERS NAVIGATING THE CHALLENGES AND OPPORTUNITIES OF 2020 The COVID-19 pandemic and the increased focus on racial inequity in the U.S. greatly affected our employees, customers, communities and shareholders. In the face of these challenges, the company took the following actions to support all of our stakeholders: Ensuring Business Resiliency and Employee Health, Safety & Well-being • • • • Previous technology investments enabled approximately 95% of in-office staff to immediately go remote Provided additional benefits and support services to employees (e.g., free COVID testing, telehealth visits, weekly self-care guidance and remote work transition support) Implemented appropriate safety measures (e.g., masks, distancing protocols, contact tracing and enhanced cleaning) Increased focus on mental health Offering Customer Support • • • • • Instituted a moratorium on cancellation of policies for non-payment of premium through May 31, 2020 and waived late fees Provided billing accommodations, including offering installment payment plans and deferred installment billing Facilitated mid-term endorsements to commercial policies to adjust for changes in risk, reflecting reductions in payroll, revenue, sales and miles driven Provided personal auto insurance customers a 15% refund on April, May and June premiums Provided leniency in enforcement of certain policy provisions (e.g., claim notice requirements and vacancy provisions) Giving to Communities • Donated $1 million to national and local organizations focused on the pandemic • Donated $1.5 million to aid in the recovery efforts to support U.S. small businesses – 50% of funding benefited diverse-owned businesses • Matched hospitals across the country with local restaurants to sponsor meals for their front-line workers • • • Supported more than 2,500 of our small business customers across the country by making multiple holiday shopping guides and an internal shopping directory available to our 18,500 employees Live-streamed fire safety and prevention education to more than 51,000 students, educators and parents in 750 cities and towns across the country as part of The Hartford’s first-ever National Junior Fire Marshal Day Provided adaptive fitness kits to 750 individuals with physical disabilities to enable exercise and physical activity at home Reinforcing our Support for Racial Equity • Utilized established courageous conversation framework and brand messaging to show support for our Black colleagues, educate all employees, and demonstrate our commitment to fighting bias and racism • • • Reaffirmed our ongoing support of vital Black institutions including the National Museum of African American History and Culture Intensified CEO leadership internally through all-employee panel discussions and externally through the CEO Action for Diversity & Inclusion, the CEO Action for Racial Equity, and the Corporate Call to Action convened by the Connecticut State Treasurer Fast tracked elements of our diversity and inclusion strategy, including adopting diversity and inclusion goals for each business and functional area, with progress considered as part of the leadership performance and compensation assessment processes • Released EEO-1 data at the end of the first quarter of 2021 2021 Proxy Statement 37 COMPENSATION MATTERS 2020 FINANCIAL RESULTS Like all companies, we faced unprecedented challenges in 2020, but through extraordinary team efforts, we persevered and delivered strong results. Full year 2020 net income available to common stockholders and core earnings* were $1.7 billion ($4.76 per diluted share) and $2.1 billion ($5.78 per diluted share), respectively. Net income and core earnings return on equity ("ROE")*† were 10.0% and 12.7%, respectively. Highlighted below are year-over-year comparisons of our net income available to common stockholders and core earnings performance and our net income ROE and core earnings ROE results for each of the past three years. Core earnings is the primary determinant of our annual incentive plan ("AIP") funding, as described on page 42, and average annual core earnings ROE over a three-year performance period is the metric used for 50% of performance shares granted to Senior Executives, as described on page 45 (in each case, as adjusted for compensation purposes). YEAR-OVER-YEAR PERFORMANCE THREE-YEAR PERFORMANCE 2020 BUSINESS PERFORMANCE AND IMPACT OF COVID-19 In February 2020, the company provided outlooks for the key business metrics highlighted below. These outlooks were management's estimates for 2020 performance based on business, competitive, capital market, catastrophe and other assumptions, and supported the company's 2020 operating plan. When setting the 2020 operating plan, both the Board and management concluded that these key business metrics would only be achievable with strong business performance. Importantly, the 2020 operating plan and the related business metric outlooks were established before the start of the COVID-19 pandemic. Our 2020 financial results were negatively affected by COVID-19, including $278 million before tax of direct COVID-19 claims in P&C and $230 million before tax of COVID-19 impacts in Group Benefits. As described on page 42, performance relative to the outlooks is a major determinant of the formulaic AIP funding level. No adjustments to compensation targets were made to address the adverse impact of the pandemic on our business and financial results. * Denotes a non-GAAP financial measure. For definitions and reconciliations to the most directly comparable GAAP measure, see Appendix A. † Net income ROE represents net income available to common stockholders ROE. 38 www.thehartford.com $ (Millions)Net IncomeAvailable toCommonStockholders$2,064$1,71620192020$ (Millions)Core Earnings$2,062$2,08620192020Net Income ROE13.7%14.4%10.0%201820192020Core Earnings ROE11.6%13.6%12.7%201820192020 COMPENSATION MATTERS Key business metrics for full year 2020 compared to outlooks provided in February 2020 Commercial Lines Personal Lines Group Benefits Combined ratio(1) of 100.4 was above the outlook of 95.5 - 97.5 primarily due to $278 million, or 3.1 points, of COVID-19 incurred losses in property, workers’ compensation and financial and other lines, net of favorable frequency of non-COVID workers’ compensation claims. Higher than expected current accident year catastrophes was partly offset by lower than expected non-catastrophe property losses. Underlying combined ratio* of 95.5, which excludes catastrophes and prior year development, was also above outlook of 92.0 - 94.0 because of the COVID-19 incurred losses, partly offset by lower than expected non-catastrophe property losses. Combined ratio of 75.5 was better than outlook of 98.5 - 100.5 primarily due to reductions in prior accident year catastrophe reserves and lower than expected current accident year losses in automobile due to reduced driving as a result of the COVID-19 pandemic. Underlying combined ratio of 83.1, which excludes catastrophes and prior year development, was also better than outlook of 91.5 - 93.5, primarily due to lower than expected current accident year losses in automobile due to reduced driving and, to a lesser extent, lower homeowners’ non-catastrophe weather claims. Net income margin of 6.4% was within the target range of 6.25% - 7.25% due to favorable development on prior incurral year disability claims and net realized capital gains, largely offset by higher than expected mortality in group life due to the direct and indirect effects of the COVID-19 virus. Core earnings margin* of 6.4% was lower than outlook of 6.5% - 7.5% primarily due to the higher than expected mortality in group life, partially offset by favorable development on prior incurral year disability claims, driven by higher than expected recoveries and lower than expected incidence on prior incurral year disability claims. (1) The combined ratio measures the cost of claims and expenses for every $100 of earned premiums. If the combined ratio is less than 100, the company is making an underwriting profit. * Denotes a non-GAAP financial measure. For definitions and reconciliations to the most directly comparable GAAP measure, see Appendix A. TOTAL SHAREHOLDER RETURNS The following chart shows The Hartford's total shareholder return ("TSR") relative to  the S&P 500, S&P 500 Insurance Composite and S&P P&C indices and our 2020 Corporate Peer Group (provided on page 52). Includes reinvestment of dividends. COMPONENTS OF COMPENSATION AND PAY MIX NEO compensation is heavily weighted towards variable compensation (annual and long-term incentives), where actual amounts earned may differ from target amounts based on company and individual performance. Each NEO has a target total compensation opportunity that is reviewed annually by the Compensation Committee (in the case of the CEO, by the independent directors) to ensure alignment with our compensation objectives and market practice. 2021 Proxy Statement 39 (17)%(6)%(3)%8%0%14%7%28%18%49%The Hartford (HIG)2020 Corporate Peer GroupS&P 500 Insurance CompositeS&P 500 Property and CasualtyS&P 500ONE-YEAR (2020)THREE-YEAR (2018-2020)COMPENSATION MATTERS Compensation Component Description Base Salary • Fixed level of cash compensation based on market data, internal pay equity, experience, responsibility, expertise and performance. Annual Incentive Plan • Variable cash award based primarily on annual company operating performance against a predetermined financial target and achievement of individual performance goals aligned with the company's strategic priorities. Long-Term Incentive Plan • Variable awards granted based on individual performance, potential and market data. • Designed to drive long-term performance, align senior executive interests with shareholders, and foster retention. • Award mix (50% performance shares and 50% stock options) reflects stock price performance, peer-relative shareholder returns (stock price and dividends) and operating performance. Approximately 91% of CEO target annual compensation and approximately 84% of other NEO target annual compensation are variable based on performance, including stock price performance: Target Pay Mix — CEO Salary 9% Annual Incentive 24% Long-Term Incentive 67% Variable with Performance: 91% Target Pay Mix — Other NEOs Salary 16% Annual Incentive 30% Long-Term Incentive 54% Variable with Performance: 84% 2020 COMPENSATION DECISIONS 2020 Compensation Decisions Rationale The Compensation Committee updated the payout curves for 2020 AIP and 2020-2022 performance share awards. As a result of shareholder feedback received in 2019, the Compensation Committee made the following changes for 2020 awards: • Updated the AIP curve for 2020 awards to expand the range from +/- 15% to +/-20% of target, requiring greater outperformance to achieve above target awards. (page 42) • Updated the TSR payout curve for performance share awards granted in 2020 to target the 55th percentile. (pages 45-46) The Compensation Committee approved an AIP funding level of 80% of target. Performance against the pre-established Compensation Core Earnings target produced a formulaic AIP funding level of 80% of target. The Compensation Committee undertook its qualitative review of performance and concluded that the formulaic AIP funding level appropriately reflected 2020 performance. Accordingly, no adjustments were made. (page 43) The Compensation Committee certified a 2018-2020 performance share award payout at 75% of target. The company's average annual Compensation Core ROE during the performance period was 12.8%, resulting in a payout of 151% of target for the ROE component (50% of the award). Because the company's TSR during the performance period was below threshold, there was no payout for the TSR component (50% of the award). (page 46) The Compensation Committee (and, in the case of the CEO, the independent directors) approved the following compensation for each active NEO: 40 www.thehartford.com COMPENSATION MATTERS Base Salary AIP Award LTI Award Total Compensation NEO 2020 Change from 2019 2020 Change from 2019 2020 Change from 2019 2020 Change from 2019 Christopher Swift $ 1,150,000 Beth Costello $ 725,000 Douglas Elliot $ 950,000 William Bloom $ 625,000 0% 0% 0% 0% $ 2,400,000 (45.9)% $ 8,500,000 $ 1,000,000 (45.9)% $ 1,850,000 $ 1,520,000 (45.9)% $ 5,310,000 $ 800,000 (46.7)% $ 1,300,000 David Robinson $ 600,000 NA* $ 580,000 NA* $ 1,300,000 3.0% 4.2% 3.1% 4.0% NA* $ 12,050,000 (12.9) % $ 3,575,000 $ 7,780,000 $ 2,725,000 $ 2,480,000 (17.8) % (12.7) % (19.3) % NA* *Mr. Robinson was not previously an NEO. This table provides a concise picture of compensation decisions made in 2020, and highlights changes from 2019. In each case, Total 2020 Compensation was lower than 2019 compensation due to the lower AIP awards for 2020. Another view of 2020 compensation for the NEOs is available in the Summary Compensation Table on page 55. COMPENSATION BEST PRACTICES Our current compensation best practices include the following: WHAT WE DO ✓ Compensation heavily weighted toward variable pay ✓ Senior Executives generally receive the same benefits as other full-time employees ✓ Double-trigger requirement for cash severance and equity vesting upon a change of control* ✓ Cash severance upon a change of control limited to 2x base salary + bonus ✓ Independent compensation consultant ✓ Risk mitigation in plan design and annual review of compensation plans, policies and practices ✓ Claw-back provisions in compensation and severance plans ✓ Prohibition on hedging, monetization, derivative and similar transactions with company securities ✓ Prohibition on Senior Executives pledging company securities ✓ Stock ownership guidelines for directors and Senior Executives ✓ Periodic review of compensation peer groups ✓ Competitive burn rate and dilution for equity program * Double-trigger vesting for equity awards applies if the awards are assumed or replaced with substantially equivalent awards. WHAT WE DON'T DO û No Senior Executive tax gross-ups for perquisites or excise taxes on severance payments û No individual employment agreements û No granting of stock options with an exercise price less than the fair market value of our common stock on the date of grant û No re-pricing of stock options û No buy-outs of underwater stock options û No reload provisions in any stock option grant û No payment of dividends or dividend equivalents on equity awards until vesting SAY-ON-PAY RESULTS At our 2020 annual meeting, we received 96% support on Say-on-Pay. The Compensation Committee considered the vote to be an endorsement of The Hartford’s executive compensation programs and policies, and recent program changes. They took this strong level of support into account in their ongoing review of those programs and policies. Management also discussed the vote, along with aspects of its executive compensation, diversity and inclusion and corporate governance practices, during our annual shareholder outreach program to gain a deeper understanding of shareholders’ perspectives. Feedback regarding the compensation program was generally positive, with many shareholders expressing support for the Compensation Committee's changes to the payout curves for 2020 AIP and 2020-2022 performance share awards. For further discussion of our shareholder outreach program, see pages 20-21. 2021 Proxy Statement 41 COMPENSATION MATTERS COMPONENTS OF THE COMPENSATION PROGRAM Each Senior Executive has a target total compensation opportunity comprised of both fixed (base salary) and variable (annual and long-term incentive) compensation. In addition, Senior Executives are eligible for benefits available to employees generally. This section describes the three main components of our compensation program for Senior Executives and lays out the framework in which compensation decisions are made. For a discussion of the 2020 compensation decisions made within this framework, see 2020 Named Executive Officers' Compensation and Performance on page 47. 1. BASE SALARY Each Senior Executive’s base salary is reviewed by the Compensation Committee (in the case of the CEO, the independent directors) annually, upon promotion, or following a change in job responsibilities. Salary decisions are based on market data, internal pay equity and level of responsibility, experience, expertise and performance. 2. ANNUAL INCENTIVE PLAN AWARDS Our employees, including the Senior Executives, are eligible to earn cash awards based on annual company and individual performance. Each employee has a target AIP opportunity. The Compensation Committee uses the following process to determine individual Senior Executive AIP awards. Determination of AIP Funding Level At the beginning of the year, the Compensation Committee set a “Compensation Core Earnings” target based on The Hartford’s operating plan, as well as the threshold performance level, below which no AIP awards are earned, and the maximum funding level of 200% for performance significantly exceeding target. The Compensation Committee updated this AIP curve for 2020 awards, requiring greater outperformance to achieve above target awards. For 2020, the maximum funding level of 200% for performance significantly exceeding target increased from 115% of target to 120% of target. Threshold performance, below which no AIP awards are earned, was reduced from 85% of target to 80% of target and funding for threshold performance was reduced from 50% to 35% of target. The Compensation Committee selected core earnings because: • • • • It believes core earnings best reflects annual operating performance; Core earnings is a metric commonly used by investment analysts when evaluating annual performance; Core earnings is prevalent among peers; and All employees can impact core earnings. Certain adjustments are made to core earnings for compensation purposes to ensure employees are held accountable for operating decisions made that year, and are neither advantaged nor disadvantaged by the effect of certain external items that do not reflect operating year performance. At the beginning of the year, the Compensation Committee approves a definition of "Compensation Core Earnings." The definition lists adjustments that will be made to core earnings at year-end in order to arrive at Compensation Core Earnings, such as non-recurring tax benefits or charges, catastrophe losses above or below budget, and unusual or non- recurring items. The 2020 definition and a reconciliation from GAAP net income to Compensation Core Earnings are provided in Appendix A. The outlook for certain key business metrics within the operating plan are announced to investors at the beginning of each year, which helps align the interests of our Senior Executives with our shareholders, as performance relative to the outlook is a major determinant of the formulaic AIP funding level. To ensure a holistic review of performance, the Compensation Committee also considers a number of qualitative factors, including: quality of earnings, risk and compliance, peer-relative performance, expense management, and non-financial and strategic objectives. Informed by this qualitative review, the Compensation Committee may then adjust the formulaic funding up or down to arrive at an AIP funding level more commensurate with the company’s performance. The Compensation Committee believes retaining the flexibility to adjust the formulaic AIP funding is aligned with shareholders' interests because it allows the Compensation Committee to arrive at a final AIP funding level that best reflects holistic company performance and mitigates the risk inherent in a strictly formulaic approach. Using a strict formula may have unintended consequences due to events or market conditions unanticipated when goals are set, or may overemphasize short-term performance at the expense of long-term shareholder returns or undervalue achievements that are not yet evident in our financial performance. These factors are particularly relevant in the P&C insurance industry, where the “cost of goods sold” (that is, the amount of insured losses) is not known at the time of sale and develops over time — in some cases over many years. Because of this industry dynamic, a substantial majority of our 2020 Corporate Peer Group (listed on page 52) include discretion in their annual award design. 42 www.thehartford.com 2020 Compensation Core Earnings COMPENSATION MATTERS 2020 AIP Funding Level: When setting the 2020 operating plan, which forms the basis for the Compensation Core Earnings target, management and the Board anticipated strong Commercial Lines results driven by the inclusion of a full year of Navigators Group, lower catastrophe losses and pricing increases, partially offset by not assuming the level of favorable prior accident year developments we had in 2019; lower margins in Group Benefits due to lower investment income and moderation in favorable incidence and recovery trends; deterioration in Personal Lines results due to higher catastrophe losses and a higher expense ratio, as well as not assuming the level of favorable prior accident year development we had in 2019; and lower limited partnership returns relative to the strong returns experienced in 2019. As noted above, the 2020 operating plan was established before the start of the COVID-19 pandemic and did not anticipate the pandemic's impact on financial results. The 2020 AIP Compensation Core Earnings target was set at $1.88 billion, which was 5% higher than the 2019 Compensation Core Earnings target of $1.79 billion, but 3.6% lower than the 2019 Compensation Core Earnings result of $1.95 billion. Actual Compensation Core Earnings for 2020 were $1.77 billion, which produced a formulaic AIP funding level of 80% of target, with below target performance primarily related to COVID-19. In assessing overall performance and arriving at the 2020 AIP funding level, the Compensation Committee started with the formulaic AIP funding level and undertook a qualitative review focused on the factors described on the following page. While the Compensation Committee acknowledged the strong financial results and strategic accomplishments achieved during an extraordinarily difficult year, in light of the impact of COVID-19 on our businesses and customers, it concluded that no adjustment was necessary to the formulaic AIP funding level of 80% of target. 2021 Proxy Statement 43 COMPENSATION MATTERS COMPENSATION CORE EARNINGS PERFORMANCE AGAINST PRE-ESTABLISHED TARGET FORMULAIC RESULTS • Total adjustments to arrive at Compensation Core Earnings reduced core earnings as reported by $319 million, primarily driven by adjustments for catastrophes below budget that was principally driven by a $289 million subrogation benefit from PG&E Corporation and Pacific Gas and Electric Company related to the 2017 and 2018 California wildfires (See Appendix A for a description of all adjustments) • Compensation Core Earnings against the pre-established target resulted in a formulaic AIP funding of 80% of target Quality of Earnings Strategic QUALITATIVE REVIEW • Achieved or exceeded externally provided business metric targets across all businesses excluding the impacts of COVID-19 • Direct and indirect COVID-19 losses of $508 million, • Renewed the auto and home insurance program for AARP members through 2032 and invested in a new technology platform to improve pricing accuracy, increase conversions and simplify and streamline the customer experience before tax, and premium refunds of $81 million, before tax, partially offset by favorable Personal Lines auto frequency of $218 million, before tax • Continued investment in digital capabilities, with Small Commercial digital capabilities ranked No.1 in Keynova Group’s Small Commercial Insurance Scorecard Importance: Understanding trends that drove earnings informs how the Compensation Committee thinks about holistic company performance Importance: Strategic accomplishments position the company for long term-growth and often represent significant successes in a given year, but such accomplishments may not be reflected or may reflect negatively in the quantitative formula Peer-Relative Performance Ethics and Compliance • Top quartile Core ROE and book value per share growth • Above median core earnings per share growth • Bottom quartile one-year TSR and below median three- year TSR Importance: Performance against the public companies within our 2020 Corporate Peer Group on key financial metrics and TSR is not captured in the quantitative formula and informs how the Compensation Committee thinks about holistic company performance • Named to a list of most ethical companies by Ethisphere Institute for the twelfth time • Named to the Just 100 for the third consecutive year; highest ranking insurance company for the second straight year Importance: Linked to strategy of attracting and retaining talent, as prospective employees are significantly more likely to work for a company that has a strong reputation of ethical conduct Expense Management • Total managed expenses below operating plan • Implemented a multi-year expense initiative, Hartford Next, with net savings within core earnings of $57 million in the second half of 2020, higher than planned Importance: Managing expenses is critical to maintaining competitive pricing and freeing up resources for investments in the business 2021 AIP Curve The Compensation Committee updated the AIP curve for 2021 awards to reduce the slope for payouts in the range of +/- 5% of target, which increases predictability and reduces volatility of payouts for performance in that range. This change will be described in greater detail in our 2022 proxy statement. 44 www.thehartford.com COMPENSATION MATTERS Determination of Individual NEO Awards The AIP funding level multiplied by an individual’s target AIP opportunity produces an initial AIP award, which the Committee may adjust based on individual performance. In light of his responsibility for overall company performance, the CEO's AIP award has equaled the AIP funding level, without further adjustment, every year since he assumed the position in 2014. For awards granted to the NEOs in February 2021 for 2020 performance under the AIP, see 2020 Named Executive Officer's Compensation and Performance beginning on page 47. 3. LONG-TERM INCENTIVE AWARDS Long-term incentive ("LTI") awards are designed to drive long-term performance and encourage share ownership among Senior Executives, aligning their interests with those of shareholders. LTI awards are granted on an annual basis following an assessment of individual performance and market data. 2020 LTI awards for Senior Executives consist of performance shares (50% of the award value) and stock options (50% of the award value). This LTI mix rewards for stock price performance, peer-relative shareholder returns (stock price and dividends) and operating performance. 2020-2022 Performance Shares (50% of LTI Award) Performance shares are designed to reward and retain Senior Executives by allowing them to earn shares of our common stock based on pre-determined performance criteria. Performance shares have a three-year performance period, and are settled in shares of common stock ranging from 0% to 200% of the number of performance shares granted depending upon the performance achieved on the following metrics: Performance Metric Compensation Core ROE (50% weighting) Peer-relative TSR (50% weighting) Rationale Strategic measure that drives shareholder value creation Measure of our performance against peers that are competing investment choices in the capital markets Compensation Core ROE: For 50% of the performance share award, payouts at the end of the performance period, if any, will depend upon achieving a target average annual ROE over a three-year measurement period, as adjusted for compensation purposes. Because of the adjustments made for compensation purposes, Compensation Core ROE will differ from the ROE numbers provided in our financial statements. The Compensation Committee's definition of Compensation Core ROE for 2020 performance share awards is provided in Appendix A. 2020-2022 Compensation Core ROE As illustrated in the graph at right, for 2020 performance share awards, the target level of performance is an average annual Compensation Core ROE for 2020, 2021, and 2022 of 11.3%, as reflected in the 2020-2022 operating plan. Peer-Relative TSR: For 50% of the performance share award, payouts, if any, will be based on company TSR performance at the end of the three-year performance period relative to a Performance Peer Group. The current Performance Peer Group represents 16 industry specific public companies against which we benchmark performance for compensation purposes. While there is some overlap, the Performance Peer Group is distinct from the Corporate Peer Group described on page 52, which includes mutual companies where financial data is not publicly available, as well as companies that compete with us for talent. The Compensation Committee believes that the Performance Peer Group should be limited to companies that: (1) publish industry results against which to measure our performance; and (2) are competing investment choices in capital markets. The Compensation Committee reviews the composition of the Performance Peer Group annually and did not make any changes to this group for 2020 performance share awards. For each company in the Performance Peer Group, TSR will be measured using a 20-day stock price average at the beginning and the end of the performance period in order to smooth out any volatility. In response to shareholder feedback, the Compensation 2021 Proxy Statement 45 COMPENSATION MATTERS Committee updated the TSR payout curve for performance share awards granted in 2020 to target above-median performance. There is no payout for performance below the 30th percentile; 35% payout for performance at the 30th percentile; target payout for performance at the 55th percentile; and 200% payout for performance at the 85th percentile. 2020 Performance Peer Group Three-Year Relative TSR Ranking Alleghany Corp. Allstate Corp. American Financial Group, Inc. Berkley (W. R.) Corp. Chubb Limited Cincinnati Financial Corp. CNA Financial Corp. Everest Re Group, Ltd. Hanover Insurance Group, Inc. Markel Corporation Mercury General Corp. MetLife, Inc. Old Republic International Corp. Progressive Corp. Travelers Companies, Inc. Unum Group Stock Options (50% of LTI Awards) The use of stock options directly aligns the interests of our Senior Executives with those of shareholders because options only have value if the price of our common stock on the exercise date exceeds the stock price on the grant date. The stock options are granted at fair market value, vest in three equal installments over three years, and have a 10-year term. In 2020, to ensure that executives whose employment terminates due to retirement, death or disability have the opportunity to participate in the long-term impact of their actions on the company’s stock price, the Compensation Committee decided to extend the post-employment exercise period applicable in the event of any such termination for all outstanding stock options, including those granted in 2020, to the remainder of the option’s originally stated term. Certification of 2018-2020 Performance Share Awards On February 27, 2018, the Compensation Committee granted Senior Executives performance shares tied 50% to achievement of average annual Compensation Core ROE goals over a three-year measurement period, and 50% to TSR performance relative to a peer group of 16 companies.(1) For the Core ROE component of the award, achievement of average annual Compensation Core ROE of 9.3%, 11.6% and 13.9% during the measurement period would have resulted in payouts of 35%, 100% and 200% of target, respectively. For the TSR component of the award, there would be no payout for performance below the 30th percentile, 35% payout for performance at the 30th percentile, target payout for median performance, and 200% payout for performance at the 85th percentile. These performance shares vested as of December 31, 2020, the end of the three-year performance period, and the Compensation Committee certified a payout at 75% of target on February 17, 2021 based on the following results: • • The average of the company's Compensation Core ROE for each year of the measurement period was 12.8%, resulting in a payout of 151% of target for the Compensation Core ROE component of the awards. Because the company’s TSR during the performance period was below threshold, there was no payout for the TSR component of the awards. Details of the 2018 performance shares are given on pages 41-43 of our 2019 Proxy Statement filed with the Securities and Exchange Commission on April 4, 2019. Diversity Modifier for 2021-2023 Performance Shares The Compensation Committee updated the 2021 LTI program to include a performance share modifier tied to the company's diversity and workforce representation goals. The modifier will determine whether an increase or decrease of 10% on performance share awards is warranted based upon performance against predetermined year-end 2023 representation goals for women and people of color. This change will be described in greater detail in our 2022 proxy statement. Representation goals for women and people of color will be described in our forthcoming Sustainability Highlight Report. (1) While the peer group at the time of the grant consisted of 17 companies, AXA subsequently acquired XL Group plc, resulting in a performance peer group of 16 companies for measuring TSR performance. 46 www.thehartford.com COMPENSATION MATTERS EXECUTIVE BENEFITS AND PERQUISITES Senior Executives are eligible for the same benefits as full-time employees generally, including health, life insurance, disability and retirement benefits. Non-qualified savings and retirement plans provide benefits that would otherwise be provided but for the Internal Revenue Code limits that apply to tax-qualified benefit plans. We provide certain additional perquisites to Senior Executives, including reimbursement of costs for annual physicals and associated travel, relocation benefits when a move is required, and occasional use of tickets for sporting and special events previously acquired by the company when no other business use has been arranged and there is no incremental cost to the company. The CEO also has the use of a company car and driver to allow for greater efficiency while commuting. We own a fractional interest in a corporate aircraft to allow Senior Executives to safely and efficiently travel for business purposes. The corporate aircraft enables Senior Executives to use travel time productively by providing a confidential environment in which to conduct business and eliminating the schedule constraints imposed by commercial airline service. The CEO and President are permitted limited personal use of corporate aircraft to minimize their time spent on personal travel and to increase the time they are available for business purposes. Corporate aircraft also enables them to work more productively while traveling for time- sensitive personal matters. The CEO and President's use of corporate aircraft for personal travel is subject to an annual limit of $160,000 and $90,000, respectively, in aggregate incremental costs to the company. Fixed costs, which do not change based on usage, are excluded. Our aircraft usage policy otherwise prohibits personal travel via corporate aircraft by Senior Executives except in extraordinary circumstances. There was no personal use by Senior Executives due to extraordinary circumstances in 2020. From time to time, a Senior Executive’s expenses for a purpose deemed important to the business may not be considered “directly and integrally related” to the performance of the Senior Executive’s duties as required by applicable SEC rules. These expenses are considered perquisites for disclosure purposes. Examples of such expenses may include attendance at conferences, seminars or award ceremonies, as well as attendance of a Senior Executive’s spouse or guest at business events or dinners where spousal or guest attendance is expected. Whenever required to do so under Internal Revenue Service regulations, we attribute income to Senior Executives for perquisites and the Senior Executive is responsible for the associated tax obligation. 2020 NAMED EXECUTIVE OFFICERS' COMPENSATION AND PERFORMANCE In evaluating individual performance, the Compensation Committee considered each NEO's achievements to advance the company's position in our strategic priorities of realizing the full potential of our product capabilities and underwriting expertise, becoming an easier company to do business with, and attracting, retaining and developing the talent needed for long-term success. CHRISTOPHER SWIFT Chairman and Chief Executive Officer Mr. Swift has served as CEO since July 1, 2014; he was also appointed Chairman on January 5, 2015. As CEO, he is responsible for the company’s strategy and growth, capital allocation, performance, culture and leadership. 2020 Performance In reviewing Mr. Swift’s performance, the independent directors took into account that Mr. Swift led the company’s response to the COVID-19 pandemic and racial inequity including: additional benefits and support for employees (e.g., free COVID-19 testing and remote work support); enhanced community giving; all-employee panel discussions on racial equity; support for CEO Action for Diversity & Inclusion, the CEO Action for Racial Equity and the Corporate Call to Action convened by the Connecticut State Treasurer; and adoption of diversity and inclusion goals for each business and functional area. In addition, under Mr. Swift’s leadership, the company: • Achieved strong underlying financial results, despite unprecedented challenges of 2020, delivering core earnings of $2.086 billion. • Executed key strategic priorities including the Navigators Group integration, the launch of our next-generation Spectrum package offering for small businesses and the extension of our AARP relationship through 2032. • Maintained top decile employee engagement and performance enablement scores as measured by Qualtrics Experience Management (XM) survey through continued focus on talent management and diversity and inclusion. 2020 Compensation Decisions • Salary. $1,150,000, unchanged from 2019. • AIP Award. Target of $3,000,000, unchanged from 2019. In recognition of the fact that Mr. Swift is responsible for overall company performance and progress toward achievement of the company's strategic priorities, the Compensation Committee approved a 2020 AIP award of $2,400,000 (80% of target), which was equal to the company AIP funding level of 80% for 2020. • LTI Award. In February 2020, based on its assessment of Mr. Swift's responsibilities and performance and Corporate Peer Group compensation, the Compensation Committee granted him an LTI award of $8,500,000, an increase of 3.0% from the previous year, in the form of 50% stock options and 50% performance shares. 2021 Proxy Statement 47 COMPENSATION MATTERS BETH COSTELLO Executive Vice President and Chief Financial Officer Ms. Costello has served as CFO since July 1, 2014. As the company’s CFO, Ms. Costello is responsible for finance, treasury, capital, accounting, investor relations and procurement. 2020 Performance In reviewing Ms. Costello’s performance, the Compensation Committee took into account that she: • Delivered a capital management plan that included a $1.5 billion equity repurchase authorization through 2022 and an 8% increase in our common stock dividend. • Launched a multi-year strategic cost management initiative, “Hartford Next” with run-rate savings on target and 2020 core earnings impact ahead of plan. • Strengthened organizational talent through key internal moves while maintaining top decile employee engagement and enablement scores as measured by Qualtrics Experience Management (XM) survey. In addition, the Compensation Committee noted that under her financial leadership the company received the highest evaluation score of “Superior” in S&P’s enterprise risk management evaluation framework and A.M. Best raised its financial strength rating on Hartford Life and Accident Insurance Company to A+ from A. 2020 Compensation Decisions • Salary. $725,000, unchanged from 2019. • AIP Award. Target of $1,250,000, unchanged from 2019. For 2020, the Compensation Committee approved an AIP award of $1,000,000 (80% of target), which was equal to the company AIP funding level of 80% for 2020 to reflect her responsibility for overall company performance. • LTI Award. In February 2020, based on its assessment of Ms. Costello's responsibilities and performance and Corporate Peer Group compensation, the Compensation Committee granted her an LTI award of $1,850,000, an increase of 4.2% from the previous year, in the form of 50% stock options and 50% performance shares. DOUGLAS ELLIOT President Mr. Elliot has served as President of The Hartford since July 1, 2014. He leads the company’s Property & Casualty business lines (Small Commercial, Middle & Large Commercial, Personal Lines and Global Specialty) as well as Underwriting. 2020 Performance In reviewing Mr. Elliot’s performance, the Compensation Committee took into account that he: • Delivered strong P&C core earnings, despite unprecedented challenges in 2020, highlighted by a strong P&C combined ratio excluding catastrophes and prior year development. • Continued to lead the Navigators Group integration, with excellent results on re-underwriting the Middle & Large Commercial and Global Specialty books of business, cross-sell initiatives and pricing. • Oversaw the extension of our AARP relationship through 2032 and led execution of Personal Lines' investment in a new technology platform to improve pricing accuracy, increase conversions and simplify and streamline the customer experience. • Continued focus on talent management and maintained top decile employee engagement and enablement scores as measured by Qualtrics Experience Management (XM) survey. 2020 Compensation Decisions • Salary. $950,000, unchanged from 2019. • AIP Award. Target of $1,900,000, unchanged from 2019. For 2020, the Compensation Committee approved an AIP award of $1,520,000 (80% of target), taking into account strong P&C underlying combined ratio and continued progress in realizing the full potential of our product capabilities, one of our key long-term strategic goals. • LTI Award. In February 2020, based on its assessment of Mr. Elliot's responsibilities and performance and Corporate Peer Group compensation, the Compensation Committee granted him an LTI award of $5,310,000, an increase of 3.1% from the previous year, in the form of 50% stock options and 50% performance shares. 48 www.thehartford.com COMPENSATION MATTERS WILLIAM BLOOM Executive Vice President, Claims, Operations, Technology, and Data & Analytics Mr. Bloom has served as Executive Vice President since July 1, 2014. He is responsible for The Hartford's s technology and service operations, as well as oversight of data and analytics initiatives. In 2020, he also assumed leadership of the company's claims organization. 2020 Performance In reviewing Mr. Bloom’s performance, the Compensation Committee took into account that he: • Led initiatives that enabled the company to transition its workforce to nearly all-remote status in light of the COVID-19 pandemic, implemented COVID-related billing holds and other customer accommodations, and redeployed talent to meet changing customer needs. • Delivered on digital investments that allowed for improved digital adoption in both Small Commercial and Personal Lines, leading to higher net promoter scores. • Renegotiated several large vendor contracts resulting in significant annual savings and improved vendor capabilities. • Strengthened organizational talent through key internal moves while maintaining top decile employee engagement and enablement scores as measured by Qualtrics Experience Management (XM) survey. 2020 Compensation Decisions • Salary. $625,000, unchanged from 2019. • AIP Award. Mr. Bloom's AIP target was increased from $950,000 in 2019 to $1,000,000 in 2020 based on an evaluation of his performance, level of responsibility, experience and target compensation as compared to the Corporate Peer Group. For 2020, the Compensation Committee approved an AIP award of $800,000 (80% of target), taking into account his critical work in enabling a remote operating environment and supporting our strategy of becoming an easier company to do business with. • LTI Award. In February 2020, based on its assessment of Mr. Bloom's responsibilities and performance and Corporate Peer Group compensation, the Compensation Committee granted him an LTI award of $1,300,000, an increase of 4.0% from the previous year, in the form of 50% stock options and 50% performance shares. DAVID ROBINSON Executive Vice President and General Counsel Mr. Robinson has served as Executive Vice President and General Counsel since June 1, 2015. He is responsible for The Hartford's law department, government affairs and compliance. 2020 Performance In reviewing Mr. Robinson’s performance, the Compensation Committee took into account that he: • Led law, compliance and government affairs' COVID-19 response, including responding to an unprecedented level of legislative and regulatory activity and advising on numerous novel business and coverage challenges. • Led the successful transition to a virtual Board environment, including increased engagement between management and the Board, an increase in the Board's regular meeting cadence, the onboarding of two new directors and the company's first virtual annual meeting of shareholders. • Led the enhancement of the law department's operating model in support of the claims organization, yielding savings on outside counsel expense. • Strengthened organizational talent through key internal moves while maintaining top decile employee engagement and enablement scores as measured by Qualtrics Experience Management (XM) survey. 2020 Compensation Decisions • Salary. $600,000 • AIP Award. Target of $725,000. For 2020, the Compensation Committee approved an AIP award of $580,000 (80% of target), taking into account comprehensive support for the company's COVID-19 response and the related legislative, regulatory business and coverage challenges. • LTI Award. In February 2020, based on its assessment of Mr. Robinson's responsibilities and performance and Corporate Peer Group compensation, the Compensation Committee granted him an LTI award of $1,300,000 in the form of 50% stock options and 50% performance shares. 2021 Proxy Statement 49 COMPENSATION MATTERS BRION JOHNSON Former Executive Vice President and Chief Investment Officer; Former President of HIMCO Mr. Johnson served as Chief Investment Officer and President of Hartford Investment Management Company ("HIMCO") from May 16, 2012 until August 1, 2020, and continued as an employee of the company in an advisory capacity until his retirement on December 31, 2020. 2020 Compensation Decisions • Salary. $600,000, unchanged from 2019. • AIP Award. Target of $1,400,000, unchanged from 2019. For 2020, the Compensation Committee approved an AIP award of $1,000,000 (71% of target) based upon the time Mr. Johnson served as Chief Investment Officer and President of HIMCO and the successful transition of his responsibilities to his successor. • LTI Award. In February 2020, based on its assessment of Mr. Johnson's performance and Corporate Peer Group compensation, the Compensation Committee granted him an LTI award of $1,750,000, unchanged from the previous year, in the form of 50% stock options and 50% performance shares. 50 www.thehartford.com COMPENSATION MATTERS PROCESS FOR DETERMINING SENIOR EXECUTIVE COMPENSATION (INCLUDING NEOs) COMPENSATION COMMITTEE The Compensation Committee is responsible for reviewing the performance of and approving compensation awarded to those executives who either report to the CEO or who are subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934 (other than the CEO). The Compensation Committee also evaluates the CEO’s performance and recommends his compensation for approval by the independent directors. With this input from the Compensation Committee, the independent directors review the CEO’s performance and determine his compensation level in the context of the established goals and objectives for the enterprise and his individual performance. The Compensation Committee and the independent directors typically review performance and approve annual incentive awards for the prior fiscal year at their February meeting, along with annual LTI awards and any changes to base salary and target bonus. To assist in this process, the Compensation Committee reviews market and historical compensation information for each NEO to understand how each element of compensation relates to other elements and to the compensation package as a whole, including outstanding equity. Annual Compensation Design, Payout and Performance Goal-Setting Process December to January • Review feedback from fall shareholder engagement • Approve design of AIP and LTI programs for the upcoming year, including updates to Performance and Corporate Peer Groups • Determine enterprise AIP funding based on the previous year's actual performance against the pre-established Compensation Core Earnings target and a review of qualitative factors • Review Senior Executive stock ownership February • Review Senior Executive performance for previous year and determine individual AIP awards • Establish AIP and LTI performance targets based on the company's three-year operating plan • Review and approve current year total compensation recommendations for Senior Executives, including salary, AIP targets and LTI awards • Establish Senior Executive leadership goals and objectives for the current year May to July • Review Say-on-Pay voting results and recommendations of proxy advisory firms • Review company pay equity status • Review talent succession planning, workforce diversity and the company’s diversity programs September • Review Enterprise Risk Management's annual compensation risk assessment • Review AIP and LTI program design for the coming year Ongoing • Monitor the company's year-to-date performance in relation to targets • Review and consider compensation plans, policies and practices in light of company performance, strategy, shareholder feedback and best practices COMPENSATION CONSULTANT Meridian Compensation Partners, LLP ("Meridian") is the Compensation Committee’s independent compensation consultant and has regularly attended Compensation Committee meetings since its engagement. Pursuant to the Compensation Committee's charter, Meridian has not provided services to the company other than consulting services provided to the Compensation Committee and, with respect to CEO and director compensation, the Board. In 2020, following a review of its records and practice guidelines, Meridian provided the Compensation Committee a letter that confirmed its conformity with independence factors under applicable SEC rules and the listing standards of the NYSE. ROLE OF MANAGEMENT Our Human Resources team supports the Compensation Committee in the execution of its responsibilities. Our Executive Vice President and Chief Human Resources Officer oversees the development of the materials for each Compensation Committee meeting, including market data, historical compensation and outstanding equity, individual and company performance metrics and 2021 Proxy Statement 51 COMPENSATION MATTERS compensation recommendations for consideration by the Compensation Committee (in the case of the CEO, by the independent directors). No member of our management team, including the CEO, has a role in determining their own compensation. BENCHMARKING On an annual basis, the Compensation Committee reviews and considers a number of factors in establishing or recommending a target total compensation opportunity for each individual including, but not limited to, market data, tenure in position, experience, sustained performance, and internal pay equity. Although the Compensation Committee considers competitive market data, it does not target a specific market position. The various sources of compensation information the Compensation Committee uses to determine the competitive market for our executive officers are described in more detail below. 2020 Corporate Peer Group The Compensation Committee reviews the peer group used for compensation benchmarking (the "Corporate Peer Group") periodically or upon a significant change in business conditions for the company or its peers. As part of its review, the Compensation Committee considers many factors, including market capitalization, revenues, assets, lines of business and sources and destinations of talent. For this reason, the Corporate Peer Group differs from the Performance Peer Group described earlier for purposes of the TSR performance measure applicable to performance shares. For 2020, the Compensation Committee did not make any changes to the Corporate Peer Group. Data in millions – as of 12/31/2020(1) Company Name(2) Allstate Corp. American International Group, Inc. Berkley (W. R.) Corp. Chubb Ltd. Cigna Corp. Cincinnati Financial Corp. CNA Financial Corp. Hanover Insurance Group, Inc. Lincoln National Corp. MetLife Inc. Principal Financial Group Inc. Progressive Corp. Travelers Companies Inc. Unum Group Voya Financial Inc. 25TH PERCENTILE MEDIAN 75TH PERCENTILE THE HARTFORD PERCENT RANK Revenues Assets Market Cap $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 44,791 43,337 8,099 36,052 160,550 7,536 10,808 4,827 17,439 67,842 14,742 42,638 31,981 13,162 7,649 9,453 17,439 42,988 20,494 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 125,987 586,481 28,607 190,774 155,451 27,542 64,026 13,444 365,948 795,146 296,628 64,098 116,764 70,626 180,312 64,062 125,987 243,701 74,111 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 33,426 32,617 11,837 69,467 75,209 14,058 10,573 4,257 9,723 42,253 13,629 57,874 35,557 4,672 7,426 10,148 14,058 38,905 17,551 52 % 36 % 51 % (1) Data provided by S&P Global Market Intelligence. The amounts shown in the “Revenues” column reflect adjustments to facilitate comparability across companies. (2) An additional four non-public companies are included in the Corporate Peer Group as they submit data to relevant compensation surveys utilized in determining appropriate pay levels for Senior Executives: Liberty Mutual, MassMutual, Nationwide Financial, and State Farm. Use of Corporate Peer Group Compensation Data When evaluating and determining individual pay levels, the Compensation Committee reviews compensation data prepared annually by Aon showing the 25th, 50th and 75th percentiles of various pay elements for the companies listed above. As noted previously, the Compensation Committee does not target a specific market position in pay. The Compensation Committee also reviews general industry survey data published by third parties as a general indicator of relevant market conditions and pay practices, including perquisites. Neither the Compensation Committee nor management has any input into companies included in these general industry or financial services company surveys. 52 www.thehartford.com COMPENSATION MATTERS COMPENSATION POLICIES AND PRACTICES STOCK OWNERSHIP AND RETENTION GUIDELINES Senior Executives are expected to meet or exceed certain levels of stock ownership to align their interests with those of shareholders. The Compensation Committee has established the following ownership guidelines for the CEO and other NEOs Level CEO Other NEOs (As a Multiple of Base Salary) 6x 4x The Compensation Committee reviews ownership levels annually. NEOs are generally expected to meet these ownership guidelines within five years of appointment to position. As of March 22, 2021, the CEO and each of the other NEOs met their respective guideline. TIMING OF EQUITY GRANTS Equity grants may be awarded four times per year, on the first day of a quarterly trading window following the filing of our Form 10- Q or 10-K for the prior period. Our practice is to grant annual equity awards during the first quarterly trading window of the year. This timing ensures that grants are made at a time when the stock price reflects the most current public data regarding our performance and financial condition. RECOUPMENT POLICY We have a recoupment policy that allows for the recoupment of any incentive compensation (cash or equity) paid or payable at any time to the extent such recoupment either (i) is required by applicable law or listing standards, or (ii) is determined to be necessary or appropriate in light of business circumstances or employee misconduct. RISK MITIGATION IN PLAN DESIGN Management has concluded that our compensation policies and practices are not reasonably likely to have a material adverse effect on the company. Our Enterprise Risk Management function performs a risk review of any new incentive compensation plans or any material changes to existing plans annually and engages an independent third party to complete a comprehensive review of all incentive compensation plans every five years. In 2020, Enterprise Risk Management conducted its annual review and discussed the results of that review with the Compensation Committee. Enterprise Risk Management concluded that current incentive plans do not promote inappropriate risk-taking or encourage the manipulation of reported earnings. The following features of our executive compensation program guard against excessive risk-taking: Feature Pay Mix Performance Metrics Equity Incentives Rationale • A mix of fixed and variable, annual and long-term, and cash and equity compensation encourages strategies and actions that are in the company’s long-term best interests. • Long-term compensation awards and overlapping vesting periods encourage executives to focus on sustained company results and stock price appreciation. • Incentive awards based on a variety of performance metrics diversify the risk associated with any single indicator of performance • Stock ownership guidelines align executive and shareholder interests • Equity grants are made only during a trading window following the release of financial results • No reload provisions are included in any stock option awards Plan Design • Incentive plans are not overly leveraged, cap the maximum payout, and include design features intended to balance pay for performance with an appropriate level of risk-taking. • Our equity incentive plans do not allow: ◦ Stock options with an exercise price less than the fair market value of our common stock on the grant date; ◦ Re-pricing (reduction in exercise price) of stock options without shareholder approval; or ◦ Single trigger vesting of awards upon a Change of Control if awards are assumed or replaced with substantially equivalent awards. Recoupment • We have a broad incentive compensation recoupment policy in addition to claw-back provisions under our equity incentive plans. HEDGING AND PLEDGING COMPANY SECURITIES We prohibit our employees and directors from engaging in hedging, monetization, derivative and similar transactions involving company securities. In addition, Senior Executives are prohibited from pledging company securities. 2021 Proxy Statement 53 COMPENSATION MATTERS POTENTIAL SEVERANCE AND CHANGE OF CONTROL PAYMENTS The company does not have individual employment agreements. NEOs are covered under a severance pay plan that provides severance in a lump sum equal to two times the sum of annual base salary plus target bonus, whether severance occurs before or after a change of control (no gross-up is provided for any change of control excise taxes that might apply). As a condition to receiving severance, Senior Executives must agree to restrictive covenants covering such items as non-competition, non-solicitation of business and employees, non-disclosure and non-disparagement. The company maintains change of control benefits to ensure continuity of management and to permit executives to focus on their responsibilities without undue distraction related to concerns about personal financial security if the company is confronted with a contest for control. These benefits are also designed to ensure that in any such contest, management is not influenced by events that could occur following a change of control. The 2014 Incentive Stock Plan provides for “double trigger” vesting on a change of control. If an NEO terminates employment for “Good Reason” or their employment is terminated without “Cause” (see definitions on page 67) within 2 years following a Change of Control (as defined in the plan), then any awards that were assumed or replaced with substantially equivalent awards vest. If the awards were not assumed or replaced with substantially equivalent awards, the awards vest immediately upon the Change of Control. EFFECT OF TAX AND ACCOUNTING CONSIDERATIONS ON COMPENSATION DESIGN In designing our compensation programs, we consider the tax and accounting impact of our decisions. In doing so, we strive to strike a balance between designing appropriate and competitive compensation programs for our executives, maximizing the deductibility of such compensation, and, to the extent reasonably possible, avoiding adverse accounting effects and ensuring that any accounting consequences are appropriately reflected in our financial statements. Tax considerations are factored into the design of our compensation programs, including compliance with the requirements of Section 409A of the Internal Revenue Code, which can impose additional taxes on participants in certain arrangements involving deferred compensation, and Sections 280G and 4999 of the Internal Revenue Code, which affect the deductibility of, and impose certain additional excise taxes on, certain payments that are made upon or in connection with a change of control. COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION As of the date of this proxy statement, the Compensation and Management Development Committee consists of directors Ruesterholz (Chair), Dominguez, Fetter, Roseborough and Winter, all of whom are independent non-management directors. No Compensation and Management Development Committee member has served as an officer or employee of The Hartford and no Hartford executive officer has served as a member of a compensation committee or board of directors of any other entity that has an executive officer serving as a member of The Hartford’s Board. REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in the company’s Annual Report on Form 10-K for the year ended December 31, 2020. Report submitted as of March 26, 2021 by: Members of the Compensation and Management Development Committee: Virginia P. Ruesterholz, Chair Carlos Dominguez Trevor Fetter Teresa W. Roseborough Matthew E. Winter 54 www.thehartford.com EXECUTIVE COMPENSATION TABLES SUMMARY COMPENSATION TABLE The table below reflects total compensation paid to or earned by each NEO. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($)(1) Option Awards ($)(2) Non-Equity Incentive Plan Compensation ($)(3) Christopher Swift Chairman and Chief Executive Officer 2020 1,150,000 2019 1,150,000 2018 1,137,500 — — — — — — — — — — — — — 3,740,850 4,250,000 4,551,525 4,125,000 3,736,000 4,000,000 814,185 979,268 828,925 925,000 887,500 887,500 2,336,931 2,655,000 2,841,255 2,575,000 2,335,000 2,500,000 572,130 650,000 689,625 513,700 572,130 NA NA NA NA 625,000 550,000 650,000 NA NA 2,400,000 4,440,000 4,800,000 1,000,000 1,850,000 1,925,000 1,520,000 2,812,000 3,050,000 800,000 1,500,000 1,550,000 580,000 NA NA 725,000 725,000 718,750 950,000 950,000 943,750 625,000 612,500 568,750 593,750 NA NA 600,000 — 770,175 875,000 1,000,000 593,750 562,500 — — 965,475 747,200 875,000 800,000 1,890,000 2,250,000 Beth Costello Executive Vice President and Chief Financial Officer Douglas Elliot President William Bloom Executive Vice President, Claims, Operations, Technology & Data David Robinson Executive Vice President and General Counsel* Brion Johnson Former Executive Vice President and Chief Investment Officer; Former President of HIMCO 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 COMPENSATION MATTERS Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) 33,824 48,198 — 42,587 56,823 — 14,901 21,419 — 21,488 27,131 — 25,565 NA NA 3,388 8,346 — All Other Compensation ($)(5) Total ($) 231,521 11,806,195 246,025 14,560,748 210,115 13,883,615 65,700 3,572,472 68,800 4,567,391 65,500 4,425,675 65,700 7,542,532 133,175 9,332,849 170,363 8,999,113 65,700 2,734,318 65,600 3,519,856 68,281 3,250,731 54,350 2,475,795 NA NA NA NA 65,700 3,314,263 65,600 4,398,171 65,500 4,425,200 *Mr. Robinson was not previously an NEO. (1) This column reflects the aggregate grant date fair value of performance shares calculated in accordance with FASB ASC Topic 718 for the fiscal years ended December 31, 2020, 2019 and 2018. Detail on the 2020 grants is provided in the Grants of Plan Based Awards Table on page 57. The amounts in this column are not reduced for estimated forfeiture rates during the applicable vesting periods. Other assumptions used in the calculation of these amounts are included in footnote 20 of the company's Annual Report on Form 10-K for 2020 and footnote 19 of the company's Annual Reports on Form 10-K for 2019 and 2018. To determine the fair value of the 2020 performance share award under FASB ASC Topic 718, the market value on the grant date is adjusted to reflect the probable outcome of the performance condition(s) consistent with the estimated aggregate compensation cost to be recognized over the service period, determined as of the grant date. These adjustments result in a value under FASB ASC Topic 718 that is 88.02% of the market value on the grant date. The number of shares payable under these awards will be based on the actual results as compared to pre-established performance conditions and can range from 0-200% of the target award. The value of performance shares assuming the highest possible outcome of the performance conditions determined at the time of grant (200% of the target award), and including an adjustment for no payment of dividends on 2019 and 2018 unvested performance shares, would in total be: NEO C. Swift B. Costello D. Elliot W. Bloom D. Robinson B. Johnson 2020 Performance Shares ($) (February 25, 2020 grant date) 2019 Performance Shares ($) (February 26, 2019 grant date) 2018 Performance Shares ($) (February 27, 2018 grant date) 8,500,000 1,850,000 5,310,000 1,300,000 1,300,000 1,750,000 7,664,156 1,649,006 4,784,292 1,161,197 1,625,694 NA 7,567,405 1,678,987 4,729,628 1,040,498 1,513,461 NA Under the 2014 Incentive Stock Plan, no more than 500,000 shares in the aggregate can be earned by an individual employee with respect to RSUs and performance share awards made in a single calendar year. As a result, the number of shares ultimately distributed to an employee (or former employee) with respect to awards made in the same year will be reduced, if necessary, so that the number does not exceed this limit. 2021 Proxy Statement 55 COMPENSATION MATTERS (2) This column reflects the full aggregate grant date fair value for the fiscal years ended December 31, 2020, 2019 and 2018 calculated in accordance with FASB ASC Topic 718. The amounts in this column are not reduced for estimated forfeitures during the applicable vesting periods. Other assumptions used in the calculation of these amounts are included in footnote 20 of the company's Annual Report on Form 10-K for 2020 and footnote 19 of the company's Annual Reports on Form 10-K for 2019 and 2018. (3) This column reflects cash AIP awards paid for the respective years. (4) This column reflects the actuarial increase, if any, in the present value of the accumulated benefits of the NEOs under all pension plans established by the company. The amounts were calculated using discount rate and form of payment assumptions consistent with those used in the company’s GAAP financial statements. Actuarial assumptions for 2020 are described in further detail in footnote 2 of the Pension Benefits Table on page 60. (5) This column reflects amounts described in the Summary Compensation Table—All Other Compensation. Summary Compensation Table - All Other Compensation This table provides more details on the amounts presented in the “All Other Compensation” column in the Summary Compensation Table on page 55 for the NEOs. Name Christopher Swift Beth Costello Douglas Elliot William Bloom David Robinson Brion Johnson Year Perquisites ($)(1) 2020 165,821 2020 2020 2020 2020 2020 — — — — — Contributions or Other Allocations to Defined Contribution Plans ($)(2) 65,700 65,700 65,700 65,700 54,350 65,700 Total ($) 231,521 65,700 65,700 65,700 54,350 65,700 (1) As permitted by SEC rules, we have included the perquisites and other personal benefits that we provided in 2020 where the aggregate amount of such compensation to an NEO exceeds $10,000. Perquisite amounts for Mr. Swift include personal use of corporate aircraft not requiring reimbursement to the company ($160,000), commuting costs, and expenses associated with the attendance of his spouse at a business function. (2) This column represents company contributions under the company’s tax-qualified 401(k) plan (The Hartford Investment and Savings Plan) and The Hartford Excess Savings Plan (the “Excess Savings Plan”), a non-qualified plan established to “mirror” the qualified plan to facilitate deferral of amounts that cannot be deferred under the 401(k) plan due to Internal Revenue Code limits. Additional information can be found under the “Excess Savings Plan” section of the Non-Qualified Deferred Compensation Table beginning on page 62. 56 www.thehartford.com COMPENSATION MATTERS GRANTS OF PLAN BASED AWARDS TABLE This table discloses information about equity awards granted to the NEOs in 2020 pursuant to the 2014 Incentive Stock Plan. The table also discloses potential payouts under the AIP and performance share awards. Actual AIP payouts are reported in the Summary Compensation Table on page 55 under the heading “Non-Equity Incentive Plan Compensation.” Equity awards have been rounded to the nearest whole share or option. Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Estimated Future Payouts Under Equity Incentive Plan Awards(2) Name Plan Grant Date Threshold ($) Target ($) Maximum ($) Threshold (#) Target (#) Maximum (#) All Other Stock Awards: Number of Shares of Stock or Units (#) All Other Option Awards: Number of Securities Underlying Options (#)(3) Exercise or Base Price of Option Awards ($/Sh) Grant Date Fair Value of Stock and Option Awards ($)(4) 2020 AIP 1,050,000 3,000,000 9,000,000 Stock Options 2/25/2020 327,679 55.27 4,250,000 2/25/2020 13,457 76,895 153,790 3,740,850 C. Swift B. Costello D. Elliot Performance Shares 2020 AIP Stock Options 2/25/2020 Performance Shares 2020 AIP 2/25/2020 Stock Options 2/25/2020 Performance Shares 2/25/2020 437,500 1,250,000 3,750,000 665,000 1,900,000 5,700,000 W. Bloom 2020 AIP 350,000 1,000,000 3,000,000 D. Robinson Stock Options 2/25/2020 Performance Shares 2020 AIP 2/25/2020 Stock Options 2/25/2020 Performance Shares 2/25/2020 253,750 725,000 2,175,000 2,929 16,736 33,472 814,185 71,318 55.27 925,000 8,406 48,037 96,074 2,336,931 204,703 55.27 2,655,000 2,058 11,760 23,521 572,130 50,116 55.27 650,000 2,058 11,760 23,521 572,130 50,116 55.27 650,000 B. Johnson 2020 AIP 490,000 1,400,000 4,200,000 Stock Options Performance Shares 2/25/2020 2/25/2020 2,770 15,831 31,663 770,175 67,463 55.27 875,000 (1) The “Threshold” column shows the payout amount for achieving the minimum level of performance for which an amount is payable under the AIP at 35% of target (no amount is payable if this level of performance is not reached). The “Maximum” column shows the maximum amount payable at 300% of target (the maximum amount payable for an individual AIP award). The actual 2020 AIP award for each NEO is reported in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. (2) The performance shares granted to the NEOs on February 25, 2020 vest on December 31, 2022, the end of the three year performance period. The vesting percentage is based on the company’s TSR performance relative to a peer group established by the Compensation Committee, and performance based on pre-established ROE targets. These two measures are weighted equally (50/50), as described on page 45. The “Threshold” column for this grant represents 17.5% of target which is the payout for achieving the minimum level of performance under either of the two applicable performance measures for which an amount is payable under the program (no amount is payable if this level of performance is not reached). The “Maximum” column for this grant represents 200% of target and is the maximum amount payable. (3) The options granted in 2020 to purchase shares of the company's common stock vest 1/3 per year on each anniversary of the grant date and each option has an exercise price equal to the fair market value of one share of common stock on the grant date. The value of each stock option award is $12.97 and was determined by using a lattice/Monte-Carlo based option valuation model; this value was not reduced to reflect estimated forfeitures during the vesting period. (4) The NYSE closing price per share of the company’s common stock on February 25, 2020, the date of the 2020 LTI grants for the NEOs, was $55.27. To determine the fair value of the performance share award under FASB ASC Topic 718, the market value on the grant date is adjusted by a factor of 0.8802 to reflect the probable outcome of the performance condition(s) consistent with the estimated aggregate compensation cost to be recognized over the service period, determined as of the grant date. 2021 Proxy Statement 57                                                                                                                               COMPENSATION MATTERS OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE This table shows outstanding stock option awards classified as exercisable and unexercisable and the number and market value of any unvested or unearned equity awards outstanding as of December 31, 2020 and valued using $48.98, the NYSE closing price per share of the company’s common stock on December 31, 2020. Option Awards Stock Awards Number of Securities Underlying Unexercised Options Exercisable (#)(1) Number of Securities Underlying Unexercised Options Unexercisable (#)(1) Option Exercise Price ($) 148,448 141,388 103,872 301,887 294,481 302,908 189,879 117,421 — 47,214 77,830 72,076 70,679 42,129 25,263 — 94,429 207,547 190,486 201,939 118,674 73,299 — 33,019 32,949 40,388 26,108 17,791 — 37,068 40,388 26,108 17,791 — 56,604 55,601 60,582 56,964 74,722 67,463 — — — — — — 94,940 234,842 327,679 — — — — 21,065 50,527 71,318 — — — — 59,338 146,599 204,703 — — — 13,055 35,582 50,116 — — 13,055 35,582 50,116 — — — — — — 20.63 24.15 35.83 41.25 43.59 48.89 53.81 49.01 55.27 35.83 41.25 43.59 48.89 53.81 49.01 55.27 35.83 41.25 43.59 48.89 53.81 49.01 55.27 41.25 43.59 48.89 53.81 49.01 55.27 43.59 48.89 53.81 49.01 55.27 41.25 43.59 48.89 53.81 49.01 55.27 Option Expiration Date 2/28/2022 3/5/2023 3/4/2024 3/3/2025 3/1/2026 2/28/2027 2/27/2028 2/26/2029 2/25/2030 3/4/2024 3/3/2025 3/1/2026 2/28/2027 2/27/2028 2/26/2029 2/25/2030 3/4/2024 3/3/2025 3/1/2026 2/28/2027 2/27/2028 2/26/2029 2/25/2030 3/3/2025 3/1/2026 2/28/2027 2/27/2028 2/26/2029 2/25/2030 3/1/2026 2/28/2027 2/27/2028 2/26/2029 2/25/2030 3/3/2025 3/1/2026 2/28/2027 2/27/2028 2/26/2029 2/25/2030 Name Grant Date Chris Swift 2/28/2012 3/5/2013 3/4/2014 3/3/2015 3/1/2016 2/28/2017 2/27/2018 2/26/2019 2/25/2020 3/4/2014 3/3/2015 3/1/2016 2/28/2017 2/27/2018 2/26/2019 2/25/2020 3/4/2014 3/3/2015 3/1/2016 2/28/2017 2/27/2018 2/26/2019 2/25/2020 3/3/2015 3/1/2016 2/28/2017 2/27/2018 2/26/2019 2/25/2020 3/1/2016 2/28/2017 2/27/2018 2/26/2019 2/25/2020 3/3/2015 3/1/2016 2/28/2017 2/27/2018 2/26/2019 2/25/2020 Beth Costello Douglas Elliot William Bloom David Robinson Brion Johnson Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) 168,332 78,997 8,244,901 3,869,274 36,218 17,193 1,773,958 842,136 105,080 49,350 5,146,818 2,417,158 25,504 12,082 1,249,186 591,771 25,504 12,082 1,249,186 591,771 35,706 16,264 1,748,880 796,615 (1) Stock options granted to the NEOs vest and become exercisable 1/3 per year on each anniversary of the grant date and generally expire on the tenth anniversary of the grant date. See “(2) Accelerated Stock Option Vesting” on page 65 following the Payments upon Termination or Change of Control table for a description of the circumstances in which vesting is accelerated. (2) This column represents unvested performance share awards at (i) 200% of target (the maximum amount payable) assuming that the company has achieved the highest performance level with respect to awards granted on February 26, 2019 and (ii) 100% of target with respect to awards granted on February 25, 2020. Dividends are not credited on performance shares awarded prior to February 25, 2020; however, dividend equivalents are credited on performance shares awarded on February 25, 2020, which remain subject to the same terms and conditions as the underlying performance shares to which they relate 58 www.thehartford.com                                             COMPENSATION MATTERS and are paid only if, and to the extent that, the underlying performance shares vest and are paid. See “(3) Accelerated Vesting of Performance Shares and Other LTI Awards” on page 65 following the Payments upon Termination or Change of Control table for a description of the circumstances in which vesting is accelerated for performance shares. • • Performance shares granted on February 26, 2019 vest on December 31, 2021, the end of the three year performance period, based on the company’s TSR performance relative to the peer group established by the Compensation Committee and performance against pre-established ROE targets, with the two measures weighted equally (50/50), as described on page 46 of the 2020 proxy statement. Performance shares granted on February 25, 2020 vest on December 31, 2022, the end of the three year performance period, based on the company’s TSR performance relative to the peer group established by the Compensation Committee and performance against pre-established ROE targets, with the two measures weighted equally (50/50), as described on page 45 of this proxy statement. (3) This column reflects the market value of performance shares granted on February 26, 2019 at 200% of target and February 25, 2020 at 100% of target, plus the value of dividend equivalents credited on performance shares granted on February 25, 2020 as of December 31, 2020. OPTION EXERCISES AND STOCK VESTED TABLE This table provides information regarding option awards exercised and stock awards that vested during 2020. The numbers have been rounded to the nearest whole dollar or share. Name Christopher Swift Beth Costello Douglas Elliot William Bloom David Robinson Brion Johnson Option Awards Stock Awards Number of Shares Acquired on Exercise (#) Value Realized on Exercise ($)(1) Number of Shares Acquired on Vesting (#)(2) Value Realized on Vesting ($)(3) — — — — 55,752 2,793,175 12,370 619,724 128,535 3,194,095 34,845 1,745,735 — — — — — — 7,666 12,060 11,150 384,054 602,828 558,628 (1) The amounts in this column reflect the value realized upon the exercise of vested stock options during 2020. The value realized is the difference between the fair market value of common stock on the date of exercise and the exercise price of the option. All options were exercised pursuant to pre-planned trading plans in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. (2) The numbers in this column reflect the total shares of common stock that vested in 2020. RSUs were granted on February 28, 2017 to Mr. Robinson and settled in shares of common stock on March 5, 2020 (4,352) and April 13, 2020 (43), respectively. For all NEOs, performance shares were granted on February 27, 2018, vested on December 31, 2020 and paid out at 75% of target following the Compensation Committee’s February 17, 2021 certification of company performance against two equally weighted measures: • • at 151% performance for pre-established ROE targets, and below threshold performance against the relative TSR performance objective for the three-year performance period January 1, 2018 – December 31, 2020. (3) The aggregate value of the RSU award granted to Mr. Robinson (including accumulated dividend equivalents) is based on the NYSE closing price per share of the company's common stock on February 28, 2020 ($49.95) and April 2, 2020 ($33.27) for his RSU and dividend equivalents, respectively. The value of performance share awards is based on the NYSE closing price per share of the company's common stock on February 17, 2021 ($50.10), the date the Compensation Committee certified the vesting percentage. 2021 Proxy Statement 59 COMPENSATION MATTERS PENSION BENEFITS TABLE The table below shows the number of years of credited service, the actuarial present value of the accumulated pension benefit, and the actual cash balance account as of December 31, 2020 under the company’s tax-qualified pension plan (The Hartford Retirement Plan for U.S. Employees, or the “Retirement Plan”) and the non-qualified pension plan (The Hartford Excess Pension Plan II, or the “Excess Pension Plan”) for each of the NEOs, except Mr. Bloom. Mr. Bloom had accrued a benefit in respect of a prior period of employment when a final average pay formula was applicable. He was rehired after the cash balance account formula accruals ceased as of December 31, 2012. Therefore, the columns below illustrate Mr. Bloom's accrued final average pay formula benefit for his earlier period of employment. Name Christopher Swift Beth Costello Douglas Elliot William Bloom David Robinson Brion Johnson Number of Years Credited Service (#)(1) Present Value of Accumulated Benefit ($)(2) Actual Cash Balance Account or Accrued Benefit ($) Payments During Last Fiscal Year ($) 2.83 2.83 8.67 8.67 1.74 1.74 3.50 3.50 6.08 6.08 1.24 1.24 79,679 443,146 182,566 226,965 54,958 193,181 163,552 1,711 146,651 138,755 32,932 63,631 77,083 428,711 169,411 210,612 53,424 187,788 — — 138,209 130,768 32,932 63,424 — — — — — — — — — — — — Plan Name Retirement Plan Excess Pension Plan Retirement Plan Excess Pension Plan Retirement Plan Excess Pension Plan Retirement Plan Excess Pension Plan Retirement Plan Excess Pension Plan Retirement Plan Excess Pension Plan (1) Benefit accruals ceased as of December 31, 2012 under each Plan, but service continues to be credited for purposes of determining whether employees have reached early or normal retirement milestones. As of December 31, 2020, each of the NEOs was vested at 100% in their Final Average Earnings benefit or cash balance account. (2) The present value of accumulated benefits under each Plan is calculated assuming that benefits commence at age 65, no pre- retirement mortality, a lump sum form of payment and the same actuarial assumptions used by the company for GAAP financial reporting purposes. Because the cash balance amounts are projected to age 65 using an assumed interest crediting rate of 3.3% (the actual rate in effect for 2020), and the present value as of December 31, 2020 is determined using a discount rate of 2.64%, the present value amounts are similar to the actual December 31, 2020 cash balance accounts. (3) The present value of the final average pay benefit portion of Mr. Bloom's benefit assumes commencement at the date he would receive an unreduced benefit under the plan (age 62 plus one month) and an annuity form of payment. Mr. Bloom has no accrued benefit under the cash balance formula. Cash Balance Formula Employees hired prior to January 1, 2001 accrued benefits under a final average pay formula through December 31, 2008 and accrued benefits under the cash balance formula from January 1, 2009 to December 31, 2012. For employees hired on or after January 1, 2001, retirement benefits accrued under the cash balance formula until December 31, 2012. Effective December 31, 2012, the cash balance formula under the Retirement Plan and the Excess Pension Plan was frozen for all Plan participants, including the NEOs. Interest continues to be credited on previously accrued amounts, at a rate of 3.3% or based on the 10 year Treasury rate, whichever is greater. All Plan participants are currently vested in their account balances, which they may elect to receive following termination of employment in the form of a single lump sum payment or an actuarially- equivalent form of annuity. In the event of a Change of Control, each NEO would automatically receive a lump sum of the value of their Excess Pension Plan cash balance benefit as of the date of the Change of Control, provided that the Change of Control also constitutes a “change in control” as defined in regulations issued under Section 409A of the Internal Revenue Code. Final Average Pay Formula Because Mr. Bloom was previously employed by The Hartford from 1996-1999, he earned benefits under the final average pay formula in effect for employees hired prior to January 1, 2001. This final average pay formula provides an annual pension payable in the form of an annuity commencing as of normal retirement age (age 65) for the participant's lifetime, equal to 2% of the employee's average final pay for each of the first 30 years of credited service prior to January 1, 2009, reduced by 1.67% of the employee's primary Social Security benefit for each of the first 30 years of credited service prior to January 1, 2009. An employee's average 60 www.thehartford.com COMPENSATION MATTERS final pay is calculated as the sum of (i) average annual base salary for the 60 calendar months of the last 120 calendar months of service prior to 2009 affording the highest average, plus (ii) average annual bonus payments in the five calendar years of the employee's last ten calendar years of service prior to 2009 affording the highest average. Benefits are payable as a single life annuity or reduced actuarially-equivalent amount in order to provide for payments to a contingent annuitant. In the event of a Change of Control, Mr. Bloom would automatically receive a lump sum of the value of his Excess Pension Plan benefit as of the date of the Change of Control, provided that the Change of Control also constitutes a “change in control” as defined in regulations issued under Section 409A of the Internal Revenue Code. NON-QUALIFIED DEFERRED COMPENSATION TABLE Excess Savings Plan NEOs, as well as other employees, may contribute to the company’s Excess Savings Plan, a non-qualified plan established as a “mirror” to the company’s tax-qualified 401(k) plan (The Hartford Investment and Savings Plan). The Excess Savings Plan is intended to facilitate deferral of amounts that cannot be deferred under the 401(k) plan for employees whose compensation exceeds the Internal Revenue Code limit for the 401(k) plan ($285,000 in 2020). When an eligible employee’s annual compensation reaches that Internal Revenue Code limit, the eligible employee can contribute up to six percent (6%) of compensation in excess of that limit to the Excess Savings Plan, up to a combined $1 million annual limit on compensation for both plans. The company makes a matching contribution to the Excess Savings Plan in an amount equal to 100% of the employee’s contribution. Company contributions to the Excess Savings Plan are fully vested and plan balances are payable in a lump sum following termination of employment. The table below shows the notional investment options available under the Excess Savings Plan during 2020 and their annual rates of return for the calendar year ended December 31, 2020, as reported by the administrator of the Excess Savings Plan. The notional investment options available under the Excess Savings Plan correspond to the investment options available to participants in the 401(k) plan. Excess Savings Plan Notional Investment Options Name of Fund December 31, 2020) Name of Fund Rate of Return (for the year ended Rate of Return (for the year ended December 31, 2020) The Hartford Stock Fund ISP International Equity Fund(1) ISP Active Large Cap Equity Fund(2) ISP Small/Mid Cap Equity Fund(3) State Street S&P 500 Index Fund Hartford Stable Value Fund -16.21 % Vanguard Target Retirement 2015 Trust 13.67 % Vanguard Target Retirement 2020 Trust 20.11 % Vanguard Target Retirement 2025 Trust 12.78 % Vanguard Target Retirement 2030 Trust 18.36 % Vanguard Target Retirement 2035 Trust 2.35 % Vanguard Target Retirement 2040 Trust Hartford Total Return Bond HLS Fund 9.03 % Vanguard Target Retirement 2045 Trust SSgA Real Asset Fund 3.20 % Vanguard Target Retirement 2050 Trust Vanguard Federal Money Market Fund 0.45 % Vanguard Target Retirement 2055 Trust State Street Global All Cap Equity Ex-U.S. Index Non-Lending Series Fund State Street Russell Small/Mid Cap® Index Non-Lending Series Fund 11.29 % Vanguard Target Retirement 2060 Trust 32.62 % Vanguard Target Retirement 2065 Trust Vanguard Target Retirement Income Trust 10.10 % 10.44 % 12.13 % 13.42 % 14.19 % 14.92 % 15.60 % 16.30 % 16.47 % 16.44 % 16.51 % 16.46 % (1) The ISP International Equity Fund is a multi-fund portfolio made up of two underlying mutual funds that provides a blended rate of return. The underlying funds are the Hartford International Opportunities HLS Fund (50%) and Sprucegrove All Country World ex USA CIT Fund (50%). (2) The ISP Active Large Cap Equity Fund is a multi-fund portfolio made up of two underlying funds that provides a blended rate of return. The underlying funds are the Hartford Dividend and Growth HLS Fund (50%) and the Loomis Sayles Growth Fund (50%). (3) The ISP Small/Mid Cap Equity Fund is a multi-fund portfolio made up of four underlying funds (one mutual fund and three managed separate accounts) that provides a blended rate of return. The underlying funds are the T. Rowe Price QM U.S. Small- Cap Growth Fund (20%), Chartwell Investment Partners Small Cap Value Fund (20%), Hartford MidCap HLS Fund (30%) and LMCG Investments Mid Cap Value Fund (30%). 2021 Proxy Statement 61 COMPENSATION MATTERS Non-Qualified Deferred Compensation - Excess Savings Plan The table below shows the NEO and company contributions, the aggregate earnings credited, and the total balance of each NEO’s account under the Excess Savings Plan as of December 31, 2020. Name Christopher Swift Beth Costello Douglas Elliot William Bloom David Robinson Brion Johnson Executive Contributions in Last FY ($)(1) Registrant Contributions in Last FY ($)(2) Aggregate Earnings in Last FY ($)(3) Aggregate Withdrawals / Distributions ($) Aggregate Balance at Last FYE ($)(4) 42,900 42,900 42,900 42,900 42,900 42,900 42,900 42,900 42,900 42,900 42,900 42,900 163,718 17,638 18,988 102,382 42,598 13,493 — — — — — — 1,282,381 786,162 844,862 632,158 713,236 899,557 (1) The amounts shown reflect executive contributions into the Excess Savings Plan during 2020 with respect to Annual Incentive Plan cash awards paid in 2020 in respect of performance during 2019. These amounts are included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table in the 2020 proxy statement. (2) The amounts shown reflect the company’s matching contributions into the Excess Savings Plan in respect of each NEO’s service in 2020. These amounts are also included with the company's contributions to the 401(k) plan in the “All Other Compensation” column of the Summary Compensation Table on page 55. (3) The amounts shown represent investment gains (or losses) during 2020 on notional investment funds available under the Excess Savings Plan (which mirror investment options available under the 401(k) plan). No portion of these amounts is included in the Summary Compensation Table on page 55 as the company does not provide above-market rates of return. (4) The amounts shown represent the cumulative amount that has been credited to each NEO’s account under the applicable plan as of December 31, 2020. The amounts reflect the sum of the contributions made by each NEO and the company since the NEO first began participating in the Excess Savings Plan (including executive and company contributions reported in the Summary Compensation Tables in previous years), adjusted for any earnings or losses as a result of the performance of the notional investments. The reported balances are not based solely on 2020 service. 62 www.thehartford.com COMPENSATION MATTERS POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL The following section provides information concerning the value of potential payments and benefits as of December 31, 2020 that would be payable to NEOs following termination of employment under various circumstances or in the event of a Change of Control (as defined on page 67). Benefit eligibility and values as of December 31, 2020 vary based on the reason for termination. Senior Executive Severance Pay Plan The NEOs participate in The Hartford Senior Executive Officer Severance Pay Plan (the “Senior Executive Plan”), which provides specified payments and benefits to participants upon termination of employment as a result of severance eligible events. The Senior Executive Plan applies to the NEOs and other executives that the Executive Vice President and Chief Human Resources Officer (the “Plan Administrator”) approves for participation. As a condition to participate in the Senior Executive Plan, the NEOs must agree to such restrictive covenants as are required by the Plan Administrator. In addition to confidentiality and non-disparagement provisions that continue after termination of employment, the NEOs have agreed that, while employed and for a one-year period following a termination of employment, they are subject to non-competition and non-solicitation provisions. If an NEO is involuntarily terminated, other than for Cause (as defined on page 67), the NEO would receive a lump sum severance amount equal to two times the sum of their annual base salary and the target AIP award, both determined as of the involuntary termination date, payable within 60 days of termination. Treatment of the AIP award for the year in which the termination occurs, outstanding and unvested LTI awards and other benefits as of the termination date if an NEO is involuntarily terminated other than for Cause (including if the NEO is, or is not, retirement eligible) are described in Footnotes 1, 2, 3 and 5 to the table below. Treatment upon a Change of Control If, within the two year period following a Change of Control (as defined on page 67), (1) the NEO is involuntarily terminated by the company other than for Cause, or (2) the NEO voluntarily terminates employment with the company for Good Reason (as defined on page 67), then the NEO would receive the same severance pay under the Senior Executive Plan as the NEO would have received in the event of involuntary termination before a Change of Control, and would be eligible for a pro rata AIP award as set forth above, except that the pro rata AIP award payable would be at least the same percentage of the target level of payout as is generally applicable to executives whose employment did not terminate. LTI awards would not vest automatically upon a Change of Control so long as the Compensation Committee determines that, upon the Change of Control, the awards would either continue to be honored or be replaced with substantially equivalent alternative awards. If the awards were so honored or replaced, then those awards would fully vest if, within the two year period following the Change of Control, (1) the NEO was involuntarily terminated by the company other than for Cause, or (2) the NEO voluntarily terminated employment with the company for Good Reason. In the event of a Change of Control, the NEO would receive a lump sum equal to the present value of their benefit under the Excess Pension Plan and their Excess Savings Plan balance, provided that the Change of Control also constituted a “change in control” as defined in regulations issued under Section 409A of the Internal Revenue Code. (See (6) Additional Pension Benefits below for a description of Mr. Bloom's Excess Pension Plan benefit upon a Change in Control.) No gross-up would be provided for any excise taxes that apply to an NEO upon a Change of Control. Other Benefits in the Event of Death or Disability In the event of death, an NEO would receive a company-paid life insurance benefit in addition to whatever voluntary group term life insurance coverage is in effect. The company paid benefit would equal one times salary with a cap of $100,000, unless the employee had elected a flat amount of $50,000.   In the event of disability, the NEO would be entitled to short and long term disability benefits if they were disabled in accordance with the terms of the applicable plan. Upon the commencement of long term disability benefits and while in receipt of long term disability benefits, each NEO would be eligible to participate in company health benefit and life insurance plans for up to a maximum of three years. Eligibility for Retirement Treatment For AIP awards, an NEO will receive retirement treatment if they meet one of the following retirement definitions as of the last date paid: (i) the NEO is at least age 55 with at least 5 years of service, and age plus service equals or exceeds 65 (the "Rule of 65") or (ii) the NEO is at least age 50, has at least 10 years of service and the sum of the NEO’s age and service is equal to at least 70, or the NEO is at least age 65 with at least 5 years of service (the "Rule of 70"). All of the NEOs were eligible to receive retirement treatment for their AIP awards as of December 31, 2020. For the 2018, 2019 and 2020 LTI awards, an NEO will receive retirement treatment if they provide written notice three months in advance of their planned retirement date, continues to perform their job responsibilities satisfactorily, and meets one of the following retirement definitions as of the last date paid: (i) the NEO is at least age 55 with at least 5 years of service, and age plus service equals or exceeds 65 (the "Rule of 65"), or (ii) as of the 2016 annual grant date of March 1, 2016, the NEO was at least age 50 with at least 10 years of service and the sum of the NEO's age and service was equal to at least 70 , and the NEO had an outstanding LTI grant as of December 31, 2015. Messrs. Swift, Elliot, Bloom, and Robinson were eligible to receive retirement treatment for their 2018, 2019 and 2020 LTI awards under the Rule of 65, as described below. 2021 Proxy Statement 63 COMPENSATION MATTERS Payments upon Termination or Change of Control The table and further discussion below (including the section titled Treatment of Former NEO) address benefits that would be payable to the NEOs as of December 31, 2020 assuming their termination of employment on December 31, 2020 under various circumstances or in the event of a Change of Control effective December 31, 2020 (and, in the case of Mr. Johnson, that were actually payable upon his retirement on December 31, 2020). The benefits discussed below are in addition to: • • • • The vested stock options set forth in the Outstanding Equity Awards at Fiscal Year-End Table on page 58, The vested performance shares set forth in the Option Exercises and Stock Vested Table on page 59, The vested pension benefits set forth in the Pension Benefits Table on page 60, and The vested benefits set forth in the Non-Qualified Deferred Compensation Table on page 62 (benefits payable from the Excess Savings Plan). The amounts shown for accelerated stock option and other LTI vesting are calculated using the NYSE closing price per share of the company’s common stock on December 31, 2020 of $48.98. Payment Type Christopher Swift Beth Costello Douglas Elliot William Bloom David Robinson VOLUNTARY TERMINATION OR RETIREMENT 2020 AIP Award ($)(1) Accelerated Stock Option Vesting ($)(2) Accelerated Performance Share Vesting ($)(3) Accelerated Other LTI Vesting ($)(3) Benefits Continuation and Outplacement ($)(5) TOTAL TERMINATION BENEFITS ($) INVOLUNTARY TERMINATION – NOT FOR CAUSE 2020 AIP Award ($)(1) Cash Severance ($)(4) Accelerated Stock Option Vesting ($)(2) Accelerated Performance Share Vesting ($)(3) Accelerated Other LTI Vesting ($)(3) Benefits Continuation and Outplacement ($)(5) TOTAL TERMINATION BENEFITS ($) CHANGE OF CONTROL/ INVOLUNTARY TERMINATION NOT FOR CAUSE OR TERMINATION FOR GOOD REASON 2020 AIP Award ($)(1) Cash Severance ($)(4) Accelerated Stock Option Vesting ($)(2) Accelerated Performance Share Vesting ($)(3) Accelerated Other LTI ($)(3) Benefits Continuation and Outplacement ($)(5) Additional Pension Benefits ($) TOTAL TERMINATION BENEFITS ($) 2,400,000 1,000,000 1,520,000 800,000 580,000 — 7,991,725 — — — — — 10,391,725 — 1,000,000 — — — 4,990,567 1,216,364 1,216,364 — — 6,510,567 — — 2,016,364 — — 1,796,364 2,400,000 8,300,000 — 1,000,000 3,950,000 — 1,520,000 5,700,000 — 800,000 580,000 3,250,000 2,650,000 — — 7,991,725 872,031 4,990,567 1,216,364 1,216,364 — — — 41,904 18,733,629 42,275 5,864,306 36,151 12,246,718 — 35,925 5,302,289 — 41,904 4,488,268 2,400,000 8,300,000 — 1,000,000 3,950,000 — 1,520,000 5,700,000 — 800,000 580,000 3,250,000 2,650,000 — — 7,991,725 1,729,115 4,990,567 1,216,364 1,216,364 — 41,904 — 42,275 — 36,151 — 18,733,629 — 6,721,390 — 12,246,718 — 35,925 163 5,302,452 — 41,904 — 4,488,268 INVOLUNTARY TERMINATION – DEATH OR DISABILITY 2020 AIP Award ($)(1) Accelerated Stock Option Vesting ($)(2) 2,400,000 1,000,000 1,520,000 800,000 580,000 — — — — — Accelerated Performance Share Vesting ($)(3) 7,991,725 1,729,115 4,990,567 1,216,364 1,216,364 Accelerated Other LTI Vesting ($)(3) Benefits Continuation ($)(5) — — — — — 51,210 52,323 33,948 33,272 51,210 TOTAL TERMINATION BENEFITS ($) 10,442,935 2,781,438 6,544,515 2,049,636 1,847,574 64 www.thehartford.com COMPENSATION MATTERS (1) 2020 AIP Award Voluntary Termination or Retirement. Generally, upon a voluntary termination of employment during 2020, the NEO would not be eligible to receive an AIP award for 2020 unless the Compensation Committee determined otherwise. However, an NEO who is eligible for retirement treatment for an AIP award would be entitled to receive a pro rata award for 2020 based on the portion of the year served, payable no later than March 15 following the calendar year of termination. All of the NEOs were eligible for retirement treatment as of December 31, 2020 under the AIP. The amounts shown represent the actual award payable for 2020, as reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 55. Involuntary Termination – Not For Cause. Each NEO would be eligible for a pro rata portion of their 2020 AIP award. The amounts shown represent the actual award payable for 2020, as reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 55. Involuntary Termination – Not For Cause, or a Termination For Good Reason, Within Two Years Following a Change of Control. Each NEO would be eligible for a pro rata portion of their 2020 AIP award, commensurate with amounts received by the executives who did not terminate employment. The amounts shown represent the actual award payable for 2020, as reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 55. Involuntary Termination For Cause. No AIP award would be payable. Death or Disability. Each NEO would receive a 2020 AIP award comparable to the award that would have been paid had they been subject to an involuntary termination (not for Cause). (2) Accelerated Stock Option Vesting Voluntary Termination or Retirement. For a voluntary termination, all unvested options would be canceled, unless the Compensation Committee determined otherwise. Each NEO would be entitled to exercise stock options vested as of the date of their termination of employment within the four month period following termination of employment but not beyond the scheduled expiration date. If the NEO is retirement eligible, unvested stock options would immediately vest. Vested options would need to be exercised no later than the scheduled expiration date. All of the NEOs, except for Ms. Costello, were eligible for retirement treatment as of December 31, 2020 on their 2018, 2019 and 2020 option awards. Involuntary Termination – Not For Cause. Each NEO would be entitled to pro rata vesting of unvested stock options as long as the options had been outstanding for at least one year from the date of grant. Stock options vested as of the date of termination of employment would need to be exercised within the four month period following termination of employment but not beyond the scheduled expiration date. If the NEO is retirement eligible, unvested stock options would immediately vest. Vested options would need to be exercised no later than the scheduled expiration date. All of the NEOs, except for Ms. Costello, were eligible for retirement treatment as of December 31, 2020 on their 2018, 2019 and 2020 option awards. Change of Control. Stock options would not automatically vest upon a Change of Control so long as the Compensation Committee determined that, upon the Change of Control, the awards would either be honored or replaced with substantially equivalent alternative awards. If the stock option awards were so honored or replaced, then vesting of those awards would only be accelerated if the NEO’s employment were to be terminated within two years following the Change of Control without Cause or by the NEO for Good Reason. Stock options, if vested upon the Change of Control, would be exercisable for the remainder of their original term. The amounts shown in the Change of Control section of the table provide the value of accelerated stock option vesting presuming that all options were to vest upon a Change of Control on December 31, 2020 (i.e., that the stock option awards were not honored or replaced, or that the NEOs were terminated at the time of the Change of Control without Cause) or quit for Good Reason. Involuntary Termination For Cause. All unvested stock options would be canceled. Death or Disability. All unvested stock options would fully vest and would need to be exercised no later than the scheduled expiration date. (3) Accelerated Vesting of Performance Shares and Other LTI Awards Voluntary Termination or Retirement. For a voluntary termination, unvested performance shares and RSUs would be canceled as of the termination of employment date, unless the Compensation Committee determined otherwise. For retirement eligible employees, performance share awards granted on February 26, 2019 and February 25, 2020 would fully vest, subject to compliance with a non-competition provision. As of December 31, 2020, all of the NEOs, except for Ms. Costello, were eligible to receive retirement treatment on their outstanding performance share awards, subject to compliance with the non-competition provision. The amounts shown included dividend equivalents accrued as of December 31, 2020 on February 25, 2020 performance awards. Involuntary Termination – Not For Cause. All of the NEOs, except for Ms. Costello, would receive full vesting for their 2019 and 2020 performance share awards due to eligibility for retirement treatment, subject to compliance with the non- competition provision. Ms. Costello, who is not retirement eligible, would be entitled to pro rata treatment of 2019 and 2020 performance share awards at the end of the applicable performance period. The amount shown is the value the NEO would be 2021 Proxy Statement 65 COMPENSATION MATTERS entitled to at the end of the respective performance period for these awards to which pro rata or full payment applies, based on $48.98, the closing stock price on December 31, 2020, and payout at target. The amounts shown include dividend equivalents accrued as of December 31, 2020 on February 25, 2020 performance awards. Change Of Control. RSU and performance share awards would not automatically vest upon a Change of Control so long as the Compensation Committee determined that, upon the Change of Control, the awards would either be honored or replaced with substantially equivalent alternative awards. If the RSU awards and the performance share awards were so honored or replaced, then vesting of those awards would only be accelerated if the NEO’s employment were to be terminated within two years following the Change of Control without Cause or by the NEO for Good Reason. The amounts shown in the Change of Control section of the table indicate the value of accelerated vesting presuming that all awards were to vest upon the Change of Control (i.e., the performance share awards were not honored or replaced, or that the NEOs were terminated at the time of the Change of Control without Cause or quit for Good Reason), based on $48.98, the closing stock price on December 31, 2020, and, in the case of performance shares, a payout at target. The Compensation Committee could determine that performance share awards would pay out at greater than the target amount. The amounts shown include dividend equivalents accrued as of December 31, 2020 on February 25, 2020 performance awards. Involuntary Termination For Cause. All unvested awards would be canceled. Death or Disability. Performance share awards granted in 2019 and 2020 would vest in full at target and be payable within 60 days of the termination date. The amounts shown include dividend equivalents accrued as of December 31, 2020 on February 25, 2020 performance awards. (4) Cash Severance Payments Voluntary Termination or Retirement, Involuntary Termination For Cause, Death or Disability. No benefits would be payable. Involuntary Termination - Not For Cause Before or After a Change of Control, or Termination For Good Reason Within Two Years Following a Change of Control. Each NEO would receive a severance payment calculated as a lump sum equal to two times the sum of base salary and the target AIP award at the time of termination (assumed to be December 31, 2020 for this purpose). In the event of termination after a Change of Control, if the aggregate present value of payments contingent on the Change of Control would result in payment by the NEO of an excise tax on “excess parachute payments,” as described in regulations under Sections 280G and 4999 of the Internal Revenue Code, then the severance amounts shown would be reduced if, as a result, the NEO would thereby receive more on an after-tax basis than they would receive if the reduction in the severance amount was not made. The amounts shown assume that such reduction does not occur. (5) Benefits Continuation and Outplacement Voluntary Termination or Retirement. No benefits would be payable. NEOs who terminate employment after attaining age 55 and completing 10 years of service can elect coverage under a company high deductible health plan until age 65 at their own expense. Involuntary Termination - Not For Cause Before or After A Change of Control, or Termination For Good Reason Within Two Years Following a Change of Control. Each NEO would be provided up to one-year of health benefits at the employee cost and up to one-year of executive outplacement services. The amounts shown represent the estimated employer cost of health coverage continuation and outplacement for one year. Involuntary Termination - Death or Disability. Each NEO would be provided 36 months of life and health benefits continuation from the date of termination due to long term disability. The amounts shown represent the estimated employer cost of life and health coverage continuation for three years. (6) Additional Pension Benefits Upon a Change in Control In the event of a Change in Control, all participants in the Excess Pension Plan automatically receive, in a single lump sum, the present value of the benefit accrued as of the date of the Change in Control, provided that the Change of Control also constitutes a "change of control" as defined in regulations issued under Section 409A of the Internal Revenue Code. In such event, the provisions of the Excess Pension Plan regarding the calculation of the lump sum payments due under that Plan's final average pay formula provide for different assumptions to be used, including lower discount rates, than have historically been assumed by the company for GAAP financial reporting purposes. In the event of a Change of Control, the hypothetical lump sum payout from the Excess Pension Plan to Mr. Bloom would thus be greater by $163 than the accumulated benefit present value set forth in the Pension Benefits Table on page 60. TREATMENT OF FORMER NEO In June 2020, the company announced Brion Johnson's decision to retire. As part of his transition, he continued as an employee of the company in an advisory capacity until his retirement on December 31, 2020. No adjustments were made to Mr. Johnson’s salary or benefits during this transition period. Upon Mr. Johnson's retirement on December 31, 2020, his outstanding, unvested equity awards received the following treatment: • Stock options granted on February 27, 2018 accelerated so that the final tranche of 18,988 options became vested on December 31, 2020, which are included in the Outstanding Equity table on page 58. 66 www.thehartford.com COMPENSATION MATTERS • • • Stock options granted on February 26, 2019 accelerated so that the final two tranches of 49,815 options became vested on December 31, 2020, which are included in the Outstanding Equity table on page 58. Stock options granted February 25, 2020 accelerated so that all 67,463 options became vested on December 31, 2020, which are included in the Outstanding Equity table on page 58. Performance shares granted in 2019 and 2020 will vest based on actual performance following the end of their respective performance periods, subject to Mr. Johnson's compliance with the non-competition provision applicable to such awards during the remainder of their respective performance periods. Such awards remain subject to the achievement of the applicable performance criteria and will be paid in 2022 and 2023, respectively, following certification of performance at the end of the applicable performance periods. The value of these awards at the end of their respective performance periods, based on the closing stock price on December 31, 2020 ($48.98) and payout at target performance, and including dividend equivalents accrued as of December 31, 2020 on Mr. Johnson's 2020 performance award, would be $1,671,055. Mr. Johnson also received a cash AIP award of $1,000,000 as shown in the Summary Compensation Table on page 55. DEFINITIONS “Cause” as used above is defined differently, depending upon whether an event occurs before or after a Change of Control. Prior to a Change of Control, “Cause” is generally defined as termination for misconduct or other disciplinary action. • • Upon the occurrence of a Change of Control, “Cause” is generally defined as the termination of the executive’s employment due to: (i) a felony conviction; (ii) an act or acts of dishonesty or gross misconduct which result or are intended to result in damage to the company’s business or reputation; or (iii) repeated violations by the executive of the obligations of their position, which violations are demonstrably willful and deliberate and which result in damage to the company’s business or reputation. “Change of Control” is generally defined as: • The filing of a report with the SEC disclosing that a person is the beneficial owner of 40% or more of the outstanding stock of the company entitled to vote in the election of directors of the company; • A person purchases shares pursuant to a tender offer or exchange offer to acquire stock of the company (or securities convertible into stock), provided that after consummation of the offer, the person is the beneficial owner of 20% or more of the outstanding stock of the company entitled to vote in the election of directors of the company; • The consummation of a merger, consolidation, recapitalization or reorganization of the company approved by the stockholders of the company, other than in a transaction immediately following which the persons who were the beneficial owners of the outstanding securities of the company entitled to vote in the election of directors of the company immediately prior to such transaction are the beneficial owners of at least 55% of the total voting power represented by the securities of the entity surviving such transaction entitled to vote in the election of directors of such entity in substantially the same relative proportions as their ownership of the securities of the company entitled to vote in the election of directors of the company immediately prior to such transaction; • The consummation of a sale, lease, exchange or other transfer of all or substantially all the assets of the company approved by the stockholders of the company; or • Within any 24 month period, the persons who were directors of the company immediately before the beginning of such period (the “Incumbent Directors”) cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the company, provided that any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director (A) was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this clause, and (B) was not designated by a person who has entered into an agreement with the company to effect a merger or sale transaction described above. “Good Reason” is generally defined as: • The assignment of duties inconsistent in any material adverse respect with the executive’s position, duties, authority or responsibilities, or any other material adverse change in position, including titles, authority or responsibilities; • A material reduction in base pay or target AIP award; • Being based at any office or location more than 50 miles from the location at which services were performed immediately prior to the Change of Control (provided that such change of office or location also entails a substantially longer commute); • A failure by the company to obtain the assumption and agreement to perform the provisions of the Senior Executive Plan by a successor; or • A termination asserted by the company to be for cause that is subsequently determined not to constitute a termination for Cause. 2021 Proxy Statement 67 COMPENSATION MATTERS CEO Pay Ratio For 2020, Mr. Swift had total compensation, as reported in the Summary Compensation Table on page 55, of $11,806,195, while our median employee had total compensation of $92,639, yielding a CEO pay ratio of 127 times the median. Annual base salary at year- end 2020 was used to determine the median employee; no statistical sampling was used. The median employee's total compensation was calculated in the same manner as for the CEO in the Summary Compensation Table. All non-U.S. employees were excluded using the 5% de minimis rule (159 employees were based in the U.K., 59 in Belgium, 7 in Canada, 6 in Hong Kong, 4 in Switzerland and 1 in the Netherlands). 68 www.thehartford.com INFORMATION ON STOCK OWNERSHIP DIRECTORS AND EXECUTIVE OFFICERS The following table shows, as of March 22, 2021: (1) the number of shares of our common stock beneficially owned by each director and NEO, and (2) the aggregate number of shares of common stock and common stock-based equity (including RSUs, performance shares granted at target and stock options that will not vest or become exercisable within 60 days, as applicable) held by all directors, NEOs and Section 16 executive officers as a group. As of March 22, 2021, no individual director, NEO or Section 16 executive officer beneficially owned 1% or more of the total outstanding shares of our common stock. The directors, NEOs and Section 16 executive officers as a group beneficially owned approximately 1.55% of the total outstanding shares of our common stock as of March 22, 2021. Name of Beneficial Owner Robert B. Allardice, III William A. Bloom Beth Costello(3) Larry De Shon Carlos Dominguez Douglas Elliot Trevor Fetter(4) Donna James Brion Johnson Kathryn A. Mikells(5) Michael G. Morris David Robinson Teresa W. Roseborough Virginia P. Ruesterholz Christopher J. Swift(6) Matthew Winter Greig Woodring(7) All directors, NEOs and Section 16 executive officers as a group (23 persons) Common Stock(1) 19,921 235,159 465,587 5,083 12,997 1,294,115 114,582 891 208,342 89,940 91,242 199,587 23,094 36,932 Total(2) 19,921 380,463 660,299 5,083 12,997 1,841,775 114,582 891 242,569 89,940 91,242 338,405 23,094 36,932 2,254,878 3,154,435 5,568 11,663 5,568 11,663 5,543,240 7,845,897 (1) All shares of common stock are owned directly except as otherwise indicated below. Pursuant to SEC regulations, shares of common stock beneficially owned include shares of common stock that, as of March 22, 2021: (i) may be acquired by directors, NEOs and Section 16 executive officers upon the vesting or distribution of stock-settled RSUs or the exercise of stock options exercisable within 60 days after March 22, 2021, (ii) are allocated to the accounts of Section 16 executive officers under the company’s tax-qualified 401(k) plan, (iii) are held by Section 16 executive officers under The Hartford Employee Stock Purchase Plan or (iv) are owned by a director’s, NEO's or a Section 16 executive officer’s spouse or minor child. Of the number of shares of common stock shown above, the following shares may be acquired upon exercise of stock options as of March 22, 2021 or within 60 days thereafter by: Mr. Bloom, 197,806 shares; Ms. Costello, 405,291 shares; Mr. Elliot, 1,087,245 shares; Mr. Johnson, 192,268 shares; Mr. Robinson, 168,906 shares; Mr. Swift, 1,921,871 shares; and all NEOs and Section 16 executive officers as a group, 4,309,178 shares. (2) This column shows the individual’s total stock-based holdings in the company, including the securities shown in the “Common Stock” column (as described in footnote 1), plus RSUs that vest and stock options that become exercisable more than 60 days after March 22, 2021, and all outstanding performance shares (at target). (3) The amount shown includes 11 shares of common stock held by Ms. Costello’s spouse. (4) The amount shown includes 10,188 shares of common stock held by a trust for which Mr. Fetter serves as trustee. (5) The amount shown includes 11,800 shares of common stock held by a limited liability company of which Ms. Mikells is a member. (6) The amount shown includes 43,179 shares of common stock held by Mr. Swift’s spouse and 151,905 held in two trusts for which Mr. Swift or his spouse serves as trustee. (7) The amount shown includes 84 shares of common stock held by a trust for which Mr. Woodring serves as trustee. 2021 Proxy Statement 69 INFORMATION ON STOCK OWNERSHIP CERTAIN SHAREHOLDERS The following table shows those persons known to the company as of February 16, 2021 to be the beneficial owners of more than 5% of our common stock. In furnishing the information below, we have relied on information filed with the SEC by the beneficial owners. Name and Address of Beneficial Owner The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 BlackRock Inc. 55 East 52nd Street New York, NY 10055 JPMorgan Chase & Co. 383 Madison Avenue New York, NY 10179 State Street Corporation One Lincoln Street Boston, MA 02111 Amount and Nature of Beneficial Ownership 38,908,481(2) Percent of Class(1) 10.86% 24,677,290(3) 20,413,518(4) 19,738,870(5) 6.9% 5.6% 5.51% (1) The percentages contained in this column are based solely on information provided in Schedules 13G or 13G/A filed with the SEC by each of the beneficial owners listed above regarding their respective holdings of our common stock as of December 31, 2020. (2) This information is based solely on information contained in a Schedule 13G/A filed on February 10, 2021 by The Vanguard Group to report that it was the beneficial owner of 38,908,481 shares of our common stock as of December 31, 2020. Vanguard has (i) sole power to vote or to direct the vote with respect to none of such shares; (ii) shared power to vote or to direct the vote with respect to 578,011 of such shares, (iii) sole power to dispose or direct the disposition with respect to 37,323,787 of such shares and (iv) the shared power to dispose or direct the disposition of 1,584,694 of such shares. (3) This information is based solely on information contained in a Schedule 13G/A filed on January 29, 2021 by BlackRock, Inc. to report that it was the beneficial owner of 24,677,290 shares of our common stock as of December 31, 2020. BlackRock has (i) sole power to vote or to direct the vote with respect to 21,087,803 of such shares; (ii) shared power to vote or to direct the vote with respect to none of such shares; (iii) sole power to dispose or direct the disposition of 24,677,290 of such shares; and (iv) shared power to dispose or direct the disposition of none of such shares. (4) This information is based solely on information contained in a Schedule 13G/A filed on January 25, 2021 by JPMorgan Chase & Co. to report that it was the beneficial owner of 20,413,518 shares of our common stock as of December 31, 2020. JPMorgan has (i) sole power to vote or to direct the vote with respect to 19,432,505 of such shares; (ii) shared power to vote or to direct the vote of 40,120 of such shares; (iii) sole power to dispose or to direct the disposition of 20,374,674 of such shares; and (iv) shared power to dispose or to direct the disposition of 26,751 of such shares. (5) This information is based solely on information contained in a Schedule 13G filed on February 12, 2021 by State Street Corporation to report that it was the beneficial owner of 19,738,870 shares of our common stock as of December 31, 2020. State Street has (i) sole power to vote or to direct the vote with respect to none of such shares; (ii) shared power to vote or to direct the vote with respect to 18,014,795 of such shares and (iii) sole power to dispose or to direct the disposition of none of such shares; and (iv) shared power to dispose or direct the disposition of 19,698,477 of such shares. 70 www.thehartford.com INFORMATION ABOUT THE HARTFORD’S ANNUAL MEETING OF SHAREHOLDERS HOUSEHOLDING OF PROXY MATERIALS SEC rules permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and notices with respect to two or more shareholders sharing the same address by delivering a single proxy statement or a single notice addressed to those shareholders. This process, which is commonly referred to as “householding,” provides cost savings for companies. Some brokers household proxy materials, delivering a single proxy statement or notice to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement or notice, please notify your broker. You may also call (800) 542-1061 or write to: Householding Department, 51 Mercedes Way, Edgewood, New York 11717, and include your name, the name of your broker or other nominee, and your account number(s). You can also request prompt delivery of copies of the Notice of 2021 Annual Meeting of Shareholders, Proxy Statement and 2020 Annual Report by writing to Donald C. Hunt, Corporate Secretary, The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. FREQUENTLY ASKED QUESTIONS The Board of Directors of The Hartford is soliciting shareholders’ proxies in connection with the 2021 Annual Meeting of Shareholders, and at any adjournment or postponement thereof. The mailing to shareholders of the notice of Internet availability of proxy materials took place on or about March 29, 2021. Q: Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials? A: Instead of mailing a printed copy of our proxy materials to each shareholder of record, the SEC permits us to furnish proxy materials by providing access to those documents on the Internet. Shareholders will not receive printed copies of the proxy materials unless they request them. The notice instructs you as to how to submit your proxy on the Internet. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions in the notice for requesting them. Q: How are shares voted if additional matters are presented at the Annual Meeting? A: Other than the items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting. If you grant a proxy, the persons named as proxyholders, David C. Robinson, Executive Vice President and General Counsel, and Donald C. Hunt, Corporate Secretary, will have the discretion to vote your shares on any additional matters properly presented for a vote at the Annual Meeting in accordance with Delaware law and our By-laws. Q: Who may vote at the Annual Meeting? A: Holders of our common stock at the close of business on March 22, 2021 (the “Record Date”) may vote at the Annual Meeting. On the Record Date, we had 357,287,856 shares of common stock outstanding and entitled to be voted at the Annual Meeting. You may cast one vote for each share of common stock you hold on all matters presented at the Annual Meeting. Participants in The Hartford Investment and Savings Plan (“ISP”) and The Hartford Deferred Restricted Stock Unit Plan (“Bonus Swap Plan”) may instruct plan trustees as to how to vote their shares using the methods described on page 72. The trustees of the ISP and the Bonus Swap Plan will vote shares for which they have not received direction in accordance with the terms of the ISP and the Bonus Swap Plan, respectively. Participants in The Hartford's Employee Stock Purchase Plan (“ESPP”) may vote their shares as described on page 72. Q: What vote is required to approve each proposal? A: Proposal Voting Standard 1 2 3 Election of Directors To ratify the appointment of our independent registered public accounting firm To approve, on a non-binding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement A director will be elected if the number of shares voted “for” that director exceeds the number of votes “against” that director. An affirmative vote requires the majority of those shares present in person or represented by proxy and entitled to vote. An affirmative vote requires the majority of those shares present in person or represented by proxy and entitled to vote. 2021 Proxy Statement 71 INFORMATION ABOUT THE MEETING Q: What is the difference between a “shareholder of record” and a “street name” holder? A: These terms describe the manner in which your shares are held. If your shares are registered directly in your name through Computershare, our transfer agent, you are a “shareholder of record.” If your shares are held in the name of a brokerage firm, bank, trust or other nominee as custodian on your behalf, you are a “street name” holder. Q: How do I vote my shares? A: Subject to the limitations described below, you may vote by proxy: By internet By telephone Visit 24/7 www.proxyvote.com Dial toll-free 24/7 1-800-690-6903 By mailing your Proxy Card At the annual meeting Cast your ballot, sign your proxy card and send by mail Follow the instructions on the virtual meeting site When voting on any proposal you may vote “for” or “against” the item or you may abstain from voting. Voting Through the Internet or by Telephone Prior to the Annual Meeting. Whether you hold your shares directly as the shareholder of record or beneficially in “street name,” you may direct your vote by proxy without attending the Annual Meeting. You can vote by proxy using the Internet or a telephone by following the instructions provided in the notice you received. Voting by Proxy Card or Voting Instruction Form. Each shareholder, including any employee of The Hartford who owns common stock through the ISP, the Bonus Swap Plan or the ESPP, may vote by using the proxy card(s) or voting instruction form(s) provided to them. When you return a proxy card or voting instruction form that is properly completed and signed, the shares of common stock represented by that card will be voted as you specified. Q: Can I vote my shares at the virtual Annual Meeting? A: You may vote online during the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/HIG2021, entering the 16-digit control number provided on your proxy card, voting instruction form or notice, and following the on-screen instructions. Q: Can my shares be voted even if I abstain or don’t vote by proxy or attend the Annual Meeting? A: If you cast a vote of “abstention” on a proposal, your shares cannot be voted otherwise unless you change your vote (see below). Because they are considered to be present and entitled to vote for purposes of determining voting results, abstentions will have the effect of a vote against Proposal #2 and Proposal #3. Note, however, that abstentions will have no effect on Proposal #1, since only votes “for” or “against” a director nominee will be considered in determining the outcome. Abstentions are included in the determination of shares present for quorum purposes. If you don’t vote your shares held in “street name,” your broker can vote your shares in its discretion on matters that the NYSE has ruled discretionary. The ratification of Deloitte & Touche LLP as independent registered public accounting firm is a discretionary item under the NYSE rules. If no contrary direction is given, your shares will be voted on this matter by your broker in its discretion. The NYSE deems the election of directors and matters relating to executive compensation as non- discretionary matters in which brokers may not vote shares held by a beneficial owner without instructions from such beneficial owner. Accordingly, brokers will not be able to vote your shares for the election of directors or the advisory vote on compensation of our named executive officers if you fail to provide specific instructions. If you do not provide instructions, a “broker non-vote” results, and the underlying shares will not be considered voting power present at the Annual Meeting. Therefore, these shares will not be counted in the vote on those matters. If you do not vote shares for which you are the shareholder of record, your shares will not be voted. 72 www.thehartford.com     INFORMATION ABOUT THE MEETING Q: What constitutes a quorum, and why is a quorum required? A: A quorum is required for our shareholders to conduct business at the Annual Meeting. The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares entitled to vote on the Record Date will constitute a quorum, permitting us to conduct the business of the meeting. Abstentions and proxies submitted by brokers (even with limited voting power such as for discretionary matters only) will be considered “present” at the Annual Meeting and counted in determining whether there is a quorum present. Q: Can I change my vote after I have delivered my proxy? A: Yes. If you are a shareholder of record, you may revoke your proxy at any time before it is exercised by: Entering a new vote prior to the Annual Meeting at www.proxyvote.com or via telephone; 1. 2. Giving written notice of revocation to our Corporate Secretary; 3. 4. Submitting a subsequently dated and properly completed proxy card; or Entering a new vote during the Annual Meeting at www.virtualshareholdermeeting.com/HIG2021 (your attendance at the Annual Meeting will not by itself revoke your proxy). If you hold shares in “street name,” you may submit new voting instructions by contacting your broker, bank or other nominee. You may also change your vote or revoke your proxy by voting online during the virtual Annual Meeting. Q: Where can I find voting results of the Annual Meeting? A: We will announce preliminary voting results at the Annual Meeting and publish the results in a Form 8-K filed with the SEC within four business days after the date of the Annual Meeting. Q: How can I submit a proposal for inclusion in the 2022 proxy statement? A: We must receive proposals submitted by shareholders for inclusion in the 2022 proxy statement relating to the 2022 Annual Meeting no later than the close of business on November 29, 2021. Any proposal received after that date will not be included in our proxy materials for 2022. In addition, all proposals for inclusion in the 2022 proxy statement must comply with all of the requirements of Rule 14a-8 under the Securities Exchange Act of 1934. No proposal may be presented at the 2022 Annual Meeting unless we receive notice of the proposal by Friday, February 18, 2022. Proposals should be addressed to Donald C. Hunt, Corporate Secretary, The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. All proposals must comply with the requirements set forth in our By-laws, a copy of which may be obtained from our Corporate Secretary or on the Corporate Governance page of the investor relations section of our website at http://ir.thehartford.com. Q: How may I obtain other information about The Hartford? A: General information about The Hartford is available on our website at www.thehartford.com. You may view the Corporate Governance page of the investor relations section of our website at http://ir.thehartford.com for the following information, which is also available in print without charge to any shareholder who requests it in writing: SEC Filings • Copies of this proxy statement • Annual Report on Form 10-K for the fiscal year ended December 31, 2020 • Other filings we have made with the SEC Governance Documents • Articles of Incorporation • By-laws • Corporate Governance Guidelines (including guidelines for determining director independence and qualifications) • Charters of the Board’s committees • Code of Ethics and Business Conduct • Code of Ethics and Business Conduct for Members of the Board of Directors Written requests for print copies of any of the above-listed documents should be addressed to Donald C. Hunt, Corporate Secretary, The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. For further information, you may also contact our Investor Relations Department at the following address: The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155, or call (860) 547-2537. 2021 Proxy Statement 73     INFORMATION ABOUT THE MEETING OTHER INFORMATION As of the date of this proxy statement, the Board of Directors has no knowledge of any business that will be properly presented for consideration at the Annual Meeting other than that described above. As to other business, if any, that may properly come before the Annual Meeting, the proxies will vote in accordance with their judgment. Present and former directors and present and former officers and other employees of the company may solicit proxies by telephone, telegram or mail, or by meetings with shareholders or their representatives. The company will reimburse brokers, banks or other custodians, nominees and fiduciaries for their charges and expenses in forwarding proxy material to beneficial owners. The company has engaged Morrow Sodali LLC to solicit proxies for the Annual Meeting for a fee of $13,000, plus the payment of Morrow’s out-of-pocket expenses. The company will bear all expenses relating to the solicitation of proxies. The proxy materials are available to you via the Internet. Shareholders who access the company’s materials this way get the information they need electronically, which allows us to reduce printing and delivery costs and lessen adverse environmental impacts. The notice of Internet availability contains instructions as to how to access and review these materials. You may also refer to the notice for instructions regarding how to request paper copies of these materials. We hereby incorporate by reference into this proxy statement “Item 10: Directors, Executive Officers and Corporate Governance of The Hartford” and “Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. By order of the Board of Directors, Donald C. Hunt Corporate Secretary Dated: March 29, 2021 SHAREHOLDERS ARE URGED TO VOTE BY PROXY, WHETHER OR NOT THEY EXPECT TO ATTEND THE VIRTUAL ANNUAL MEETING. A SHAREHOLDER MAY REVOKE THEIR PROXY AND VOTE AT THE VIRTUAL ANNUAL MEETING (STREET HOLDERS MUST OBTAIN A LEGAL PROXY FROM THEIR BROKER, BANKER OR TRUSTEE TO VOTE AT THE VIRTUAL ANNUAL MEETING). 74 www.thehartford.com APPENDIX A: RECONCILIATION OF GAAP TO NON- GAAP FINANCIAL MEASURES The Hartford uses non-GAAP financial measures in this proxy statement to assist investors in analyzing the company's operating performance for the periods presented herein. Because The Hartford's calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing The Hartford's non-GAAP financial measures to those of other companies. Definitions and calculations of non-GAAP and other financial measures used in this proxy statement can be found below and in The Hartford's Investor Financial Supplement for fourth quarter 2020, which is available on The Hartford's website, https:// ir.thehartford.com. Core Earnings: The Hartford uses the non-GAAP measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain items. Therefore, the following items are excluded from core earnings: • • • Certain realized capital gains and losses - Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the business. Loss on extinguishment of debt - Largely consisting of make-whole payments or tender premiums upon paying debt off before maturity, these losses are not a recurring operating expense of the business. • Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a business or to reinsure loss reserves, are not a recurring operating expense of the business. • • Integration and transaction costs in connection with an acquired business - As transaction costs are incurred upon acquisition of a business and integration costs are completed within a short period after an acquisition, they do not represent ongoing costs of the business. Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition. • Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business. • • Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards. Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses. In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding. Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company’s performance. Below is a reconciliation of net income (loss) available to common stockholders to core earnings for the years ended Dec. 31, 2020 and 2019. 2021 Proxy Statement 75 APPENDIX A ($ in millions) Net income available to common stockholders Adjustments to reconcile net income available to common stockholders to core earnings: Net realized capital losses (gains), excluded from core earnings, before tax Restructuring and other costs, before tax Loss on extinguishment of debt, before tax Loss on reinsurance transaction, before tax Integration and transaction costs associated with acquired business, before tax Change in loss reserves upon acquisition of a business, before tax Change in deferred gain on retroactive reinsurance, before tax Income tax expense (benefit)(1) Year Ended Dec. 31, 2020 Year Ended Dec. 31, 2019 $ 1,716 $ 2,064 18 104 — — 51 — 312 (115) (389) — 90 91 91 97 16 2 Core Earnings $ 2,086 $ 2,062 (1) Primarily represents federal income tax expense (benefit) related to before tax items not included in core earnings. The year ended December 31, 2020 included a tax benefit of $18 related to the loss on sale of Continental Europe Operations. Compensation Core Earnings: As discussed under “Annual Incentive Plan Awards” on page 42, at the beginning of each year, the Compensation Committee approves a definition of “Compensation Core Earnings,” a non-GAAP financial measure. Compensation Core Earnings is used to set AIP award targets and threshold levels below which no AIP award is earned. Below is the Compensation Committee’s 2020 definition of “Compensation Core Earnings” and a reconciliation of core earnings to this non- GAAP financial measure. ($ in millions) 2020 Core Earnings as reported Adjusted for, after tax:  $ 2,086 Income (losses) associated with the cumulative effect of accounting changes and accounting extraordinary items Total catastrophe losses, including reinstatement premiums, state catastrophe fund assessments and terrorism losses, that are (below) or above the annual catastrophe budget Prior accident year reserve development associated with asbestos and environmental reserves, net of reinsurance recoveries, included in core earnings Entire amount of a (gain) or loss (or such percentage of a gain or loss as determined by the Compensation Committee) associated with any other unusual or non-recurring item, including but not limited to reserve development, litigation and regulatory settlement charges and/or prior/current year non-recurring tax benefits or charges Total equity method earnings that are below or (above) the 2020 operating budget from the limited partnership that owns Talcott Resolution Total Hartford Funds earnings that are below or (above) the 2020 operating budget — (319) — 18 (21) 3 Compensation Core Earnings  $ 1,767 76 www.thehartford.com 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. Below is a reconciliation of net income margin to core earnings margin for the year ended Dec. 31, 2020. APPENDIX A Margin Net income margin Adjustments to reconcile net income margin to core earnings margin: Net realized capital losses (gains) excluded from core earnings, before tax Integration and transaction costs associated with acquired business, before tax Income tax benefit Impact of excluding buyouts from denominator of core earnings margin Core earnings margin Year Ended Dec. 31, 2020 6.4 % (0.4) % 0.3 % — % 0.1 % 6.4 % Core Earnings Return on Equity: The Company provides different measures of the return on stockholders' equity (ROE). Core earnings ROE is calculated based on non-GAAP financial measures. Core earnings ROE is calculated by dividing (a) the non-GAAP measure core earnings for the prior four fiscal quarters by (b) the non-GAAP measure average common stockholders' equity, excluding AOCI. Net income ROE is the most directly comparable U.S. GAAP measure. The Company excludes AOCI in the calculation of core earnings ROE to provide investors with a measure of how effectively the Company is investing the portion of the Company's net worth that is primarily attributable to the Company's business operations. The Company provides to investors return on equity measures based on its non-GAAP core earnings financial measure for the reasons set forth in the core earnings definition. A reconciliation of consolidated net income (loss) ROE to Consolidated Core earnings ROE is set forth below. Net Income (loss) available to common stockholders ROE 10.0 % 14.4 % 13.7 % Last Twelve Months Ended Dec. 31, 2020 Last Twelve Months Ended Dec. 31, 2019 Last Twelve Months Ended Dec. 31, 2018 Adjustments to reconcile net income (loss) available to common stockholders ROE to core earnings ROE: Net realized capital losses (gains), excluded from core earnings, before tax Restructuring and other costs, before tax Loss on extinguishment of debt, before tax Loss on reinsurance transaction, before tax Integration and transaction costs associated with an acquired business, before tax Changes in loss reserves upon acquisition of a business, before tax Change in deferred gain on retroactive reinsurance, before tax Income tax expense (benefit) on items not included in core earnings Loss (income) from discontinued operations, after tax Impact of AOCI, excluded from denominator of Core Earnings ROE = Core earnings ROE 0.1 0.6 — — 0.3 — 1.8 (0.7) — 0.6 12.7 % (2.7) — 0.6 0.6 0.6 0.7 0.1 — — (0.7) 13.6 % 0.9 — — — 0.4 — — (0.6) (2.5) (0.3) 11.6 % 2021 Proxy Statement 77 APPENDIX A Compensation Core ROE: As discussed under "Long-Term Incentive Awards" on page 45, Compensation Core ROE is used to set performance share targets and threshold levels below which there is no payout. The adjustments described in the left hand column of the table below constitute the Compensation Committee’s 2020 definition of “Compensation Core ROE.” A reconciliation of GAAP net income to Compensation Core ROE for the 2020 performance share awards will not be available until the end of the performance period in 2022. Reconciliations for each year covered by the 2018 performance share awards are provided in the table below, with any variations from the 2020 performance share award definition explained in the notes below the table. GAAP net income Preferred stock dividends Net income (loss) available to common shareholders Adjustments to reconcile net income available to common stockholders to core earnings: Net realized capital losses (gains) excluded from core earnings, before tax Restructuring and other costs, before tax Loss on extinguishment of debt, before tax Loss on reinsurance transaction, before tax Change in loss reserves upon acquisition of a business, before tax Integration and transaction costs associated with acquired business, before tax Change in deferred gain on retroactive reinsurance, before tax Income tax expense (benefit) Loss (income) from discontinued operations, after tax Core Earnings as reported Adjusted for after tax:  Total catastrophe losses, including reinstatement premiums, state catastrophe fund assessments and terrorism losses that are (below) or above the catastrophe budget.(1) Prior accident year reserve development associated with asbestos and environmental reserves recorded in core earnings Entire amount of a loss (gain) associated with litigation and regulatory settlement charges and/or with prior/current year non-recurring tax benefits or charges Core Earnings  as adjusted Prior year ending common stockholders' equity, excluding accumulated other comprehensive income (AOCI) Current year ending common stockholders' equity, excluding AOCI Average common stockholders' equity, excluding AOCI Compensation Core ROE Average of 2018, 2019 and 2020 Compensation Core ROE = 12.8% 2020 2019 2018 $ 1,737 $ 2,085 $ 1,807 (21) 1,716 (21) 2,064 (6) 1,801 18 104 — — — 51 312 (115) — (389) 118 — 90 91 97 91 16 2 — — 6 — — 47 — (75) (322) 2,086 2,062 1,575 (272) — — 25 — — 257 — — 1,814 2,087 1,832 15,884 14,346 12,831 17,052 16,468 15,884 15,115 14,346 13,589 11.0 % 13.8 % 13.5 % (1) The catastrophe budget for each year will be based on the multi-year outlook finalized in the first quarter of the year of grant.  The catastrophe budget will be adjusted only for changes in exposures between what is assumed in the multi-year outlook versus exposures as the book is actually constituted in each respective year. 78 www.thehartford.com APPENDIX A 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. Below is a reconciliation of combined ratio to the underlying combined ratio for individual reporting segments for the year-ended December 31, 2020. Combined Ratio Impact of current accident year catastrophes and PYD on combined ratio Current accident year change in loss reserves upon acquisition of a business = Underlying Combined Ratio Commercial Lines Personal Lines 100.4 (5.0) — 95.5 75.5 7.7 — 83.1 2021 Proxy Statement 79 THE HARTFORD FINANCIAL SERVICES GROUP, INC. ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020 TABLE OF CONTENTS Description Page Part I BUSINESS RISK FACTORS Part II MARKET FOR THE HARTFORD'S COMMON EQUITY, RELATED STOCKHOLDER MATTER AND ISSUER PURCHASES OF EQUITY SECURITIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES Part III DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE HARTFORD EXECUTIVE COMPENSATION CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE PRINCIPAL ACCOUNTING FEES AND SERVICES Item 1 1A. 5 7 9 9A. 10 11 13 14 Part IV INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 15 [a] The information called for by Item 11 will be set forth in the Proxy Statement under the subcaptions "Compensation Discussion and Analysis", "Executive Compensation", 4 14 29 31 None 114 116 [a] [b] [c] 117 "Director Compensation", "Report of the Compensation and Management Development Committee", and "Compensation and Management Development Committee Interlocks and Insider Participation" and is incorporated herein by reference. [b] Any information called for by Item 13 will be set forth in the Proxy Statement under the caption and subcaption "Board and Governance Matters" and "Director Independence" and is incorporated herein by reference. [c] The information called for by Item 14 will be set forth in the Proxy Statement under the caption "Audit Matters" and is incorporated herein by reference. 1                 Forward-looking Statements Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods. Forward-looking statements are based on management's current expectations and assumptions regarding future economic, competitive, legislative and other developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the "Company" or "The Hartford"). Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from expectations, depending on the evolution of various factors, including the risks and uncertainties identified below, as well as factors described in such forward-looking statements; or in Part I, Item 1A, Risk Factors, in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and those identified from time to time in our other filings with the Securities and Exchange Commission. • Risks relating to the pandemic caused by the spread of the novel strain of coronavirus, specifically identified as the Coronavirus Disease 2019 (“COVID-19”) including impacts to the Company's insurance and product-related, regulatory/legal, recessionary and other global economic, capital and liquidity and operational risks • Risks Relating to Economic, Political and Global Market Conditions: ◦ ◦ ◦ ◦ ◦ ◦ challenges related to the Company’s current operating environment, including global political, economic and market conditions, and the effect of financial market disruptions, economic downturns, changes in trade regulation including tariffs and other barriers or other potentially adverse macroeconomic developments on the demand for our products and returns in our investment portfolios; market risks associated with our business, including changes in credit spreads, equity prices, interest rates, inflation rate, foreign currency exchange rates and market volatility; the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy; the impacts of changing climate and weather patterns on our businesses, operations and investment portfolio including on claims, demand and pricing of our products, the availability and cost of reinsurance, our modeling data used to evaluate and manage risks of catastrophes and severe weather events, the value of our investment portfolios and credit risk with reinsurers and other counterparties; the risks associated with the discontinuance of the London Inter-Bank Offered Rate ("LIBOR") on the securities we hold or may have issued, other financial instruments and any other assets and liabilities whose value is tied to LIBOR; the impacts associated with the withdrawal of the United Kingdom (“U.K.”) from the European Union (“E.U.”) on our international operations in the U.K. and E.U. • Insurance Industry and Product-Related Risks: ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ the possibility of unfavorable loss development, including with respect to long-tailed exposures; the significant uncertainties that limit our ability to estimate the ultimate reserves necessary for asbestos and environmental claims; the possibility of another pandemic, civil unrest, earthquake, or other natural or man-made disaster that may adversely affect our businesses; weather and other natural physical events, including the intensity and frequency of storms, hail, wildfires, flooding, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns; the possible occurrence of terrorist attacks and the Company’s inability to contain its exposure as a result of, among other factors, the inability to exclude coverage for terrorist attacks from workers' compensation policies and limitations on reinsurance coverage from the federal government under applicable laws; the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines; actions by competitors that may be larger or have greater financial resources than we do; technological changes, including usage-based methods of determining premiums, advancements in automotive safety features, the development of autonomous vehicles, and platforms that facilitate ride sharing, the Company's ability to market, distribute and provide insurance products and investment advisory services through current and future distribution channels and advisory firms; the uncertain effects of emerging claim and coverage issues; • Financial Strength, Credit and Counterparty Risks: 2 ◦ ◦ ◦ ◦ ◦ risks to our business, financial position, prospects and results associated with negative rating actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades relating to our investments; capital requirements which are subject to many factors, including many that are outside the Company’s control, such as National Association of Insurance Commissioners ("NAIC") risk based capital formulas, rating agency capital models, Funds at Lloyd's and Solvency Capital Requirement, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results; losses due to nonperformance or defaults by others, including credit risk with counterparties associated with investments, derivatives, premiums receivable, reinsurance recoverables and indemnifications provided by third parties in connection with previous dispositions; the potential for losses due to our reinsurers' unwillingness or inability to meet their obligations under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses; state and international regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends; • Risks Relating to Estimates, Assumptions and Valuations: ◦ ◦ ◦ risk associated with the use of analytical models in making decisions in key areas such as underwriting, pricing, capital management, reserving, investments, reinsurance and catastrophe risk management; the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the Company’s fair value estimates for its investments and the evaluation of intent-to-sell impairments and allowance for credit losses on available-for-sale securities and mortgage loans; the potential for further impairments of our goodwill; • Strategic and Operational Risks: ◦ ◦ ◦ ◦ ◦ ◦ the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event; the potential for difficulties arising from outsourcing and similar third-party relationships; the risks, challenges and uncertainties associated with capital management plans, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings; risks associated with acquisitions and divestitures, including the challenges of integrating acquired companies or businesses, which may result in our inability to achieve the anticipated benefits and synergies and may result in unintended consequences; difficulty in attracting and retaining talented and qualified personnel, including key employees, such as executives, managers and employees with strong technological, analytical and other specialized skills; the Company’s ability to protect its intellectual property and defend against claims of infringement; • Regulatory and Legal Risks: ◦ ◦ ◦ ◦ ◦ the cost and other potential effects of increased federal, state and international regulatory and legislative developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels; unfavorable judicial or legislative developments; the impact of changes in federal, state or foreign tax laws; regulatory requirements that could delay, deter or prevent a takeover attempt that stockholders might consider in their best interests; and the impact of potential changes in accounting principles and related financial reporting requirements. Any forward-looking statement made by the Company in this document speaks only as of the date of the filing of this Annual Report. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. 3 2020 Revenues of $20,523 by Segment [1]Includes Revenue of $54 for Property & Casualty Other Operations and $146 for Corporate. The following discussion describes the principal products and services, marketing and distribution, and competition of The Hartford's reporting segments. For further discussion of the reporting segments, including financial disclosures of revenues by product line, net income (loss), and assets for each reporting segment, see Note 4 - Segment Information of Notes to Consolidated Financial Statements. Part I - Item 1. Business Item 1. BUSINESS (Dollar amounts in millions, except for per share data, unless otherwise stated) GENERAL The Hartford Financial Services Group, Inc. (together with its subsidiaries, “The Hartford”, the “Company”, “we”, or “our”) is a holding company for a group of subsidiaries that provide property and casualty ("P&C") insurance, group benefits insurance and services, and mutual funds and exchange-traded products to individual and business customers in the United States as well as in the United Kingdom, continental Europe and other international locations. The Hartford is headquartered in Connecticut and its oldest subsidiary, Hartford Fire Insurance Company, dates back to 1810. At December 31, 2020, total assets and total stockholders’ equity of The Hartford were $74.1 billion and $18.6 billion, respectively. ORGANIZATION The Hartford strives to maintain and enhance its position as a market leader within the financial services industry. The Company sells diverse and innovative products through multiple distribution channels to individuals and businesses and is considered a leading property and casualty and employee group benefits insurer. The Hartford Stag logo is one of the most recognized symbols in the financial services industry. As a holding company, The Hartford Financial Services Group, Inc. is separate and distinct from its subsidiaries and has no significant business operations of its own. The holding company relies on the dividends from its insurance companies and other subsidiaries as the principal source of cash flow to meet its obligations, pay dividends and repurchase common stock. Information regarding the cash flow and liquidity needs of The Hartford Financial Services Group, Inc. may be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) — Capital Resources and Liquidity. REPORTING SEGMENTS 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 discontinued operations related to the life and annuity business sold in May 2018, 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, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). Talcott Resolution is the holding company of the life and annuity business that we sold in May 2018. In addition, Corporate includes a 9.7% ownership interest in the legal entity that acquired the life and annuity business sold. 4 CommercialLines$10,04149%GroupBenefits$6,00629%PersonalLines$3,27516%Hartford Funds$1,0015%Other [1]$2001%Part I - Item 1. Business 2020 Earned Premiums of $8,910 by Line of Business 2020 Earned Premiums of $8,910 by Product COMMERCIAL LINES Principal Products and Services Automobile Property General Liability Marine Package Business Covers damage to a business's fleet of vehicles due to collision or other perils (automobile physical damage). In addition to first party automobile physical damage, commercial automobile covers liability for bodily injuries and property damage suffered by third parties and losses caused by uninsured or under-insured motorists. Covers the building a business owns or leases as well as its personal property, including tools and equipment, inventory, and furniture. A commercial property insurance policy covers losses resulting from fire, wind, hail, earthquake, theft and other covered perils, including coverage for assets such as accounts receivable and valuable papers and records. Commercial property may include specialized equipment insurance, which provides coverage for loss or damage resulting from the mechanical breakdown of boilers and machinery. Covers a business in the event it is sued for causing harm to a person and/or damage to property. General liability insurance covers third-party claims arising from accidents occurring on the insured’s premises or arising out of their operations. General liability insurance may also cover losses arising from product liability and provides replacement of lost income due to an event that interrupts business operations. Encompasses various ocean and inland marine coverages including cargo, craft, hull, specie, transport and liability, among others. Covers both property and general liability damages. Workers' Compensation Covers employers for losses incurred due to employees sustaining an injury, illness or disability in connection with their work. Benefits paid under workers’ compensation policies may include reimbursement of medical care costs, replacement income, compensation for permanent injuries and benefits to survivors. Workers’ compensation is provided under both guaranteed cost policies (coverage for a fixed premium) and loss sensitive policies where premiums are adjustable based on the loss experience of the employer. Professional Liability Covers liability arising from directors and officers acting in their official capacity and liability for errors and omissions committed by professionals and others. Coverage may also provide employment practices insurance relating to allegations of wrongful termination and discrimination. Bond Encompasses fidelity and surety insurance, including commercial surety, contract surety and fidelity bonds. Commercial surety includes bonds that insure non-performance by contractors, license and permit bonds to help meet government- mandated requirements and probate and judicial bonds for fiduciaries and civil court proceedings. Contract surety bonds may include payment and performance bonds for contractors. Fidelity bonds may include ERISA bonds related to the handling of retirement plan assets and bonds protecting against employee theft or fraud. The Company also provides credit and political risk insurance offered to clients with global operations. Assumed Reinsurance Includes assumed reinsurance of property, liability, surety, credit and political, agriculture, and marine risks throughout the world but principally in Europe and North America. 5 SmallCommercial$3,65041%Middle &LargeCommercial$2,97633%Global Specialty$2,24125%Other$430%CommercialLines Other$310%Marine$2513%Bond $274 3%AssumedReinsurance$2983%ProfessionalLiability$5616%CommercialAuto$7538%CommercialProperty$7939%General Liability$1,40116%PackageBusiness$1,52417%Workers'Compensation$3,02434% Part I - Item 1. Business Through its three lines of business of small commercial, middle & large commercial, and global specialty, Commercial Lines offers its products and services to businesses in the United States ("U.S.") and internationally. Commercial Lines generally consists of products written for small businesses and middle market companies as well as national and multi-national accounts, largely distributed through retail agents and brokers, wholesale agents and global and specialty reinsurance brokers. The majority of Commercial Lines written premium is generated by small commercial and middle market, which provide coverage options and customized pricing based on the policyholder’s individual risk characteristics. Small commercial and middle market lines within middle & large commercial are generally referred to as standard commercial lines. Small commercial provides coverages for small businesses, which the Company generally considers to be businesses with an annual payroll under $12, revenues under $25 and property values less than $20 per location. Within small commercial, both property and general liability coverages are offered under a single package policy, marketed under the Spectrum name. Small commercial also provides excess and surplus lines coverage to small businesses including umbrella, general liability, property and other coverages. Middle & large commercial business provides insurance coverages to medium-sized and national accounts businesses, which are companies whose payroll, revenue and property values exceed the small business definition. In addition to offering standard commercial lines products, middle & large commercial includes program business which provides tailored programs, primarily to customers with common risk characteristics. On national accounts, a significant portion of the business is written through large deductible programs. Other programs written within middle & large commercial are retrospectively-rated where the premiums are adjustable based on loss experience. Also within middle & large commercial, the Company writes captive programs business, which provides tailored programs to those seeking a loss sensitive solution where premiums are adjustable based on loss experience. Global specialty provides a variety of customized insurance products, including property, liability, marine, professional liability, and bond. On May 23, 2019, the Company acquired Navigators Group, a global specialty insurer. The vast majority of the business written by our Navigators Group insurance subsidiaries is reported in the global specialty business unit. Revenues and earnings of the Navigators Group business are included in operating results of the Company's Commercial Lines segment since the acquisition date. For discussion of this transaction, see Note 2- Business Acquisitions of Notes to Consolidated Financial Statements. Marketing and Distribution Commercial Lines provides insurance products and services through the Company’s regional offices, branches and sales and policyholder service centers throughout the United States and overseas, principally in Europe. The products are marketed and distributed using independent retail agents and brokers, wholesale agents and global and specialty reinsurance brokers. As the sole corporate member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"), the Company has the exclusive right to underwrite business up to an approved level of premium in the Lloyd’s market. In the United States, the independent agent and broker distribution channel is consolidating and this trend is expected to continue. This will likely result in a larger proportion of written premium being concentrated among fewer agents and brokers. In addition, the Company offers insurance products to customers of payroll service providers through its relationships with major national payroll companies in the United States and to members of affinity organizations. Competition Small Commercial In small commercial, The Hartford competes against large national carriers, regional carriers and direct writers. Competitors include stock companies, mutual companies and other underwriting organizations. The small commercial market remains highly competitive and fragmented as carriers seek to differentiate themselves through product expansion, price, enhanced service and leading technology. Larger carriers such as The Hartford continually advance their pricing sophistication and ease of doing business with agents and customers through the use of technology, analytics and other capabilities that improve the process of evaluating a risk, quoting new business and servicing customers. The Company also continuously enhances digital capabilities as customers and distributors demand more access and convenience, and expands product and underwriting capabilities to accommodate both larger accounts and a broader risk appetite. Existing competitors and new entrants, including start-up and non-traditional carriers, are actively looking to expand sales of business insurance products to small businesses through increasing their underwriting appetite, deepening their relationships with distribution partners, and through on-line and direct-to-consumer marketing. Middle & Large Commercial Middle & large commercial business is considered “high touch” and involves individual underwriting and pricing decisions. Competition in this market includes stock companies, mutual companies, alternative risk sharing groups and other underwriting organizations. The pricing of middle market and national accounts is prone to significant volatility over time due to changes in individual account characteristics and exposure, as well as legislative and macro-economic forces. National and regional carriers participate in the middle & large commercial insurance sector, resulting in a competitive environment where pricing and policy terms are critical to securing new business and retaining existing accounts. Within this competitive environment, The Hartford is working to deepen its product and underwriting capabilities, leverage its sales and underwriting talent and expand its use of data analytics to make risk selection and pricing decisions. In product development and related areas such as claims and risk engineering, the Company has extended its capabilities in industry verticals, such as energy, construction, technology and life sciences. Through business partners, the Company offers business insurance coverages to exporters and other U.S. companies with a physical presence overseas. The Hartford’s middle & large commercial business will leverage the investments in product, underwriting, and technology to better match price to individual risk as the firm pursues responsible growth strategies to deliver target returns. 6 Part I - Item 1. Business For specialty casualty businesses within middle & large commercial, pricing competition continues to be significant, particularly for the larger individual accounts. As a means to mitigate the cost of insurance on larger accounts, more insureds may opt for loss-sensitive products, including retrospectively rated contracts, in lieu of guaranteed cost policies. Under a retrospectively-rated contract, the ultimate premium collected from the insured is adjusted based on how incurred losses for the policy year develop over time, subject to a minimum and maximum premium. Global Specialty Global specialty competes against multi-national insurance and reinsurance companies, writing marine, property, excess casualty, professional liability, bond and assumed reinsurance. Global specialty also includes property coverages written through Maxum Specialty Insurance Group ("Maxum"). Due to adverse loss experience over the past couple of years, particularly in ocean marine, property, excess casualty and international professional liability lines, pricing has increased across the industry in response to those loss cost trends. Nonetheless, the market continues to be highly competitive. In the bond business, favorable underwriting results in recent years has led to increased competition for market share. Management and professional lines in both the U.S. and international continue to witness significant firming in price, terms and conditions. Private company market rates remain strong in reflecting the increased employment practices liability insurance ("EPLI") exposure. Lloyd's Syndicate and London market business have been under financial stress in recent years due to a perceived lack of adequate premium pricing and an excessive focus on growth at the expense of underwriting discipline in those markets, combined with a significant increase in the level of catastrophe activity. As such, syndicates and London market carriers, including The Hartford, are taking pricing and underwriting actions to improve profitability. Lloyd's, which is regulated by the Financial Conduct Authority and Prudential Regulatory Authority in the U.K., has been implementing changes to improve performance of the syndicates including a more rigorous approach to the approval of syndicate business plans. Additionally Lloyd’s have also introduced recent changes which require that members limit the amount of tier 2 capital (e.g. letters of credit) that can be used to meet syndicate solvency capital requirements. For further discussion, see Part II, Item 7, MD&A - Capital Resources and Liquidity. 7 Part I - Item 1. Business PERSONAL LINES 2020 Earned Premiums of $3,008 by Line of Business 2020 Earned Premiums of $3,008 by Product Principal Products and Services Automobile Covers damage to an individual insured’s own vehicle due to collision or other perils and is referred to as automobile physical damage. In addition to first party automobile physical damage, automobile insurance covers liability for bodily injuries and property damage suffered by third parties and losses caused by uninsured or underinsured motorists. Also, under no-fault laws, policies written in some states provide first party personal injury protection. Some of the Company’s personal automobile insurance policies also offer personal umbrella liability coverage for an additional premium. Homeowners Insures against losses to residences and contents from fire, wind and other perils. Homeowners insurance includes owned dwellings, rental properties and coverage for tenants. The policies may provide other coverages, including loss related to recreation vehicles or watercraft, identity theft and personal items such as jewelry. Personal Lines provides automobile, homeowners and personal umbrella coverages to individuals across the United States, mostly through a program designed exclusively for members of AARP (“AARP Program”). The Hartford's automobile and homeowners products provide coverage options and pricing tailored to a customer's individual risk. The Hartford has individual customer relationships with AARP Program policyholders and, as a group, they represent a significant portion of the total Personal Lines' business. Business sold to AARP members, either direct or through independent agents, amounted to earned premiums of $2.8 billion, $2.9 billion and $3.0 billion in 2020, 2019 and 2018, respectively. The Company is in the process of transforming its automobile and homeowners products to regain competitive advantage with the state-by-state rollout of a new automobile product beginning in March of 2021 and the rollout of a new homeowners product beginning in the second quarter of 2021. Among other things, overall rate levels, price segmentation, rating factors and underwriting procedures are being updated. Personal Lines works with carrier partners to provide risk protection options for AARP members with needs beyond the company’s current product offering. Marketing and Distribution Personal Lines reaches diverse customers through multiple distribution channels, including direct-to-consumer and independent agents. In direct-to-consumer, Personal Lines markets its products through a mix of media, including direct mail, digital marketing, television as well as digital and print advertising. Through the agency channel, Personal Lines provides products and services to customers through a network of independent agents in the standard personal lines market, primarily serving mature, preferred consumers. These independent agents are not employees of the Company. Personal Lines has made significant investments in offering direct and agency-based customers the opportunity to interact with the company online, including via mobile devices. In addition, its technology platform for telephone sales centers enables sales representatives to provide an enhanced experience for direct-to- consumer customers, positioning the Company to offer unique 8 AARP Direct$2,52984%AARPAgency$2247%Other Agency$2257%Other$301%Automobile$2,05868%Homeowners$95032% Part I - Item 1. Business capabilities to AARP’s member base. Most of Personal Lines' sales are associated with its exclusive licensing arrangement with AARP, with the current agreement in place through December 31, 2032, to market automobile, homeowners and personal umbrella coverages to AARP's approximately 37 million members, primarily direct but also through independent agents. This relationship with AARP, which has been in place since 1984, provides Personal Lines with an important competitive advantage given the increase in the population of those over age 50 and the strength of the AARP brand. In most states, new business automobile and home policies have been issued to AARP members with a lifetime continuation agreement endorsement, providing that the policies will be renewed as long as certain terms are met, such as timely payment of premium and maintaining a driver’s license in good standing. Beginning in 2021, Personal Lines will no longer offer the lifetime continuation agreement on new business home and automobile policies, subject to regulatory approval on a state-by-state basis. The endorsement will remain on renewal policies, provided they were originally written with the lifetime continuation agreement. In addition to selling to AARP members, Personal Lines offers its automobile and homeowners products to non-AARP customers, primarily through the independent agent channel within select underwriting markets where we believe we have a competitive advantage. Personal Lines leverages its agency channel to target AARP members and other customer segments that value the advice of an independent agent and recognize the differentiated experience the Company provides. In particular, the Company has taken action to distinguish its brand and improve profitability in the independent agent channel with fewer and more highly partnered agents. Competition The personal lines automobile and homeowners insurance markets are highly competitive. Personal lines insurance is written by insurance companies of varying sizes that compete principally on the basis of price, product, service, including claims handling, the insurer's ratings and brand recognition. Companies with strong ratings, recognized brands, direct sales capability and economies of scale will have a competitive advantage. In recent years, insurers have increased their advertising in the direct-to- consumer market, in an effort to gain new business and retain profitable business. The growth of direct-to-consumer sales, including through new entrants to the marketplace, continues to outpace sales in the agency distribution channel. Insurers that distribute products principally through agency channels compete by offering commissions and additional incentives to attract new business. To distinguish themselves in the marketplace, top tier insurers are offering on-line and self- service capabilities that make it easier for agents and consumers to do business with the insurer. A large majority of agents have been using “comparative rater” tools that allow the agent to compare premium quotes among several insurance companies. The use of comparative rater tools increases price competition. Insurers that are able to capitalize on their brand and reputation, differentiate their products and deliver strong customer service are more likely to be successful in this market. The use of data mining and predictive modeling is used by more and more carriers to target the most profitable business, and carriers have further segmented their pricing plans to expand market share in what they believe to be the most profitable segments. The Company continues to invest in capabilities to better utilize data and analytics, and thereby, refine and manage underwriting and pricing. Also, new automobile technology advancements, including lane departure warnings, backup cameras, automatic braking and active collision alerts, are being deployed rapidly and are expected to improve driver safety and reduce the likelihood of vehicle collisions. However, these features include expensive parts, potentially increasing average claim severity. PROPERTY & CASUALTY OTHER OPERATIONS Property & Casualty Other Operations includes certain property and casualty operations, managed by the Company, that have discontinued writing new business and includes substantially all of the Company's pre-1986 asbestos and environmental ("A&E") exposures. For a discussion of coverages provided under policies written with exposure to A&E prior to 1986, reported within the P&C Other Operations segment (“Run-off A&E”), run-off assumed reinsurance and all other non-A&E exposures, see Part II, Item 7, MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves. 9 Part I - Item 1. Business GROUP BENEFITS 2020 Premiums and Fee Income of $5,536 Principal Products and Services Group Life Group Disability Typically is term life insurance provided in the form of yearly renewable term life insurance. Other life coverages in this category include accidental death and dismemberment and travel accident insurance. Typically comprised of short-term disability, long-term disability, and family leave coverage that pays a percentage of an employee’s salary for a period of time if they are ill or injured and cannot perform the duties of their job or absent from work to care for a family member. Short-term and long-term disability policies have elimination periods that must be satisfied prior to benefit payments. The Company also earns fee income from leave management services and the administration of underwriting, enrollment and claims processing for employer self-funded plans. Other Products Includes other group coverages such as retiree health insurance, critical illness, accident, hospital indemnity and participant accident coverages. Group insurance typically covers an entire group of people under a single contract, most typically the employees of a single employer or members of an association. Group Benefits provides group life, disability and other group coverages to members of employer groups, associations and affinity groups through direct insurance policies and provides reinsurance to other insurance companies. In addition to employer paid coverages, the segment offers voluntary product coverages which are offered through employee payroll deductions. Group Benefits also offers disability underwriting, administration, and claims processing to self-funded employer plans. In addition, the segment offers a single-company leave management solution, which integrates work absence data from the insurer’s short-term and long-term group disability and workers’ compensation insurance business with its leave management administration services. Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms at renewal in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. Policies are typically sold with one, two or three-year rate guarantees depending upon the product and market segment. Marketing and Distribution The Group Benefits distribution network is managed through a regional sales office system to distribute its group insurance products and services through a variety of distribution outlets including brokers, consultants, third-party administrators and trade associations. Additionally, the segment has relationships with several private exchanges which offer its products to employer groups. Competition Group Benefits competes with numerous insurance companies and financial intermediaries marketing insurance products. In order to differentiate itself, Group Benefits uses its risk management expertise and economies of scale to derive a competitive advantage. Competitive factors include the extent of products offered, price, the quality of customer and claims handling services, and the Company's relationship with third- party distributors and private exchanges. Active price competition continues in the marketplace, resulting in multi-year rate guarantees being offered to customers. Top tier insurers in the marketplace also offer on-line and self-service capabilities to third party distributors and consumers. The relatively large size 10 Groupdisability$2,83251%Group life$2,43444%Other$2705% Part I - Item 1. Business and underwriting capacity of the Group Benefits business provides a competitive advantage over smaller competitors. Group Benefits' acquisition of Aetna's U.S. group life and disability business further increased its market presence and competitive capabilities through the addition of industry-leading digital technology and an integrated absence management and claims platform. Additionally, as employers continue to focus on reducing the cost of employee benefits, we expect more companies to offer voluntary products paid for by employees. Competitive factors affecting the sale of voluntary products include the breadth of products, product education, enrollment capabilities and overall customer service. In addition to providing group disability, leave management and life insurance, we offer integrated claim, leave and benefits administration with The Hartford's Ability Advantage platform. We also offer voluntary products including critical illness, accident and hospital indemnity coverage to employees through our Employee Choice Benefits programs, and travel accident coverage for employers and other organizations. The Company's enhanced enrollment and marketing tools, such as My Tomorrow©, are providing additional opportunities to educate individual participants about supplementary benefits and deepen their knowledge about product selection. HARTFORD FUNDS Hartford Funds Segment Assets Under Management ("AUM") of $139,436 as of December 31, 2020 Mutual Fund AUM as of December 31, 2020 Principal Products and Services Mutual Funds ETP Includes approximately 70 actively managed mutual funds across a variety of asset classes including domestic and international equity, fixed income, and multi-strategy investments, principally subadvised by two unaffiliated institutional asset management firms that have comprehensive global investment capabilities. Includes a suite of exchange-traded products (“ETP”) traded on the New York Stock Exchange that is comprised of multi-factor and actively managed fixed income exchange-traded funds ("ETF"). Multi-factor ETF’s are designed to track indices using both active and passive investment techniques that strive to improve performance relative to traditional capitalization weighted indices. Talcott Resolution life and annuity separate accounts Relates to assets of the life and annuity business sold in May 2018 that are still managed by the Company's Hartford Funds segment. The Hartford Funds segment provides investment management, administration, product distribution and related services to investors through a diverse set of investment products in domestic and international markets. Hartford Funds' comprehensive range of products and services assist clients in achieving their desired investment objectives. AUM are separated into three distinct categories referred to as mutual funds, ETP and Talcott Resolution life and annuity separate 11 accounts, which relate to the life and annuity business sold in May 2018. The Hartford Funds segment will continue to manage the mutual fund assets of Talcott Resolution, though these assets are expected to continue to decline over time. Mutual Fund$121,80287%TalcottResolution lifeand annuity separateaccounts$14,80911%ETP$2,8252%Equity$82,12367%Multi-strategyinvestments$22,64519%Fixedincome$17,03414%Part I - Item 1. Business Marketing and Distribution Our funds and ETPs are sold through national and regional broker-dealer organizations, independent financial advisers, defined contribution plans, financial consultants, bank trust groups and registered investment advisers. Our distribution team is organized to sell primarily in the United States. The investment products for Talcott Resolution are not actively distributed. Competition The investment management industry is mature and highly competitive. Firms are differentiated by investment performance, range of products offered, brand recognition, financial strength, proprietary distribution channels, quality of service and level of fees charged relative to quality of investment products. The Hartford Funds segment competes with a large number of asset management firms and other financial institutions and differentiates itself through superior fund performance, product breadth, strong distribution and competitive fees. In recent years demand for lower cost passive investment strategies has outpaced demand for actively managed strategies and has taken market share from active managers. CORPORATE The Company includes in the Corporate category investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution, 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, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Additionally, included in the Corporate category are discontinued operations from the Company's life and annuity business sold in May 2018 and a 9.7% ownership interest in the legal entity that acquired this business. The operating results of the life and annuity business are included in discontinued operations for all periods prior to the closing date. RESERVES Total Property & Casualty Reserves as of December 31, 2020 Total Reserves as of December 31, 2020 [1] [1]Includes reserves for future policy benefits and other policyholder funds and benefits payable of $638 and $701, respectively, of which $420 and $415, respectively, relate to the Group Benefits segment with the remainder related to run-off structured settlement and terminal funding agreements within Corporate. The reserve for unpaid losses and loss adjustment expenses includes a liability for unpaid losses, including those that have been incurred but not yet reported, as well as estimates of all expenses associated with processing and settling these insurance claims, including reserves related to both Property & Casualty and Group Benefits. Further discussion of The Hartford’s property and casualty insurance product reserves, including run-off asbestos and environmental claims reserves within P&C Other Operations, may be found in Part II, Item 7, MD&A — Critical Accounting Estimates — Property and Casualty Insurance Product Reserves. Additional discussion may be found in Notes to Consolidated Financial Statements, including in the Company’s accounting policies for insurance product reserves within Note 1 - Basis of Presentation and Significant Accounting Policies and in Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. 12 P&C Unpaid lossesand lossadjustmentexpenses$29,62276%Group BenefitsUnpaid lossesand lossadjustmentexpenses$8,23321%All Other [1]$1,3393%CommercialLines $25,05885%P&C OtherOperations $2,728 9%Personal Lines$1,836 6% Part I - Item 1. Business Total Group Benefits Reserves for Future Policy Benefits and Other Policyholder Funds and Benefits Payable as of December 31, 2020 [1] [1]Includes short duration contract reserves of $121 of short-term disability and $36 of supplemental health as well as reserves for future policy benefits that includes $307 of paid up life reserves and policy reserves on life policies, $99 of reserves for conversions to individual life and $14 of other reserves. Other policyholder funds and benefits payable represent deposits from policyholders where the company does not have insurance risk but is subject to investment risk. Reserves for future policy benefits represent life-contingent reserves for which the company is subject to insurance and investment risk. Discussion of The Hartford's Group Benefits long-term disability reserves may be found in Part II, Item 7, MD&A — Critical Accounting Estimates — Group Benefits Long-term Disability ("LTD") Reserves, Net of Reinsurance. Additional discussion may be found in Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. UNDERWRITING FOR P&C AND GROUP BENEFITS The Company underwrites the risks it insures in order to manage exposure to loss through favorable risk selection and diversification. Risk modeling is used to manage, within specified limits, the aggregate exposure taken in each line of business and across the Company. For property and casualty business, aggregate exposure limits are set by geographic zone and peril. Products are priced according to the risk characteristics of the insured’s exposures. Rates charged for Personal Lines products are filed with the states in which we write business. Rates for Commercial Lines products are also filed with the states but the premium charged may be modified based on the insured’s relative risk profile and workers’ compensation policies may be subject to modification based on prior loss experience. Pricing for Group Benefits products, including long-term disability and life insurance, is also based on an underwriting of the risks and a 13 projection of estimated losses, including consideration of investment income. 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. Geographic Distribution of Earned Premium (% of total) Location California New York Texas Florida All other [1] Total Commercial Lines Personal Lines Group Benefits Total 7 % 6 % 4 % 3 % 32 % 52 % 2 % 1 % 1 % 1 % 12 % 17 % 3 % 2 % 2 % 1 % 23 % 31 % 12 % 9 % 7 % 5 % 67 % 100 % [1] No other single state or country accounted for 5% or more of the Company's consolidated earned premium in 2020. CLAIMS ADMINISTRATION FOR P&C AND GROUP BENEFITS Claims administration includes the functions associated with the receipt of initial loss notices, claims adjudication and estimates, legal representation for insureds where appropriate, establishment of case reserves, payment of losses and notification to reinsurers. These activities are performed by approximately 6,600 claim professionals handling 50 states, Washington D.C and 2 international locations, organized to meet the specific claim service needs for our various product offerings. Our combined workers’ compensation and Group Benefits units enable us to leverage synergies for improved outcomes. Claim payments for benefit, loss and loss adjustment expenses are the largest expenditure for the Company. REINSURANCE For discussion of reinsurance, see Part II, Item 7, MD&A — Enterprise Risk Management and Note 9 - Reinsurance of Notes to Consolidated Financial Statements. LTD$6,72174%Life,includingpremiumwaiver$1,35515%Other [1]$5776%Other policyholderfunds andbenefits payable$4155%credit issuer allocation limits, and maximum portfolio limits for below investment grade holdings. The Company attempts to minimize adverse impacts to the portfolio and the Company’s results of operations from changes in economic conditions through asset diversification, asset allocation limits, asset/liability duration matching and the use of derivatives. For further discussion of HIMCO’s portfolio management approach, see Part II, Item 7, MD&A — Enterprise Risk Management. The Hartford's Investment Portfolio of $56.5 billion as of December 31, 2020 Part I - Item 1. Business INVESTMENT OPERATIONS Hartford Investment Management Company (“HIMCO”) is an SEC registered investment advisor and manages the Company's investment operations. HIMCO provides customized investment strategies for The Hartford's investment portfolio, as well as for The Hartford's pension plan and institutional clients. In connection with the life and annuity business sold in May 2018, HIMCO entered into an agreement for an initial five year term to manage the invested assets of Talcott Resolution. As of December 31, 2020 and 2019, the fair value of HIMCO’s total assets under management was approximately $106.1 billion and $98.0 billion, respectively, including $45.9 billion and $42.4 billion, respectively, that were held in HIMCO managed third party accounts and $4.6 billion and $4.1 billion, respectively, that support the Company's pension and other post-retirement benefit plans. Management of The Hartford's Investment Portfolio HIMCO manages the Company's investment portfolios to maximize economic value and generate the returns necessary to support The Hartford’s various product obligations, within internally established objectives, guidelines and risk tolerances. The portfolio objectives and guidelines are developed based upon the asset/liability profile, including duration, convexity and other characteristics within specified risk tolerances. The risk tolerances considered include, but are not limited to, asset sector, Item 1A. RISK FACTORS In deciding whether to invest in The Hartford, you should carefully consider the following risks, any of which could have a material adverse effect on our business, financial condition, results of operations or liquidity and could also impact the trading price of our securities. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our businesses described elsewhere in this Annual Report. The following risk factors have been organized by category for ease of use, however many of the risks may have impacts in more than one category. The occurrence of certain of them may, in turn, cause the emergence or exacerbate the effect of others. Such a combination could materially increase the severity of the impact of these risks on our business, results of operations, financial condition or liquidity. The pandemic caused by the spread of COVID-19 has disrupted our operations and may have a material adverse impact on our business results, financial condition, results of operations and/or liquidity. The global spread of COVID-19 has created significant market volatility, uncertainty and economic disruption. The extent to which COVID-19 impacts our business, financial condition, results of operations and/or liquidity will depend on future developments which are highly uncertain and cannot be easily predicted including: the duration and scope of the pandemic; the effectiveness of vaccines; the length of time it takes to administer vaccines to the population; new variants of the Coronavirus which may impact the severity of the pandemic; and the actions taken to contain or treat its impact. Additional uncertainty exists regarding governmental, business and individual actions that have been and may continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; potential legislative, regulatory, and judicial responses to the pandemic pertaining specifically to insurance underwriting and claims; the effect on our customers and customers’ demand for our products; our ability to sell our products and our ability to use historical experience to assist our decision making in areas including underwriting, pricing, capital management and investments. Below are several key effects of COVID-19 on the Company’s business results, financial condition, results of operations and/or liquidity: • Insurance and Product Related Risk - The Company may continue to incur increased loss costs under insurance policies that we have written including for workers’ compensation, group life insurance, short-term disability, general liability, surety, director and officer liability, and 14 Taxable fixedmaturities (excl. U.S.treasuries & govt.agencies)56%U.S. treasuries andgov't agencies andshort-terms15%Tax-exemptfixed maturities15%Mortgage loans8%Equity and other3%Limited partnershipsand other alternativeinvestments3%Part I - Item 1A. Risk Factors employment practices liability, as well as property business. We may continue to be required to pay workers’ compensation claims for lost wages and medical costs associated with COVID-19, if claims are determined to be occupationally related to the work of the insured’s employees. In addition, the Company’s Group Benefits business has issued group life policies to employers and associations, which may continue to result in increased death claims due to COVID-19 mortality. We may also continue to experience higher short-term disability and paid family leave claims from employees and covered individuals who have been affected by COVID-19. Under general liability or umbrella policies, we may have exposure to increased claims for indemnification from our insureds who may be found liable for negligently having exposed third parties to COVID-19 at a place of business, home or other premise. In our commercial surety lines, there is the potential for elevated frequency and severity due to an increase in the number of bankruptcies, especially in small businesses and impacted industries such as hospitality, entertainment and transportation. In construction surety, there is the potential for elevated losses if contractors experience project shutdowns or payment delays, which could negatively impact their cash flows, or result in disruptions in their supply chains, labor shortages or inflation in the cost of materials. We may also have increased allegations under director and officer and employment practices liability policies for inadequate disclosures, mismanagement of resources, and hiring/lay off actions relating to COVID-19. Nearly all of our property insurance policies require direct physical loss or damage to property and contain standard exclusions that we believe preclude coverage for COVID-19 related claims, and the vast majority of such policies contain exclusions for virus-related losses. Nevertheless, the Company and certain of its writing companies have been served as defendants in lawsuits seeking insurance coverage under commercial insurance policies for alleged losses resulting from the shutdown or suspension of our insureds’ businesses due to the spread of COVID-19. While the Company and its subsidiaries deny the allegations and intend to defend vigorously and while virtually none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss, it is possible that adverse outcomes, if any, in the aggregate, could have a material adverse effect on the Company’s consolidated operating results. Further, some of the brokers and agents we do business with could have their operations affected by COVID-19 making it more difficult for us to conduct business. • Regulatory/Legal Risk - We also cannot predict how legal and regulatory responses to concerns about COVID-19 and related public health issues will impact our business, including the possible extension of insurance coverage beyond our policy language, such as for business interruption, civil authority and other claims. Further, policyholders may elect to litigate coverage issues which would lead to increased costs to the Company. For additional information on legislative and regulatory risks, see Part II, 15 • Item 7, MD&A - Capital Resources and Liquidity, Contingencies, Legislative and Regulatory Developments. Recessionary and other Global Economic Risk - As a result of COVID-19 containment efforts, many business operations, including many of the Company’s insureds, have either been shut down or significantly curtailed for an uncertain period of time. Due to the economic downturn, we could continue to see increased policy lapses and non- renewals and reduced demand for new business. In addition, employers have reduced and may continue to reduce their work forces, resulting in lower premiums for the Company’s workers’ compensation and group benefit products. The COVID-19 pandemic and resulting economic stress may continue to contribute to lower earned premiums, and reduced net investment income due to lower reinvestment rates. In response to the economic downturn, central banks have reduced benchmark interest rates to near zero. In addition, the Company could experience credit losses on various asset balances, including receivables and the principal amount of various invested assets, including fixed maturities and mortgage loans. In addition to credit losses on invested assets, The Company could experience declines in the value of available for sale debt securities if credit spreads were to widen significantly, which would reduce shareholders’ equity. The economic impacts of COVID-19 could also result in higher reinsurance costs and/or more limited availability of reinsurance coverage. Reinsurance treaties renewed by the Company subsequent to July 1, 2020 exclude coverage for losses arising from communicable diseases. Also, market volatility may cause us to change our existing hedging strategies resulting in economic loss. As markets become less liquid and/or experience lower trading volumes, it may be more difficult to value certain investment securities that we hold. Additionally, the Company may determine that an impairment has occurred when assessing its goodwill and other intangible assets, which would result in reduced earnings in the period that the impairment is recorded. • Capital and Liquidity Risk - We may also experience liquidity pressures including the need to provide additional capital to certain insurance subsidiaries, reductions in the amount of available dividend capacity from our subsidiaries and the need to post more collateral due to declining investment valuations or due to requirements under derivative agreements. Further, among other possible actions, we may choose not to repurchase shares and may decide to invest proceeds from maturing fixed maturities in short-term investments which earn lower returns. • Operational Risk - The Company also faces operational risks as a result of COVID-19. The Company has limited the number of employees working in its offices, resulting in the vast majority of employees working from home. While the Company has the technology in place to enable this arrangement and to facilitate communication with insureds, intermediaries, claimants and other third parties, there is a risk that business operations will be disrupted due to, among other things, cybersecurity attacks or data security incidents, higher than anticipated web traffic and call volumes as well as lack of sufficient broadband internet connectivity for employees and third parties working from home. If those Part I - Item 1A. Risk Factors disruptions become significant, it could result in, among other impacts, delays in settling claims, processing new business, renewals, cancellations and endorsements for insureds, billing and collecting premiums, transacting with reinsurers, contracting with and paying vendors, and disruptions to investment operations. We rely on vendors, including some located overseas, for a number of services including IT development, IT maintenance support and various business processes, including, among others, certain claims administration, policy administration, and other operational functions. As the COVID-19 virus has affected virtually all parts of the world, our vendors could also experience disruptions to their operations and while we have contingency plans for some level of disruption, there can be no assurance that issues vendors experience with their business processes would not have a material effect on our own operations. For all of the reasons discussed above, the global public health and economic impacts caused by the COVID 19 pandemic could have a material adverse effect on our financial condition, results of operations and liquidity. Risks Relating to Economic, Political and Global Market Conditions Unfavorable economic, political and global market conditions may adversely impact our business and results of operations. The Company’s investment portfolio and insurance liabilities are sensitive to changes in economic, political and global capital market conditions, such as the effect of a weak economy and changes in credit spreads, equity prices, interest rates, inflation, foreign currency exchange rates, and shifts in demand and supply of U.S. dollars. Weak economic conditions, such as high unemployment, low labor force participation, lower family income, a weak real estate market, lower business investment and lower consumer spending may adversely affect the demand for insurance and financial products and lower the Company’s profitability in some cases. In addition, political instability, politically motivated violence or civil unrest, may increase the frequency and severity of insured losses. In addition, a deterioration in global economic conditions and/or geopolitical conditions, including due to military action, trade wars, tariffs or other actions with respect to international trade agreements or policies, has the potential to, among other things, reduce demand for our products, reduce exposures we insure, drive higher inflation that could increase the Company’s loss costs and result in increased incidence of claims, particularly for workers’ compensation and disability claims. The Company’s investment portfolio includes limited partnerships and other alternative investments and equity securities for which changes in value are reported in earnings. These investments may be adversely impacted by economic volatility, including real estate market deterioration, which could impact our net investment returns and result in an adverse impact on operating results. 16 Below are several key factors impacted by changes in economic, political, and global market conditions and their potential effect on the Company’s business and results of operations: • • • Credit Spread Risk - Credit spread exposure is reflected in the market prices of fixed income instruments where lower rated securities generally trade at a higher credit spread. If issuer credit spreads increase or widen, the market value of our investment portfolio may decline. If the credit spread widening is significant and occurs over an extended period of time, the Company may recognize credit losses, resulting in decreased earnings. If credit spreads tighten significantly, the Company’s net investment income associated with new purchases of fixed maturities may be reduced. In addition, the value of credit derivatives under which the Company assumes exposure or purchases protection are impacted by changes in credit spreads, with losses occurring when credit spreads widen for assumed exposure or when credit spreads tighten if credit protection has been purchased. Equity Markets Risk - A decline in equity markets may result in unrealized capital losses on investments in equity securities recorded against net income and lower earnings from Hartford Funds where fee income is earned based upon the fair value of the assets under management. Equity markets are unpredictable. In the past few years, equity markets have been volatile, which could be indicative of a greater risk of a decline. For additional information on equity market sensitivity, see Part II, Item 7, MD&A - Enterprise Risk Management, Financial Risk- Equity Risk. Interest Rate Risk - Global economic conditions may result in the persistence of a low interest rate environment which would continue to pressure our net investment income and could result in lower margins on certain products. For additional information on interest rate sensitivity, see Part II, Item 7, MD&A - Enterprise Risk Management, Financial Risk - Interest Rate Risk New and renewal business for our property and casualty and group benefits products is priced considering prevailing interest rates. As interest rates decline, in order to achieve the same economic return, we would have to increase product prices to offset the lower anticipated investment income earned on invested premiums. Conversely, as interest rates rise, pricing targets will tend to decrease to reflect higher anticipated investment income. Our ability to effectively react to such changes in interest rates may affect our competitiveness in the marketplace, and in turn, could reduce written premium and earnings. For additional information on interest rate sensitivity, see Part II, Item 7, MD&A - Enterprise Risk Management, Financial Risk - Interest Rate Risk. In addition, due to the long-term nature of the liabilities within our Group Benefits operations, particularly for long- term disability, declines in interest rates over an extended period of time would result in our having to reinvest at lower yields. On the other hand, a rise in interest rates, in the absence of other countervailing changes, would reduce the market value of our investment portfolio. A decline in market value of invested assets due to an increase in interest rates could also limit our ability to realize tax benefits from recognized capital losses. Part I - Item 1A. Risk Factors • • Inflation Risk - Inflation is a risk to our property and casualty business because, in many cases, claims are paid out many years after a policy is written and premium is collected for the risk. Accordingly, a greater than expected increase in inflation related to the cost of medical services and repairs over the claim settlement period can result in higher claim costs than what was estimated at the time the policy was written. Inflation can also affect consumer spending and business investment which can reduce the demand for our products and services. Foreign Currency Exchange Rate - Changes in foreign currency exchange rates may impact our non-U.S. dollar denominated investments and foreign subsidiaries. As the Company has expanded its international operations, exposure to exchange rate fluctuations has increased. We hold cash and fixed maturity securities denominated in foreign currencies, including British Pounds and Canadian dollars, among others, and also have other assets and liabilities denominated in foreign currencies such as premiums receivable and loss reserves. While the Company predominately uses asset-liability matching, including the use of derivatives, to hedge certain of these exposures to fluctuations in foreign currency exchange rates, these actions do not eliminate the risk that changes in the exchange rates of foreign currencies to the U.S. dollar could result in financial loss to the Company, including realized or unrealized capital losses resulting from currency revaluation and increases to regulatory capital requirements for foreign subsidiaries that have net assets that are not denominated in their local currency. For additional information on foreign exchange risk, see Part II, Item 7, MD&A - Enterprise Risk Management, Financial Risk. Concentration of our investment portfolio increases the potential for significant losses. The concentration of our investment portfolios in any particular industry, collateral type, group of related industries or geographic sector could have an adverse effect on our investment portfolios and consequently on our business, financial condition, results of operations, and liquidity. Events or developments that have a negative impact on any particular industry, collateral type, group of related industries or geographic region may have a greater adverse effect on our investment portfolio to the extent that the portfolio is concentrated rather than diversified. Further, if issuers of securities or loans we hold are acquired, merge or otherwise consolidate with other issuers of securities or loans held by the Company, our investment portfolio’s credit concentration risk to issuers could increase for a period of time, until the Company is able to sell securities to get back in compliance with the established investment credit policies. Changing climate and weather patterns may adversely affect our business, financial condition and results of operation. Climate change presents risks to us as an insurer, investor and employer. Climate models indicate that rising temperatures will likely result in rising sea levels over the decades to come and may increase the frequency and intensity of natural catastrophes and severe weather events. Extreme weather events such as abnormally high temperatures may result in increased losses associated with our property, auto, workers’ compensation and 17 group benefits businesses. Changing climate patterns may also increase the duration, frequency and intensity of heat/cold waves, which may result in increased claims for property damage, business interruption and losses under workers’ compensation, group disability and group life coverages. Precipitation patterns across the U.S. are projected to change, which if realized, may increase risks of flash floods and wildfires. Additionally, there may be an impact on the demand, price and availability of automobile and homeowners insurance, and there is a risk of higher reinsurance costs or more limited availability of reinsurance coverage. Changes in climate conditions may also cause our underlying modeling data to not adequately reflect frequency and severity, limiting our ability to effectively evaluate and manage risks of catastrophes and severe weather events. Among other impacts, this could result in not charging enough premiums or not obtaining timely state approvals for rate increases to cover the risks we insure. We may also experience significant interruptions to the Company’s systems and operations that hinder our ability to sell and service business, manage claims and operate our business. In addition, climate change-related risks may adversely impact the value of the securities that we hold. The effects of climate change could also lead to increased credit risk of other counterparties we transact business with, including reinsurers. Rising sea levels may lead to decreases in real estate values in coastal areas, reducing premium and demand for commercial property and homeowners insurance and adversely impacting the value of our real estate-related investments. Additionally, government policies or regulations to slow climate change, such as emission controls or technology mandates, may have an adverse impact on sectors such as utilities, transportation and manufacturing, affecting demand for our products and our investments in these sectors. Changes in security asset prices may impact the value of our fixed income, real estate and commercial mortgage investments, resulting in realized or unrealized losses on our invested assets. Our decision to invest in certain securities and loans may also be impacted by changes in climate patterns due to: • • • changes in supply/demand characteristics for fuel (e.g., coal, oil, natural gas) advances in low-carbon technology and renewable energy development and effects of extreme weather events on the physical and operational exposure of industries and issuers Because there is significant variability associated with the impacts of climate change, we cannot predict how physical, legal, regulatory and social responses may impact our business. The discontinuance of LIBOR may adversely affect the value of certain investments we hold and floating rate securities we have issued, and any other assets or liabilities whose value may be tied to LIBOR. LIBOR is an indicative measure of the average interest rate at which major global banks could borrow from one another. LIBOR is used as a benchmark or reference rate in certain derivatives and floating rate fixed maturities that are part of our investment Part I - Item 1A. Risk Factors portfolio, as well as two classes of junior subordinated debentures that we have issued and are currently outstanding. In July 2017, the U.K. Financial Conduct Authority ("FCA") announced that by the end of 2021 it intends to stop persuading or compelling banks to report information used to set LIBOR, which could result in LIBOR no longer being published after 2021 or a determination by regulators that LIBOR is no longer representative of its underlying market. Since 2017, actions by regulators have resulted in efforts to establish alternative reference rates to LIBOR in several major currencies. The Alternative Reference Rate Committee, a group of private- market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Funding Rate (“SOFR”) as its preferred alternative rate for U.S. dollar LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury- backed repurchase transactions. The Federal Reserve Bank of New York began publishing daily SOFR in April 2018. Development and adoption of broadly accepted methodologies for transitioning from LIBOR, an unsecured forward-looking rate, to SOFR, a secured rate based on historical transactions, is ongoing. In December 2020, based on feedback from the banks that report information used to set LIBOR and following discussions with the FCA, the administrator of LIBOR, ICE Benchmark Administration, released a consultation on the potential for it to continue publication of the most widely-used U.S. dollar LIBOR rates until the end of June 2023. Subject to the results of the consultation, then, it is possible that some U.S. dollar LIBOR rates will continue to be available for a limited period beyond the end of 2021. The Company continues to monitor and assess the potential impacts of the discontinuation of LIBOR, which will vary depending on (1) existing contract language to determine a LIBOR replacement rate, referred to as “fallback provisions”, in individual contracts and (2) whether, how, and when industry participants develop and widely adopt new reference rates and fallback provisions for both existing and new products or instruments. At this time, it is not possible to predict how markets will respond to these new rates and the effect that the discontinuation of LIBOR might have on new or existing financial instruments. If LIBOR ceases to exist or is found by regulators to no longer be representative, outstanding contracts with interest rates tied to LIBOR may be adversely affected and impact our results of operations through a reduction in value of some of our LIBOR referenced floating rate investments, an increase in the interest we pay on our outstanding junior subordinated debentures, or an adverse impact to hedge effectiveness of derivatives or availability of hedge accounting. Additionally, any discontinuation of or transition from LIBOR may impact pricing, valuation and risk analytic processes and hedging strategies. For additional information on the Company’s financial instruments that are tied to LIBOR, see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Enterprise Risk Management, Financial Risk. The withdrawal of the U.K. from the E.U. may adversely affect our business, financial condition and results of operation. In June 2016, the U.K voted in a national referendum to withdraw from the E.U. (“Brexit”) and formal negotiations on the separation process, including the final exit date, have been ongoing and extended various times. The U.K. officially departed from the E.U. on January 31, 2020. Following the end of the Brexit Transition Period on December 31, 2020, the Trade and Cooperation Agreement between the E.U. and the U.K. (the “TCA”) came into effect on a provisional basis. The end of the Brexit Transition Period has resulted in significant changes and continuing uncertainty to E.U.-U.K. trade in financial services given the TCA does not include any provisions that compensate for the loss of ‘passporting’ rights under the E.U. Single Market Directives. In particular, there is no mutual recognition of licensing regimes, the market access provisions do not preclude E.U. Member States from imposing authorization requirements on UK financial services businesses and there are no provisions in the TCA on equivalence or regulatory cooperation in the area of financial services. Finally, the E.U. has largely carved out financial services from the most-favored nation provisions for investment liberalization and cross-border trade in services, so in theory the E.U. is free to offer better terms on financial services to other jurisdictions in the future without offering the same to the U.K. A separate, short Joint Declaration on Financial Services Regulatory Cooperation was published alongside the TCA which is essentially an agreement to agree at a later stage some of the detail on financial services which is absent from the TCA. In this respect, the UK and the E.U. intend to enter into a Memorandum of Understanding by March 2021 but this will not have the same legal effect or status as an international treaty. Prolonged uncertainty relating to the terms of the U.K.’s withdrawal, could, among other outcomes, cause significant volatility in global financial markets, currency exchange rate fluctuations and asset valuations, and disrupt the U.K. market and the E.U. markets by increasing restrictions on the trade and free movement of goods, services and people between the U.K. and the E.U. The withdrawal could also lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. As a result of the acquisition of Navigators Group, we have international operations in the U.K. and E.U. While Navigators Group has implemented measures to sell business in the E.U. independently of its U.K. insurance companies by having its Lloyd's Syndicate write business through the Lloyd’s subsidiary in Belgium, the extent of the disruption due to Brexit throughout the U.K. and E.U. is uncertain. Should we seek to access the E.U. market through our U.K. insurance companies, that will depend on general trade and services agreements made by the U.K. with the E.U. or on specific arrangements made by our U.K. insurance companies to retain access to the E.U. market. In addition, the ability to access the E.U. market through our Lloyd's Syndicate depends on Lloyd's being able to comply with E.U. regulations through its Belgium subsidiary. The consequence of making such specific arrangements may increase our cost of doing business. Specifically, Lloyd’s is still in discussion with the Belgium Financial Services Markets Authority ("FSMA") and the National Bank of Belgium ("NBB") regarding the Lloyd’s Europe operating model and the activities performed for it by managing agents (through the Outsourcing Agreement) and the question of whether it was possible that they could be construed as constituting insurance distribution under the Insurance Distribution Directive ("IDD"), which would therefore require them to be authorized within the 18 Part I - Item 1A. Risk Factors European Economic Area ("EEA"). Lloyd’s are proposing to make changes to the operating model by the second half of 2021 with the engagement of the market. The consequences of U.K.’s withdrawal from the E.U. in the long term are unknown and not quantifiable at this time. However, given the lack of comparable precedent, any effects of a withdrawal may adversely affect our business, financial condition and results of operations. Insurance Industry and Product Related Risks Unfavorable loss development may adversely affect our business, financial condition, results of operations and liquidity. We establish property and casualty loss reserves to cover our estimated liability for the payment of all unpaid losses and loss expenses incurred with respect to premiums earned on our policies. Loss reserves are estimates of what we expect the ultimate settlement and administration of claims will cost, less what has been paid to date. These estimates are based upon actuarial projections and on our assessment of currently available data, as well as estimates of claims severity and frequency, legal theories of liability and other factors. For risks due to evolving changes in social, economic and environmental conditions, see the Risk Factor, “Unexpected and unintended claim and coverage issues under our insurance contracts may adversely impact our financial performance.” Loss reserve estimates are refined periodically as experience develops and claims are reported and settled, potentially resulting in increases to our reserves. Increases in reserves would be recognized as an expense during the periods in which these determinations are made, thereby adversely affecting our results of operations for those periods. In addition, since reserve estimates of aggregate loss costs for prior years are used in pricing our insurance products, inaccurate reserves can lead to our products not being priced adequately to cover actual losses and related loss expenses in order to generate a profit. We continue to receive A&E claims, the vast majority of which relate to policies written before 1986. Estimating the ultimate gross reserves needed for unpaid losses and related expenses for asbestos and environmental claims is particularly difficult for insurers and reinsurers. The actuarial tools and other techniques used to estimate the ultimate cost of more traditional insurance exposures tend to be less precise when used to estimate reserves for some A&E exposures. Moreover, the assumptions used to estimate gross reserves for A&E claims, such as claim frequency over time, average severity, and how various policy provisions will be interpreted, are subject to significant uncertainty. It is also not possible to predict changes in the legal and legislative environment and their effect on the future development of A&E claims. These factors, among others, make the variability of gross reserves estimates for these longer- tailed exposures significantly greater than for other more traditional exposures. Effective December 31, 2016, the Company entered into an agreement with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc. (“Berkshire”) whereby the 19 Company is reinsured for subsequent adverse development on substantially all of its net A&E reserves up to an aggregate net limit of $1.5 billion. We remain directly liable to claimants and if the reinsurer does not fulfill its obligations under the agreement or if future adverse development exceeds the $1.5 billion aggregate limit, we may need to increase our recorded net reserves which could have a material adverse effect on our financial condition, results of operations and liquidity. For additional information related to risks associated with the adverse development cover, see Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. We are vulnerable to losses from catastrophes, both natural and man-made. Our insurance operations expose us to claims arising out of catastrophes. Catastrophes can be caused by various unpredictable natural events, including, among others, earthquakes, hurricanes, hailstorms, severe winter weather, wind storms, fires, tornadoes, and pandemics. Catastrophes can also be man-made, such as terrorist attacks, civil unrest, cyber-attacks, explosions or infrastructure failures. The geographic distribution of our business subjects us to catastrophe exposure for events occurring in a number of areas, including, but not limited to: hurricanes in Florida, the Gulf Coast, the Northeast and the Atlantic coast regions of the United States; tornadoes and hail in the Midwest and Southeast; earthquakes in geographical regions exposed to seismic activity; wildfires in the West; and the spread of disease, which can occur throughout multiple geographic locations. We are also exposed to catastrophe losses in other parts of the world through our global specialty business. Any increases in the values and concentrations of insureds and property in these areas would increase the severity of catastrophic events in the future. In addition, changes in climate and/or weather patterns may increase the frequency and/or intensity of severe weather and natural catastrophe events potentially leading to increased insured losses. Potential examples include, but are not limited to: • an increase in the frequency or intensity of wind and thunderstorm and tornado/hailstorm events due to increased convection in the atmosphere, • more frequent and larger wildfires in certain geographies, • • higher incidence of deluge flooding, and the potential for an increase in frequency and severity of hurricane events. For a further discussion of climate-related risks, see the above- referenced Risk Factor, “Changing climate and weather patterns may adversely affect our business, financial condition and results of operation.” Our businesses also have exposure to global or nationally occurring pandemics caused by highly infectious and potentially fatal diseases spread through human, animal or plant populations. In the event of one or more catastrophes, policyholders may be unable to meet their obligations to pay premiums on our insurance policies. Further, our liquidity could be constrained by a catastrophe, or multiple catastrophes. In addition, in part because accounting rules do not permit insurers to reserve for such catastrophic events until they occur, claims from catastrophic Part I - Item 1A. Risk Factors events could have a material adverse effect on our business, financial condition, results of operations or liquidity. The amount we charge for catastrophe exposure may be inadequate if the frequency or severity of catastrophe losses changes over time or if the models we use to estimate the exposure prove inadequate. In addition, regulators or legislators could limit our ability to charge adequate pricing for catastrophe exposures or shift more responsibility for covering risk. Terrorism is an example of a significant man-made caused potential catastrophe. Private sector catastrophe reinsurance is limited and generally unavailable for terrorism losses caused by attacks with nuclear, biological, chemical or radiological weapons. In addition, workers' compensation policies generally do not have exclusions or limitations for terrorism losses. Reinsurance coverage from the federal government under the Terrorism Risk Insurance Program (the "Program") Reauthorization Act of 2019 (“TRIPRA 2019”) is also limited and only applies for certified acts of terrorism that exceed a certain threshold of industry losses. Accordingly, the effects of a terrorist attack in the geographic areas we serve may result in claims and related losses for which we do not have adequate reinsurance. TRIPRA 2019 also requires that the federal government create the following reports, which could lead to additional legislation or regulation: (1) Treasury Department to include in its biennial report on the effectiveness of the Program an evaluation of the availability and affordability of terrorism risk insurance for places of worship; and (2) Government Accountability Office report to analyze and address the vulnerabilities and potential costs of cyber terrorism, to assess adequacy of coverage under the Program, and to make recommendations for future legislative changes to address evolving cyber terrorism risks. Further, the continued threat of terrorism and the occurrence of terrorist attacks, as well as heightened security measures and military action in response to these threats and attacks or other geopolitical or military crises, may cause significant volatility in global financial markets, disruptions to commerce and reduced economic activity. These consequences could have an adverse effect on the value of the assets in our investment portfolio. Terrorist attacks also could disrupt our operation centers. In addition, TRIPRA 2019 expires on December 31, 2027 and if the U.S. Congress does not reauthorize the program or significantly reduces the government’s share of covered terrorism losses, the Company’s exposure to terrorism losses could increase materially unless it can purchase alternative terrorism reinsurance protection in the private markets at affordable prices or takes actions to materially reduce its exposure in lines of business subject to terrorism risk. For a further discussion of TRIPRA, see Part II, Item 7, MD&A - Enterprise Risk Management - Insurance Risk Management, Reinsurance as a Risk Management Strategy. As a result, it is possible that any, or a combination of all, of these factors related to a catastrophe, or multiple catastrophes, whether natural or man-made, can have a material adverse effect on our business, financial condition, results of operations or liquidity. Pricing for our products is subject to our ability to adequately assess risks, estimate losses and comply with state and international insurance regulations. We seek to price our property and casualty and group benefits insurance policies such that insurance premiums and future net 20 investment income earned on premiums received will provide for an acceptable profit in excess of underwriting expenses and the cost of paying claims. Pricing adequacy depends on a number of factors, including proper evaluation of underwriting risks, the ability to project future claim costs, our expense levels, net investment income realized, our response to rate actions taken by competitors, legal and regulatory developments, including in international markets, and the ability to obtain regulatory approval for rate changes. State insurance departments regulate many of the premium rates we charge and also propose rate changes for the benefit of the property and casualty consumer at the expense of the insurer, which may not allow us to reach targeted levels of profitability. In addition to regulating rates, certain states have enacted laws that require a property and casualty insurer to participate in assigned risk plans, reinsurance facilities, joint underwriting associations and other residual market plans. State regulators also require that an insurer offer property and casualty coverage to all consumers and often restrict an insurer's ability to charge the price it might otherwise charge or restrict an insurer's ability to offer or enforce specific policy deductibles. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired rates or accept additional risk not contemplated in our existing rates, participate in the operating losses of residual market plans or pay assessments to fund operating deficits of state-sponsored funds, possibly leading to lower returns on equity. The laws and regulations of many states also limit an insurer's ability to withdraw from one or more lines of insurance in the state, except pursuant to a plan that is approved by the state's insurance department. Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies. These funds periodically assess losses against all insurance companies doing business in the state. Any of these factors could have a material adverse effect on our business, financial condition, results of operations or liquidity. For more on international regulatory risks, see the Risk Factor, “Regulatory and legislative developments could have a material adverse impact on our business, financial condition, results of operations and liquidity.” Additionally, the property and casualty and group benefits insurance markets have been historically cyclical, experiencing periods characterized by relatively high levels of price competition, less restrictive underwriting standards, more expansive coverage offerings, multi-year rate guarantees and declining premium rates, followed by periods of relatively low levels of competition, more selective underwriting standards, more coverage restrictions and increasing premium rates. In all of our property and casualty and group benefits insurance product lines, there is a risk that the premium we charge may ultimately prove to be inadequate as reported losses emerge. In addition, there is a risk that regulatory constraints, price competition or incorrect pricing assumptions could prevent us from achieving targeted returns. Inadequate pricing could have a material adverse effect on our results of operations and financial condition. Part I - Item 1A. Risk Factors Competitive activity, use of predictive analytics, or technological changes may adversely affect our market share, demand for our products, or our financial results. The industries in which we operate are highly competitive. Our principal competitors are other property and casualty insurers, group benefits providers and providers of mutual funds and exchange-traded products. Competitors may expand their risk appetites in products and services where The Hartford currently enjoys a competitive advantage. Larger competitors with more capital and new entrants to the market could result in increased pricing pressures on a number of our products and services and may harm our ability to maintain or increase our profitability. For example, larger competitors, including those formed through consolidation or who may acquire new entrants to the market, such as insurtech firms, may have lower operating costs and an ability to absorb greater risk while maintaining their financial strength ratings, thereby allowing them to price their products more competitively. In addition, a number of insurers are making use of predictive analytics to, among other things, improve pricing accuracy, be more targeted in marketing, strengthen customer relationships and provide more customized loss prevention services. If they are able to use predictive analytics and other data and/or adopt innovative new technologies more effectively than we are, it may give them a competitive advantage. Because of the highly competitive nature of the industries we compete in, there can be no assurance that we will continue to compete effectively with our industry rivals, or that competitive pressure will not have a material adverse effect on our business and results of operations. Our business could also be affected by technological changes, including further advancements in automotive safety features, the development of autonomous or “self-driving” vehicles, and platforms that facilitate ride sharing. These technologies could impact the frequency or severity of losses, disrupt the demand for certain of our products, or reduce the size of the automobile insurance market as a whole. The risks we insure are also affected by the increased use of technology in homes and businesses, including technology used in heating, ventilation, air conditioning and security systems and the introduction of more automated loss control measures. In addition, our business may be disrupted due to failures of accelerated technological changes, including our automation of minimally complex tasks, which may adversely impact our business and results of operations. While there is substantial uncertainty about the timing, penetration and reliability of such technologies, and the legal frameworks that may apply, such as to autonomous vehicles, any such impacts could have a material adverse effect on our business and results of operations. We may experience difficulty in marketing and providing insurance products and investment advisory services through distribution channels and advisory firms. We distribute our insurance products, mutual funds and ETPs through a variety of distribution channels and financial intermediaries, including brokers, independent agents, wholesale agents, reinsurance brokers, broker-dealers, banks, registered investment advisors, affinity partners, our own internal sales force and other third-party organizations. In some areas of our 21 business, we generate a significant portion of our business through third-party arrangements. For example, we market personal lines products in large part through an exclusive licensing arrangement with AARP that continues through December 31, 2032. Our ability to distribute products through the AARP program may be adversely impacted by membership levels and the pace of membership growth. In addition, the independent agent and broker distribution channel is consolidating which could result in a larger proportion of written premium being concentrated among fewer agents and brokers, potentially increasing our cost of acquiring new business. While we periodically seek to renew or extend third party arrangements, there can be no assurance that our relationship with these third parties will continue or that the economics of these relationships won't change to make them less financially attractive to the Company. An interruption in our relationship with certain of these third parties could materially affect our ability to market our products and could have a material adverse effect on our business, financial condition, results of operations and liquidity. Unexpected and unintended claim and coverage issues under our insurance contracts may adversely impact our financial performance. Changes in industry practices and in legal, judicial, social and other environmental conditions, technological advances or fraudulent activities, may require us to pay claims we did not intend to cover when we wrote the policies. Social, economic, political and environmental issues, including rising income inequality, climate change, prescription drug use and addiction, exposures to new substances or those previously considered to be safe, along with the use of social media to proliferate messaging around such issues, has expanded the theories for reporting claims, which may increase our claims administration and/or litigation costs. State and local governments' increased efforts aimed to respond to the costs and concerns associated with these types of issues, may also lead to expansive, new theories for reporting claims or may lead to the passage of "reviver" statutes that extend the statute of limitations for the reporting of these claims, including statutes passed in certain states with respect to sexual molestation and sexual abuse claims. In addition, these and other social, economic, political and environmental issues may either extend coverage beyond our underwriting intent or increase the frequency or severity of claims. Some of these changes, advances or activities may not become apparent until some time after we have issued insurance contracts that are affected by the changes, advances or activities and/or we may be unable to compensate for such losses through future pricing and underwriting. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued, and this liability may have a material adverse effect on our business, financial condition, results of operations and liquidity at the time it becomes known. Part I - Item 1A. Risk Factors Financial Strength, Credit and Counterparty Risks Downgrades in our financial strength or credit ratings may make our products less attractive, increase our cost of capital and inhibit our ability to refinance our debt. Financial strength and credit ratings are important in establishing the competitive position of insurance companies. Rating agencies assign ratings based upon several factors. While most of the factors relate to the rated company, others relate to the views of the rating agency (including its assessment of the strategic importance of the rated company to the insurance group), general economic conditions, and circumstances outside the rated company's control. In addition, rating agencies may employ different models and formulas to assess the financial strength of a rated company, and from time to time rating agencies have altered these models. Changes to the models or factors used by the rating agencies to assign ratings could adversely impact a rating agency's judgment of its internal rating and the publicly issued rating it assigns us. Our financial strength ratings, which are intended to measure our ability to meet policyholder obligations, are an important factor affecting public confidence in most of our products and, as a result, our competitiveness. A downgrade or a potential downgrade in the rating of our financial strength or of one of our principal insurance subsidiaries could affect our competitive position and reduce future sales of our products. Our credit ratings also affect our cost of capital. A downgrade or a potential downgrade of our credit ratings could make it more difficult or costly to refinance maturing debt obligations, to support business growth at our insurance subsidiaries and to maintain or improve the financial strength ratings of our principal insurance subsidiaries. These events could materially adversely affect our business, financial condition, results of operations and liquidity. For a further discussion of potential impacts of ratings downgrades on derivative instruments, including potential collateral calls, see Part II, Item 7, MD&A - Capital Resources and Liquidity - Derivative Commitments. The amount of capital that we must hold to maintain our financial strength and credit ratings and meet other requirements can vary significantly from time to time and is sensitive to a number of factors outside of our control. We conduct the vast majority of our business through licensed insurance company subsidiaries. In the United States, statutory accounting standards and statutory capital and reserve requirements for these entities are prescribed by the applicable insurance regulators and the NAIC. The minimum capital we must hold is based on risk-based capital (“RBC”) formulas for both life and property and casualty companies. The RBC formula for life companies is applicable to our group benefits business and establishes capital requirements relating to insurance, business, asset, credit, interest rate and off-balance sheet risks. The RBC 22 formula for property and casualty companies sets required statutory surplus levels based on underwriting, asset and credit and off-balance sheet risks. Countries in which our international insurance subsidiaries are incorporated or deemed commercially domiciled are subject to regulatory requirements as defined by the regulatory jurisdiction, including Solvency II. In addition, our Lloyd’s member company is required to maintain required Funds at Lloyd’s (“FAL”) to meet the capital requirements of its syndicate. The FAL is determined based on the syndicate’s Solvency Capital Requirement (“SCR”) under the Solvency II capital adequacy model plus an economic capital assessment determined by the Lloyd’s Franchise Board (which is responsible for the day-to-day management of the Lloyd's market). In any particular year, statutory surplus amounts, RBC ratios, FAL and SCR may increase or decrease depending on a variety of factors, including (as applicable) • • • • • • • • • the amount of statutory income or losses generated by our insurance subsidiaries, the amount of additional capital our insurance subsidiaries must hold to support business growth, the amount of dividends or distributions paid to the holding company, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio, the value of certain derivative instruments, changes in interest rates, admissibility of deferred tax assets, and changes to the regulatory capital formulas. Most of these factors are outside of the Company's control. The regulatory capital formulas could also be negatively affected if the NAIC, state insurance regulators or other insurance regulators change the accounting guidance for determining capital adequacy. 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. If our capital resources are insufficient to maintain a particular rating by one or more rating agencies, we may need to raise capital through public or private equity or debt financing. If we were not to raise additional capital, either at our discretion or because we were unable to do so, our financial strength and credit ratings might be downgraded by one or more rating agencies. Losses due to nonperformance or defaults by counterparties can have a material adverse effect on the value of our investments, reduce our profitability or sources of liquidity. We have credit risk with counterparties associated with investments, derivatives, premiums receivable, reinsurance Part I - Item 1A. Risk Factors recoverables and indemnifications provided by third parties in connection with previous dispositions. Among others, our counterparties include issuers of fixed maturity and equity securities we hold, borrowers of mortgage loans we hold, customers, trading counterparties, counterparties under swaps and other derivative contracts, reinsurers, clearing agents, exchanges, clearing houses and other financial intermediaries and guarantors. These counterparties may default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud, government intervention and other reasons. In addition, for exchange-traded derivatives, such as futures, options and "cleared" over-the- counter derivatives, the Company is generally exposed to the credit risk of the relevant central counterparty clearing house. Defaults by these counterparties on their obligations to us could have a material adverse effect on the value of our investments, financial condition, results of operations and liquidity. Additionally, if the underlying assets supporting the structured securities we invest in default on their payment obligations, our securities will incur losses. The availability of reinsurance and our ability to recover under reinsurance contracts may not be sufficient to protect us against losses. As an insurer, we frequently use reinsurance to reduce the effect of losses that may arise from, among other things, catastrophes and other risks that can cause unfavorable results of operations. In addition, our assumed reinsurance business purchases retrocessional coverage for a portion of the risks it assumes. Under these reinsurance arrangements, other insurers assume a portion of our losses and related expenses; however, we remain liable as the direct insurer on all risks reinsured. Consequently, ceded reinsurance arrangements do not eliminate our obligation to pay claims, and we are subject to our reinsurers' credit risk with respect to our ability to recover amounts due from them. The inability or unwillingness of any reinsurer or retrocessionaire to meet its financial obligations to us, including the impact of any insolvency or rehabilitation proceedings involving a reinsurer or retrocessionaire that could affect the Company's access to collateral held in trust, could have a material adverse effect on our financial condition, results of operations and liquidity. In addition, should the availability and cost of reinsurance change materially, we may have to pay higher reinsurance costs, accept an increase in our net liability exposure, reduce the amount of business we write, or access to the extent possible other alternatives to reinsurance, such as use of the capital markets. Further, due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables will be due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarterly or annual period. Our ability to declare and pay dividends is subject to limitations. The payment of future dividends on our capital stock is subject to the discretion of our board of directors, which considers, among other factors, our operating results, overall financial condition, credit-risk considerations and capital requirements, as well as general business and market conditions. Our board of directors 23 may only declare such dividends out of funds legally available for such payments. Moreover, our common stockholders are subject to the prior dividend rights of any holders of depositary shares representing preferred stock then outstanding. The terms of our outstanding junior subordinated debt securities prohibit us from declaring or paying any dividends or distributions on our capital stock or purchasing, acquiring, or making a liquidation payment on such stock, if we have given notice of our election to defer interest payments and the related deferral period has not yet commenced or a deferral period is continuing. Moreover, as a holding company that is separate and distinct from our insurance subsidiaries, we have no significant business operations of our own. Therefore, we rely on dividends from our insurance company subsidiaries and other subsidiaries as the principal source of cash flow to meet our obligations. Subsidiary dividends fund payments on our debt securities and the payment of dividends to stockholders on our capital stock. Connecticut state laws and certain other U.S. jurisdictions in which we operate limit the payment of dividends and require notice to and approval by the state insurance commissioner for the declaration or payment of dividends above certain levels. The laws and regulations of the countries in which our international insurance subsidiaries are incorporated or deemed commercially domiciled, as well as requirements of the Council of Lloyd’s, also impose limitations on the payment of dividends which, in some instances, are more restrictive. Dividends paid from our insurance subsidiaries are further dependent on their cash requirements. In addition, in the event of liquidation or reorganization of a subsidiary, prior claims of a subsidiary’s creditors may take precedence over the holding company’s right to a dividend or distribution from the subsidiary except to the extent that the holding company may be a creditor of that subsidiary. For further discussion on dividends from insurance subsidiaries, see Part II, Item 7, MD&A - Capital Resources & Liquidity. Risks Relating to Estimates, Assumptions and Valuations Actual results could materially differ from the analytical models we use to assist our decision making in key areas such as underwriting, pricing, capital management, reserving, investments, reinsurance and catastrophe risks. We use models to help make decisions related to, among other things, underwriting, pricing, capital allocation, reserving, investments, reinsurance, and catastrophe risk. Both proprietary and third party models we use incorporate numerous assumptions and forecasts about the future level and variability of interest rates, capital requirements, loss frequency and severity, currency exchange rates, policyholder behavior, equity markets and inflation, among others. The models are subject to the inherent limitations of any statistical analysis as the historical internal and industry data and assumptions used in the models may not be indicative of what will happen in the future. Consequently, actual results may differ materially from our modeled results. The profitability and financial condition of the Part I - Item 1A. Risk Factors Company substantially depends on the extent to which our actual experience is consistent with assumptions we use in our models and ultimate model outputs. If, based upon these models or other factors, we misprice our products or our estimates of the risks we are exposed to prove to be materially inaccurate, our business, financial condition, results of operations or liquidity may be adversely affected. The valuation of our securities and investments and the determination of allowances and credit losses are highly subjective and based on methodologies, estimations and assumptions that are subject to differing interpretations and market conditions. Estimated fair values of the Company’s investments are based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. During periods of market disruption, it may be difficult to value certain of our securities if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the financial environment. In addition, there may be certain securities whose fair value is based on one or more unobservable inputs, even during normal market conditions. As a result, the determination of the fair values of these securities may include inputs and assumptions that require more estimation and management judgment and the use of complex valuation methodologies. These fair values may differ materially from the value at which the investments may be ultimately sold. Further, rapidly changing or unprecedented credit and equity market conditions could materially impact the valuation of securities and the period-to-period changes in value could vary significantly. Decreases in value could have a material adverse effect on our business, results of operations, financial condition and liquidity. Similarly, management’s decision on whether to record an allowance for credit loss is subject to significant judgments and assumptions regarding changes in general economic conditions, the issuer's financial condition or future recovery prospects, estimated future cash flows, the effects of changes in interest rates or credit spreads, the expected recovery period and the accuracy of third party information used in internal assessments. As a result, management’s evaluations and assessments are highly judgmental and its projections of future cash flows over the life of certain securities may ultimately prove incorrect as facts and circumstances change. If our businesses do not perform well, we may be required to recognize an impairment of our goodwill. Goodwill represents the excess of the amounts we paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. We test goodwill at least annually for impairment. Impairment testing is performed based upon estimates of the fair value of the “reporting unit” to which the goodwill relates. The reporting unit is the operating segment or a business one level below an operating segment if discrete financial information is prepared and regularly reviewed by 24 management at that level. The fair value of the reporting unit could decrease if new business, customer retention, profitability or other drivers of performance differ from expectations. If it is determined that the goodwill has been impaired, the Company must write down the goodwill by the amount of the impairment, with a corresponding charge to net income (loss). These write downs could have a material adverse effect on our results of operations or financial condition. Strategic and Operational Risks Our businesses may suffer and we may incur substantial costs if we are unable to access our systems and safeguard the security of our data in the event of a disaster, cyber breach or other information security incident. We use technology to process, store, retrieve, evaluate and utilize customer and company data and information. Our information technology and telecommunications systems, in turn, interface with and rely upon third-party systems. We and our third party vendors must be able to access our systems to provide insurance quotes, process premium payments, make changes to existing policies, file and pay claims, administer mutual funds, provide customer support, manage our investment portfolios, report on financial results and perform other necessary business functions. Systems failures or outages could compromise our ability to perform these business functions in a timely manner, which could harm our ability to conduct business and hurt our relationships with our business partners and customers. In the event of a disaster such as a natural catastrophe, a pandemic, civil unrest, an industrial accident, a cyber-attack, a blackout, a terrorist attack (including conventional, nuclear, biological, chemical or radiological) or war, systems upon which we rely may be inaccessible to our employees, customers or business partners for an extended period of time. Even if our employees and business partners are able to report to work, they may be unable to perform their duties for an extended period of time if our data or systems used to conduct our business are disabled or destroyed. Our systems have been, and will likely continue to be, subject to viruses or other malicious codes, unauthorized access, cyber- attacks, cyber frauds or other computer related penetrations. The frequency and sophistication of such threats continue to increase as well. While, to date, The Hartford is not aware of having experienced a material breach of our cyber security systems, administrative, internal accounting and technical controls as well as other preventive actions may be insufficient to prevent physical and electronic break-ins, denial of service, cyber-attacks, business email compromises, ransomware or other security breaches to our systems or those of third parties with whom we do business. Such an event could compromise our confidential information as well as that of our clients and third parties, impede or interrupt our business operations and result in other negative consequences, including remediation costs, loss of revenue, additional regulatory scrutiny and litigation and reputational damage. In addition, we routinely transmit to third parties personal, confidential and proprietary information, which may be related to employees and customers, by email and other electronic means, along with receiving and storing such Part I - Item 1A. Risk Factors information on our systems. Although we attempt to protect privileged and confidential information, we may be unable to secure the information in all events, especially with clients, vendors, service providers, counterparties and other third parties who may not have appropriate controls to protect confidential information. Our businesses must comply with regulations to control the privacy of customer, employee and third party data, and state, federal and international regulations regarding data privacy, including the European Union General Data Protection Regulation and California Consumer Privacy Act, are becoming increasingly more onerous. A misuse or mishandling of confidential or proprietary information could result in legal liability, regulatory action and reputational harm. Third parties, including third party administrators and cloud- based systems, are also subject to cyber-breaches of confidential information, along with the other risks outlined above, any one of which may result in our incurring substantial costs and other negative consequences, including a material adverse effect on our business, reputation, financial condition, results of operations and liquidity. While we maintain cyber liability insurance that provides both third party liability and first party insurance coverages, our insurance may not be sufficient to protect against all loss. Performance problems due to outsourcing and other third-party relationships may compromise our ability to conduct business. We outsource certain business and administrative functions and rely on third-party vendors to perform certain functions or provide certain services on our behalf and have a significant number of information technology and business processes outsourced with a single vendor. If we are unable to reach agreement in the negotiation of contracts or renewals with certain third-party providers, or if such third-party providers experience disruptions or do not perform as anticipated, we may be unable to meet our obligations to customers and claimants, incur higher costs and lose business which may have a material adverse effect on our business and results of operations. For other risks associated with our outsourcing of certain functions, see the Risk Factor, “Our businesses may suffer and we may incur substantial costs if we are unable to access our systems and safeguard the security of our data in the event of a disaster, cyber breach or other information security incident.” Our ability to execute on capital management plans, expense reduction initiatives and other actions is subject to material challenges, uncertainties and risks. The ability to execute on capital management plans is subject to material challenges, uncertainties and risks. From time to time, our capital management plans may include the repurchase of common stock, the paydown of outstanding debt or both. We may not achieve all of the benefits we expect to derive from these plans. For an equity repurchase plan approved by the Board, such capital management plan would be subject to execution risks, including, among others, risks related to market fluctuations, investor interest and potential legal constraints that could delay execution at an otherwise optimal time. There can be no assurance that we will fully execute any such plan. In addition, we 25 may not be successful in keeping our businesses cost efficient. The Company may not be able to achieve all the revenue increases, expense reductions and other synergies that it expects to realize as a result of acquisitions, divestitures or restructurings. We may take future actions, including acquisitions, divestitures or restructurings that may involve additional uncertainties and risks that negatively impact our business, financial condition, results of operations and liquidity. Acquisitions and divestitures may not produce the anticipated benefits and may result in unintended consequences, which could have a material adverse impact on our financial condition and results of operations. We may not be able to successfully integrate acquired businesses or achieve the expected synergies as a result of such acquisitions or divestitures. The process of integrating an acquired company or business can be complex and costly and may create unforeseen operating difficulties including ineffective integration of underwriting, risk management, claims handling, finance, information technology and actuarial practices. Difficulties integrating an acquired business may also result in the acquired business performing differently than we expected including through the loss of customers or in our failure to realize anticipated increased premium growth or expense-related efficiencies. We could be adversely affected by the acquisition due to unanticipated performance issues and additional expense, unforeseen liabilities, transaction-related charges, downgrades of third-party rating agencies, diversion of management time and resources to integration challenges, loss of key employees, regulatory requirements, exposure to tax liabilities, amortization of expenses related to intangibles and charges for impairment of long-term assets or goodwill. In addition, we may be adversely impacted by uncertainties related to reserve estimates of the acquired company and its design and operation of internal controls over financial reporting. We may be unable to distribute as much capital to the holding company as planned due to regulatory restrictions or other reasons that may adversely affect our liquidity. In addition, in the case of business or asset dispositions, we may have continued financial exposure to the divested businesses through reinsurance, indemnification or other financial arrangements following the transaction. We may also retain a position in securities of the acquirer that purchased the divested business, which subjects us to risks related to the price of the equity securities and our ability to monetize such securities. The expected benefits of acquired or divested businesses may not be realized and involve additional uncertainties and risks that may negatively impact our business, financial condition, results of operations and liquidity. Difficulty in attracting and retaining talented and qualified personnel may adversely affect the execution of our business strategies. Our ability to attract, develop and retain talented employees, managers and executives is critical to our success. There is significant competition within and outside the insurance and financial services industry for qualified employees, particularly for individuals with highly specialized knowledge in areas such as underwriting, actuarial, data and analytics, technology and digital Part I - Item 1A. Risk Factors commerce and investment management. Our continued ability to compete effectively in our businesses and to expand into new business areas depends on our ability to attract new employees and to retain and motivate our existing employees. The loss of any one or more key employees, including executives, managers and employees with strong technological, analytical and other specialized skills, may adversely impact the execution of our business objectives or result in loss of important institutional knowledge. Our inability to attract and retain key personnel could have a material adverse effect on our financial condition and results of operations. We may not be able to protect our intellectual property and may be subject to infringement claims. We rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our intellectual property and to determine its scope, validity or enforceability, which could divert significant resources and may not prove successful. Litigation to enforce our intellectual property rights may not be successful and cost a significant amount of money. The inability to secure or enforce the protection of our intellectual property assets could harm our reputation and have a material adverse effect on our business and our ability to compete. We also may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon their intellectual property rights, including patent rights, or violate license usage rights. Any such intellectual property claims and any resulting litigation could result in significant expense and liability for damages, and in some circumstances we could be enjoined from providing certain products or services to our customers, or utilizing and benefiting from certain patent, copyrights, trademarks, trade secrets or licenses, or alternatively could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on our business, results of operations and financial condition. Regulatory and Legal Risks Regulatory and legislative developments could have a material adverse impact on our business, financial condition, results of operations and liquidity. We are subject to extensive laws and regulations that are complex, subject to change and often conflict in their approach or intended outcomes. Compliance with these laws and regulations can increase cost, affect our strategy, and constrain our ability to adequately price our products. In the U.S., regulatory initiatives and legislative developments may significantly affect our operations and prospects in ways that we cannot predict. For example, further reforms to the Affordable Care Act, and potential modifications of the Dodd- Frank Act could have unanticipated consequences for the Company and its businesses. It is unclear whether and to what 26 extent Congress will continue to make changes to the Dodd- Frank Act, and how those changes might impact the Company, its business, financial conditions, results of operations and liquidity. Our U.S. insurance subsidiaries are regulated by the insurance departments of the states in which they are domiciled, licensed or authorized to conduct business. State regulations generally seek to protect the interests of policyholders rather than an insurer or the insurer’s stockholders and other investors. U.S. state laws grant insurance regulatory authorities broad administrative powers with respect to, among other things, licensing and authorizing lines of business, approving policy forms and premium rates, setting statutory capital and reserve requirements, limiting the types and amounts of certain investments and restricting underwriting practices. State insurance departments also set constraints on domestic insurer transactions with affiliates and dividends and, in many cases, must approve affiliate transactions and extraordinary dividends as well as strategic transactions such as acquisitions and divestitures. Our international insurance subsidiaries are subject to the laws and regulations of the relevant jurisdictions in which they operate, including the requirements of the Prudential Regulation Authority and the Financial Conduct Authority in the U.K; the National Bank of Belgium and the Financial Services and Markets Authority in Belgium; and the Commissariat Aux Assurances in Luxembourg. Our Lloyd’s Syndicate is also subject to management and supervision by the Council of Lloyd’s, which has wide discretionary powers to regulate members’ underwriting at Lloyd’s, as well as regulations imposed by overseas regulators where the Lloyd’s Syndicate conducts business. In addition, future regulatory initiatives could be adopted at the federal, state and international level that could impact the profitability of our businesses. For example, the NAIC and state insurance regulators are continually reexamining existing laws and regulations, specifically focusing on modifications to U.S. statutory accounting principles, interpretations of existing laws and the development of new laws and regulations. The NAIC continues to enhance the U.S. system of insurance solvency regulation, with a particular focus on group supervision, risk- based capital, accounting and financial reporting, enterprise risk management and reinsurance which could, among other things, affect statutory measures of capital sufficiency, including risk- based capital ratios. In addition, changes in laws or regulations, particularly relating to privacy and data security and potential limitations on predictive models, such as use of certain underwriting rating variables, may materially impede our ability to execute on business strategies and/or our ability to be competitive. Any proposed or future legislation or NAIC initiatives, if adopted, may be more restrictive on our ability to conduct business than current regulatory requirements or may result in higher costs or increased statutory capital and reserve requirements. In addition, the Federal Reserve Board and the International Association of Insurance Supervisors ("IAIS") continue to advance the development of insurance group capital standards. As of January 1, 2020, the IAIS Insurance Capital Standard entered a five-year monitoring period at the end of which insurance firms are required to be in compliance with such standards. While the Company would not currently be subject to either of these capital standard regimes, it is possible that, in the future, standards similar to what is being contemplated by the Federal Reserve Board or the IAIS could apply to the Company. Working through the NAIC, U.S. state Part I - Item 1A. Risk Factors insurance regulators have developed a group capital calculation for use in solvency-monitoring activities. The calculation is intended to provide additional analytical information to the lead state for use in assessing group risks and capital adequacy to complement the current holding company analysis in the U.S. The next step is for the revised NAIC Model Act and Regulation to go to the states for adoption. The Covered Agreement between the U.S. and European Union, as well as the Covered Agreement between the U.S. and the U.K., provide a 60-month period (expiring September 22, 2022) for the U.S. to implement a "worldwide group capital calculation" for U.S. groups. If this deadline is not met, European Union member states and the U.K. each could potentially subject U.S. groups doing business in the EU and the U.K. to their own group supervision requirements, possibly including imposition of Solvency II's group capital standard. Further, a particular regulator or enforcement authority may interpret a legal, accounting, or reserving issue differently than we have, exposing us to different or additional regulatory risks. The application of these regulations and guidelines by insurers involves interpretations and judgments that may be challenged by state insurance departments and other regulators. The result of those potential challenges could require us to increase levels of regulatory capital and reserves or incur higher operating and/or tax costs. In addition, our asset management businesses are also subject to extensive regulation in the various jurisdictions where they operate. These laws and regulations are primarily intended to protect investors in the securities markets or investment advisory clients and generally grant supervisory authorities broad administrative powers. Compliance with these laws and regulations is costly, time consuming and personnel intensive, and may have an adverse effect on our business, financial condition, results of operations and liquidity. Our insurance business is sensitive to significant changes in the legal environment that could adversely affect The Hartford’s results of operations or financial condition or harm its businesses. Like any major P&C insurance company, litigation is a routine part of The Hartford’s business - both in defending and indemnifying our insureds and in litigating insurance coverage disputes. The Hartford accounts for such activity by establishing unpaid loss and loss adjustment expense reserves. Significant changes in the legal environment could cause our ultimate liabilities to change from our current expectations. Such changes could be judicial in nature, like trends in the size of jury awards, developments in the law relating to tort liability or the liability of insurers, and rulings concerning the scope of insurance coverage or the amount or types of damages covered by insurance. In addition, changes in federal or state laws and regulations relating to the liability of insurers or policyholders, including state laws expanding “bad faith” liability and state “reviver” statutes, extending statutes of limitations for certain sexual molestation and sexual abuse claims, could result in changes in business practices, additional litigation, or could result in unexpected losses, including increased frequency and severity of claims. It is impossible to forecast such changes reliably, much less to predict how they might affect our loss reserves or how those changes might adversely affect our 27 ability to price our insurance products appropriately. Thus, significant judicial or legislative developments could adversely affect The Hartford’s business, financial condition, results of operations and liquidity. Changes in federal, state or foreign tax laws could adversely affect our business, financial condition, results of operations and liquidity. Changes in federal, state or foreign tax laws and tax rates or regulations could have a material adverse effect on our profitability and financial condition. The Company’s federal and state tax returns reflect certain items such as tax-exempt bond interest, tax credits, and insurance reserve deductions. There is an increasing risk that, in the context of deficit reduction or overall tax reform in the U.S., federal and/or state tax legislation could modify or eliminate these items, impacting the Company, its investments, investment strategies, and/or its policyholders. In addition, the Organization for Economic Co-operation and Development’s efforts around Global Pillars I and II dealing with possible new digital taxes and global minimum taxes, if enacted, could increase the Company’s overall tax burden, adversely affecting the Company’s business, financial condition and results of operation. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the "Tax Cuts and Jobs Act" ("TCJA"). There is a risk that Congress could enact future legislation that may change or eliminate the provisions of TCJA or affect how the provisions apply to the Company including a corporate tax rate increase or other changes that may affect the manner in which insurance companies are taxed. Moreover we could continue to see states enact changes to their tax laws including the state impacts of TCJA, such as limitations on interest deductions and income earned by foreign affiliates, which, in turn, could adversely affect the Company's business and financial results. Among other risks, there is risk that these additional clarifications could increase taxes on the Company, further increase administrative costs, make the sale of our products more costly and/or make our products less competitive. Regulatory requirements could delay, deter or prevent a takeover attempt that stockholders might consider in their best interests. Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the domestic insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the applicant, the acquirer's plans for the future operations of the domestic insurer, and any such additional information as the insurance commissioner may deem necessary or appropriate for the protection of policyholders or in the public interest. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of the domestic insurer or its parent company. Because a person acquiring 10 percent or more of our common stock would Part I - Item 1A. Risk Factors indirectly control the same percentage of the stock of our U.S. insurance subsidiaries, the insurance change of control laws of various U.S. jurisdictions would likely apply to such a transaction. Other laws or required approvals pertaining to one or more of our existing subsidiaries, or a future subsidiary, may contain similar or additional restrictions on the acquisition of control of the Company. These laws and similar rules applying to subsidiaries domiciled outside of the United States may discourage potential acquisition proposals and may delay, deter, or prevent a change of control, including transactions that our Board of Directors and some or all of our stockholders might consider to be desirable. Changes in accounting principles and financial reporting requirements could adversely affect our results of operations or financial condition. As an SEC registrant, we are currently required to prepare our financial statements in accordance with U.S. GAAP, as promulgated by the Financial Accounting Standards Board ("FASB"). Accordingly, we are required to adopt new guidance or interpretations which may have a material effect on our results of operations and financial condition that is either unexpected or has a greater impact than expected. For a description of changes in accounting standards that are currently pending and, if known, our estimates of their expected impact, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to the Consolidated Financial Statements. 28 Part II - Item 5. Market for the Hartford's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 5. MARKET FOR THE HARTFORD’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Hartford’s common stock is traded on the New York Stock Exchange (“NYSE”) under the trading symbol “HIG”. As of February 18, 2021, the Company had approximately 10,150 registered holders of record of the Company's common stock. A substantially greater number of holders of our common stock are “street name” holders or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions. The Hartford's cash dividends paid on common stock and expected payment of future cash dividends are discussed in the Summary of Capital Resources and Liquidity and Liquidity Requirements and Sources of Capital - Dividends sections of Part II, Item 7, MD&A — Capital Resources and Liquidity. For information related to securities authorized for issuance under equity compensation plans, see Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The Company did not repurchase any shares during the three months ended December 31, 2020. In December 2020, the Company announced a $1.5 billion share repurchase authorization by the Board of Directors which is effective from January 1, 2021 through December 31, 2022. During the period from January 1, 2021 through February 18, 2021, the Company repurchased 1.1 million shares for $56. The Company's prior share repurchase program, which was authorized by the Board of Directors in February 2019, expired on December 31, 2020. The timing of any future repurchases will be dependent upon several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, and other considerations. Total Return to Stockholders The following tables present The Hartford’s annual return percentage and five-year total return on its common stock including reinvestment of dividends in comparison to the S&P 500 and the S&P Insurance Composite Index. Annual Return Percentage For the years ended Company/Index 2016 2017 2018 2019 2020 The Hartford Financial Services Group, Inc. S&P 500 Index S&P Insurance Composite Index 11.81% 11.96% 17.58% 20.25% 21.83% 16.19% (19.24%) (4.38%) (11.21%) 39.71% 31.49% 29.38% (16.98%) 18.40% (0.44%) 29 Part II - Item 5. Market for the Hartford's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Company/Index The Hartford Financial Services Group, Inc. S&P 500 Index S&P Insurance Composite Index Cumulative Five-Year Total Return Base Period 2015 For the years ended 2016 2017 2018 2019 2020 $ $ $ 100 $ 111.81 $ 134.45 $ 108.58 $ 151.70 $ 125.94 100 $ 111.96 $ 136.40 $ 130.42 $ 171.49 $ 203.04 100 $ 117.58 $ 136.62 $ 121.31 $ 156.95 $ 156.26 30 The Hartford Financial Services Group, Inc.S&P 500 IndexS&P Insurance Composite IndexDec 2015Dec 2016Dec 2017Dec 2018Dec 2019Dec 2020$0$50$100$150$200$250  Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollar amounts in millions, except for per share data, unless otherwise stated) Index 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 2 and 3 of this Annual Report. 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 and in Part I, Item 1A, Risk Factors, and those identified from time to time in our other filings with the Securities and Exchange Commission. The Hartford undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). On May 23, 2019, the Company completed the acquisition of Navigators Group, a specialty underwriter. For discussion of acquisitions, dispositions and reclassifications, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements. The Hartford defines increases or decreases greater than or equal to 200% as “NM” or not meaningful. For discussion of the earliest of the three years included in the financial statements of the current filing, refer to Part 2, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in The Hartford’s 2019 Form 10-K Annual Report. Description Page Key Performance Measures and Ratios The Hartford's Operations Consolidated Results of Operations Investment Results Critical Accounting Estimates Commercial Lines Personal Lines Property & Casualty Other Operations Group Benefits Hartford Funds Corporate Enterprise Risk Management Capital Resources and Liquidity Impact of New Accounting Standards 31 36 42 46 48 69 74 78 79 82 84 85 104 113 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. Definitions of Non-GAAP and Other Measures and Ratios Assets Under Management (“AUM”)- Include mutual fund and ETP assets. AUM is a measure used by the Company's Hartford Funds segment because a significant portion of the Company’s mutual fund and ETP revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows. Book Value per Diluted Share (excluding AOCI)- This is a non-GAAP per share measure that is calculated by dividing (a) common stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Company provides this measure to 31 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes that excluding AOCI from the numerator is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable U.S. GAAP measure. Combined Ratio- The sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses. Core Earnings- The Hartford uses the non-GAAP measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain items. Therefore, the following items are excluded from core earnings: • • • Certain realized capital gains and losses - Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the business. Loss on extinguishment of debt - Largely consisting of make- whole payments or tender premiums upon paying debt off before maturity, these losses are not a recurring operating expense of the business. • Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a business or to reinsure loss reserves, are not a recurring operating expense of the business. • • Integration and transaction costs in connection with an acquired business - As transaction costs are incurred upon acquisition of a business and integration costs are completed within a short period after an acquisition, they do not represent ongoing costs of the business. Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition. • Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business. • • Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards. Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses. In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding. Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company's business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company's performance. 32 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Reconciliation of Net Income to Core Earnings Net income Preferred stock dividends Net income available to common stockholders Adjustments to reconcile net income available to common stockholders to core earnings: Net realized capital losses (gains) excluded from core earnings, before tax Restructuring and other costs, before tax Loss on extinguishment of debt, before tax Loss on reinsurance transactions, before tax Pension settlement, before tax Integration and transaction costs associated with acquired business, before tax Change in loss reserves upon acquisition of a business, before tax Change in deferred gain on retroactive reinsurance, before tax Income tax expense (benefit) Loss (income) from discontinued operations, net of tax For the years ended December 31, 2020 2019 2018 $ 1,737 $ 2,085 $ 1,807 21 21 6 $ 1,716 $ 2,064 $ 1,801 18 104 — — — 51 — 312 (115) — (389) 118 — 90 91 — 91 97 16 2 — — 6 — — 47 — — (75) (322) Core earnings $ 2,086 $ 2,062 $ 1,575 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 defines catastrophes. Lloyd's is an insurance market- place operating worldwide. Lloyd's does not underwrite risks. The Company accepts risks as the sole member of its Lloyd's Syndicate. The current accident year catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums. Expense Ratio- For the underwriting segments of Commercial Lines and Personal Lines is the ratio of underwriting expenses less fee income, to earned premiums. Underwriting expenses include the amortization of deferred policy acquisition costs ("DAC") and insurance operating costs and expenses, including certain centralized services costs and bad debt expense. DAC include commissions, taxes, licenses and fees and other incremental direct underwriting expenses and are amortized over the policy term. The expense ratio for Group Benefits is expressed as the ratio of insurance operating costs and other expenses including amortization of intangibles and amortization of DAC, to premiums and other considerations, excluding buyout premiums. The expense ratio for Commercial Lines, Personal Lines and Group Benefits does not include integration and other transaction costs associated with an acquired business. Fee Income- Is largely driven from amounts earned as a result of contractually defined percentages of assets under management in our Hartford Funds business. These fees are generally earned on a daily basis. Therefore, the growth in assets under management either through positive net flows or favorable market performance will have a favorable impact on fee income. Conversely, either negative net flows or unfavorable market performance will reduce fee income. Gross New Business Premium- Represents the amount of premiums charged, before ceded reinsurance, for policies issued to customers who were not insured with the Company in the previous policy term. Gross new business premium plus gross renewal written premium less ceded reinsurance equals total written premium. Loss and Loss Adjustment Expense Ratio- A measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses and loss adjustment expenses incurred for both the current and prior 33     Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations accident years. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted ROE fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment. The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the rate- making process, adjust the assumption as appropriate for the particular state, product or coverage. Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development- A measure of the cost of non-catastrophe loss and loss adjustment expenses incurred in the current accident year divided by earned premiums. Management believes that the current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to investors as it removes the impact of volatile and unpredictable catastrophe losses and prior accident year development. Loss Ratio, excluding Buyouts- Utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses, excluding those related to buyout premiums, to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the profitability of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts. Mutual Fund and Exchange-Traded Product Assets- Are owned by the shareholders of those products and not by the Company and, therefore, are not reflected in the Company’s Consolidated Financial Statements except in instances where the Company seeds new investment products and holds an investment in the fund for a period of time. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows. Net New Business Premium- Represents the amount of premiums charged, after ceded reinsurance, for policies issued to customers who were not insured with the Company in the previous policy term. Net new business premium plus renewal written premium equals total written premium. 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. Premium Retention- Represents renewal premium written in the current period divided by total premium written in the prior period. Policy Count Retention- Represents the ratio of the number of policies renewed during the period divided by the number of policies available to renew. The number of policies available to renew represents the number of policies, net of any cancellations, written in the previous policy term. 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. Policyholder Dividend Ratio- The ratio of policyholder dividends to earned premium. Prior Accident Year Loss and Loss Adjustment Expense Ratio- Represents the increase (decrease) in the estimated cost of settling catastrophe and non-catastrophe claims incurred in prior accident years as recorded in the current calendar year divided by earned premiums. Reinstatement Premiums- Represents additional ceded premium paid for the reinstatement of the amount of reinsurance coverage that was reduced as a result of the Company ceding losses to reinsurers. Renewal Earned Price Increase (Decrease)- Written premiums are earned over the policy term, which is six months for certain Personal Lines automobile business and twelve months for substantially all of the remainder of the Company’s Property and Casualty business. Since the Company earns premiums over the six to twelve month term of the policies, renewal earned price increases (decreases) lag renewal written price increases (decreases) by six to twelve months. Renewal Written Price Increase (Decrease)- For Commercial Lines, represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure on commercial lines policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy since the prior year on those policies that renewed and includes the combined effect of rate changes, amount of insurance and other changes in exposure. For Personal Lines, other changes in exposure include, but are not limited to, the effect of changes in number of drivers, vehicles and incidents, as well as changes in customer policy elections, such as deductibles and limits. The rate component represents the change in rate filed with and approved by state regulators during the period and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including 34 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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. 35 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Reconciliation of Net Income to Underwriting Gain (Loss) For the years ended December 31, 2020 2019 2018 Net income $ 856 $ 1,192 $ 1,212 Adjustments to reconcile net income to underwriting gain (loss): Commercial Lines Net servicing income Net investment income Net realized capital losses (gains) Other expense Loss on reinsurance transaction Income tax expense Underwriting gain (loss) Net income (loss) Personal Lines Adjustments to reconcile net income to underwriting gain (loss): Net servicing income Net investment income Net realized capital losses (gains) Other expense Income tax expense (benefit) Underwriting gain (loss) Net Income Adjustments to reconcile net income to underwriting gain (loss): P&C Other Ops Net investment income Net realized capital losses (gains) Other expense (income) Income tax expense (benefit) Underwriting loss 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 principally 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 (4) (2) (2) (1,160) (1,129) (997) 60 35 — 176 (271) 38 91 270 (37) $ 189 $ 43 2 — 267 525 718 $ 318 $ (32) (14) (157) 5 1 184 (13) (179) (43) 1 76 737 $ 160 $ (16) (155) 7 1 (19) (214) (168) $ 61 $ 15 $ $ $ $ (55) 1 (1) (46) (84) (20) — 12 $ (269) $ (31) $ (90) 4 1 (7) (77) Company’s reputation and ratings. Persistency refers to the percentage of premium remaining in-force from year-to-year. THE HARTFORD'S OPERATIONS The Hartford conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category. The Company includes in the Corporate category reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, purchase accounting adjustments related to goodwill, and other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). 36   Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Talcott Resolution is the holding company of the life and annuity business that was sold in May 2018. In addition, Corporate includes a 9.7% ownership interest in the legal entity that acquired the life and annuity business sold. The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) management fees on mutual fund and ETP assets; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized capital gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force. The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments and the Lloyd's Syndicate'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. This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand. During the second quarter of 2020, the Company extended this agreement through December 31, 2032. Similar to property and casualty, profitability of the group benefits business depends, in large part, on the ability to evaluate and price risks appropriately and make reliable estimates of mortality, morbidity, disability and longevity. To manage the pricing risk, Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. However, as policies are typically sold with rate guarantees of up to three years, pricing for the Company’s products could prove to be inadequate if loss and expense trends emerge adversely during the rate guarantee period or if investment returns are lower than expected at the time the products were sold. For some of its products, the Company is required to obtain approval for its premium rates from state insurance departments. New and renewal business for group benefits business, particularly for long-term disability, are priced using an assumption about expected investment yields over time. While the Company employs asset-liability duration matching strategies to mitigate risk and may use interest-rate sensitive derivatives to hedge its exposure in the Group Benefits investment portfolio, cash flow patterns related to the payment of benefits and claims are uncertain and actual investment yields could differ significantly from expected investment yields, affecting profitability of the business. In addition to appropriately evaluating and pricing risks, the profitability of the Group Benefits business depends on other factors, including the Company’s response to pricing decisions and other actions taken by competitors, its ability to offer voluntary products and self-service capabilities, the persistency of its sold business and its ability to manage its expenses which it seeks to achieve through economies of scale and operating efficiencies. The financial results of the Company’s mutual fund and ETP businesses depend largely on the amount of assets under management and the level of fees charged based, in part, on asset share class and product type. Changes in assets under management are driven by the two main factors of net flows and the market return of the funds, which are heavily influenced by the return realized in the equity and bond markets. Net flows are comprised of new sales less redemptions by mutual fund and ETP shareholders. Financial results are highly correlated to the growth in assets under management since these products generally earn fee income on a daily basis. The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, losses and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, corporate bonds, municipal bonds, government debt, short-term debt, mortgage- backed securities, asset-backed securities and collateralized loan obligations. The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of invested assets, while generating sufficient net of tax income to meet policyholder and corporate obligations. Investment strategies are developed based on a variety of factors including business needs, regulatory requirements and tax considerations. Impact of COVID-19 on our financial condition, results of operations and liquidity Impact to revenues Earned premiums The COVID-19 pandemic has caused significant disruption to the economy of the U.S. and other countries in which we operate. Due to government restrictions that have prevented some businesses from offering goods and services to their customers and due to shelter-in-place guidelines that have reduced business activity, many of our customers, especially small businesses, have had to curtail their operations or have found they are unable to meet cash flow needs due to declining business volume, causing some to lay off workers. As one of the largest providers of small business insurance in the U.S., in 2020, we experienced a 3% year over year decline in our small commercial written premium although trends improved in the second half of 2020. In addition 37 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations to the expected decline in small commercial written and earned premium, other business lines in Commercial Lines have also been negatively affected due to government-mandated restrictions and stay-at-home guidelines reducing business activity and due to consumers having less disposable income or less willingness to spend on the products and services that our commercial lines policyholders sell. Excluding the effect of the Navigators acquisition, Commercial Lines written premium declined $290, or 4%, year over year driven by lower new business and due to endorsements or other changes to in-force policies that decrease premiums to reflect reduced exposures. Within Commercial Lines, workers’ compensation written premium declined year over year, partly due to declining payrolls as a result of the economic effects of COVID-19. Contributing to a 6% decline in Personal Lines written premium in 2020 was the effect of increased shopping behaviors, and lower new business levels arising out of the competitive marketplace. In addition, The Hartford provided a 15 percent refund on policyholders’ April, May and June personal automobile insurance premiums which reduced Personal Lines written and earned premiums by $81 in the second quarter of 2020. In Group Benefits, fully insured ongoing premium decreased 2% in 2020 resulting primarily from lower insured exposure on in-force policies. Because of the economic stress caused by COVID-19, we also experienced a higher amount of uncollectible premiums receivable in 2020. As a result, to reflect our higher expectation of credit losses, The Hartford increased its allowance for credit losses ("ACL") on premiums receivable by $40 in the twelve months ended December 31, 2020. Net investment income and realized capital gains (losses) Total net investment income decreased in 2020 primarily due to a lower yield on fixed maturity investments resulting from lower reinvestment rates and lower yields on floating rate securities, partially offset by a higher level of invested assets, due in part to the acquisition of Navigators Group. In an effort to stimulate the economy, central banks have reduced benchmark interest rates to near zero, impacting our yields on floating rate securities and reinvestment rates. From late March to mid-May, 2020, the Company temporarily reinvested receipts of interest and proceeds from maturing fixed maturity investments in liquid, short-term investments. While the Company resumed investing in fixed maturities in May, 2020, lower interest rates since the pandemic began have generally resulted in lower investment yields on newly invested funds. A prolonged period of lower interest rates could depress the Company's net investment income such that to earn the same level of return on equity we may have to charge higher premiums for the insurance products we sell unless loss costs similarly lessen. Net realized capital gains (losses) on equity securities for the year ended December 31, 2020 totaled $(214) before tax, consisting of unrealized mark-to-market gains (losses) on equity securities held and net realized gains (losses) on equity securities sold, net of realized gains on equity derivative hedges. While equity markets in the last nine months of 2020 increased more than the value they lost during the first quarter, economic conditions remain uncertain and if equity markets were to experience similar declines as occurred in the first quarter of 2020, we may incur more net realized capital losses in future periods. Net realized capital losses for the year ended December 31, 2020 also included $47 of increases in the allowance for credit losses, partially offset by reversals of the allowance due to improvements in market value or sales, and $5 of intent-to-sell impairments. The increase in the allowance for credit losses in the twelve month period included increases of $28 on available for sale fixed maturities and increases of $19 on commercial mortgage loans. If it takes a prolonged period for the economy to recover or if the impacts of the economic downturn are deeper than anticipated, we could experience further credit losses and intent-to-sell impairments, particularly with highly leveraged companies and issuers in the energy, commercial real estate, and travel and leisure sectors, resulting in further net realized capital losses. Impact to direct benefits, losses and loss adjustment expenses from COVID-19 claims For the year ended December 31, 2020, we recorded direct COVID-19 incurred losses in P&C of $278, reflecting management’s best estimate of the ultimate cost of settling COVID-19 claims incurred, including $141 for property claims, $66 for workers’ compensation, net of favorable frequency on other workers' compensation claims, and $71 of incurred losses largely concentrated in financial lines such as D&O and E&O and in surety and marine. Nearly all of our property insurance policies require direct physical loss or damage to property and contain standard exclusions that we believe preclude coverage for COVID-19 related claims, and the vast majority of such policies contain exclusions for virus-related losses. Included in the $141 of COVID-19 property incurred losses and loss adjustment expenses in the twelve month period were $101 of losses arising from a small number of property policies that do not require direct physical loss or damage and from policies intended to cover specific business needs, including crisis management and performance disruption, as well as a reserve of $40 for legal defense costs. Given the significant business disruptions that have occurred due to the COVID-19 pandemic, the Company has experienced increased property claims, resulting in increased litigation activity and legal expenses. Within Property & Casualty, we incur COVID-19 workers’ compensation losses when it is determined that workers were exposed to COVID-19 out of and in the course of their employment and in other cases where states have passed laws providing for the presumption of coverage for certain industry classes, including health care and other essential workers. While current accident year losses for workers’ compensation for the year ended December 31, 2020 increased by $180 due to COVID-19 claims, this has been partially offset by lower claim frequency of non-COVID-19 related workers’ compensation claims due to reduced business activity, resulting in a net increase in incurred losses of $66. Favorable non-COVID-19 workers’ compensation claim frequency could continue through 2021 though possibly to a lesser extent if more business activity resumes. The Company could incur additional COVID-19 direct incurred losses in P&C through much of 2021, particularly for workers’ compensation and financial lines. Within Group Benefits, the Company experienced excess mortality in its group life business of $239 in 2020, primarily caused by direct and indirect impacts of COVID-19. Within the group disability business, in 2020 the Company recognized $29 of 38 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations COVID-19 direct losses from short-term disability claims, more than offset by $38 of favorable frequency on other short-term disability claims. Other impacts from COVID-19 and resulting economic downturn Apart from impacts on the investment portfolio, net investment income and net realized capital gains (losses), in 2020, the Company incurred a number of other insurance business impacts from the COVID-19 pandemic and the resulting economic downturn as follows: • • • • • For the year ended December 31, 2020, we recognized an estimated decrease in current accident incurred losses in Personal Lines automobile of $218 due to a significant reduction in miles driven since the pandemic began, though miles driven has begun to increase again. In the second quarter of 2020, Personal Lines written and earned premiums were reduced by $81 due to providing automobile policyholders with premium refunds or credits in recognition of the decrease in miles driven. The Company experienced the impacts of lower premium retention, including the impact of a lower exposure base on workers' compensation premium. From April through approximately July of 2020, the Company waived late payment fees for a period of time for business and personal insurance customers and temporarily suspended the policy cancellation process for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments with the period of policy cancellations for non- payment varying by state. Because of the economic stress caused by COVID-19 and partly due to the extension of billing terms, we expect a higher amount of uncollectible premiums receivable. As a result, to reflect our higher expectation of credit losses, The Hartford increased its ACL on premiums receivable by $40 in the year ended December 31, 2020. Apart from the increase in the premiums receivable allowance, we have experienced a decline in insurance operating costs and other expenses partly due to lower travel and employee benefits costs and lower operating costs associated with lower earned premium volumes. Considering the impacts of COVID-19, the Company evaluated the impact of market factors on the fair value of the reporting units using the income approach and determined the estimated fair values do not indicate a goodwill impairment for any reporting unit. The annual goodwill assessment for the reporting units was completed as of October 31, 2020, and resulted in no write-downs of goodwill for the year ended December 31, 2020. For information about additional resources the Company has to manage capital and liquidity during the COVID-19 pandemic and economic downturn, refer to the Capital Resources & Liquidity section of MD&A. For additional information about the potential impacts of the COVID-19 pandemic and resulting economic downturn, see the risk factor "The pandemic caused by the spread of COVID-19 has disrupted our operations and may have a material adverse impact on our business results, financial condition, results of operations and/or liquidity" in Item 1A of Part I. Common stockholders’ equity Apart from the direct loss and premium impacts of COVID-19 on net income, we could also experience a reduction in AOCI within common stockholders’ equity. The net unrealized gain position on our portfolio of fixed maturities, AFS increased by $1.4 billion from December 31, 2019 to December 31, 2020, due to an increase in valuations resulting from a decline in interest rates. If credit spreads widen going forward or if interest rates increase from the level they were at as of December 31, 2020, we would recognize a decline in the fair value of fixed maturities, AFS in future periods through a reduction of AOCI within common stockholders’ equity. In December 2020, the Company announced a $1.5 billion equity repurchase authorization by the Board of Directors which is effective from January 1, 2021 through December 31, 2022. Any future repurchase of shares is dependent on market conditions and other factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity. For further information, see Note 16 - Equity of Notes to Consolidated Financial Statements. Operational Transformation and Cost Reduction Plan In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020, the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Through reduction of its headcount, IT investments to further enhance our capabilities, and other activities, relative to 2019, the Company expects to achieve a reduction in annual insurance operating costs and other expenses of approximately $500 by 2022. The Hartford Next program will contribute to our goal of reducing the 2022 P&C expense ratio by about 2.0 to 2.5 points, reducing the 2022 Group Benefits expense ratio by about 1.5 to 2.0 points and reducing our 2022 claim expense ratio by approximately 0.5 point. To achieve those expected savings, we expect to incur approximately $410, with $153 expensed over the last six months of 2020, and expected expenses of $110 in 2021, $77 in 2022 and $70 after 2022, with the expenses after 2022 consisting mostly of amortization of internal use software and capitalized real estate costs. The estimated costs of approximately $410 includes an expected $54 in capitalized development costs for internal use software to be amortized over the useful life of the software, typically 3 years, and approximately $23 of capitalized real estate assets to be amortized over their useful lives. Included in the estimated costs of $410, we expect to incur restructuring costs of approximately $158, including $73 of employee severance, and approximately $85 of other costs, including consulting expenses and the cost to retire certain IT applications. Restructuring costs are reported as a charge to net income but not in core earnings. All other costs of the Hartford Next program will be included in insurance operating costs and other expenses in the Consolidated Statement of Operations. Relative to 2019 full year actual expenses, the Company recognized a net increase in insurance operating costs and other expenses of approximately 39 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations $47 over the last six months of 2020 and expects a net expense reduction of approximately $240 in 2021 and approximately $423 in 2022. The following table presents Hartford Next program costs incurred, including restructuring costs, and expense savings realized in 2020 from the inception of the program on July 30, 2020 through December 31, 2020, and expected costs and expense savings in each year through the expected completion of the program on December 31, 2022: Hartford Next Costs and Expense Savings 2020 Estimate for 2021 Estimate for 2022 Employee severance IT costs to retire applications Professional fees and other expenses Estimated restructuring costs Non-capitalized IT costs Other costs Amortization of capitalized IT development costs [1] Amortization of capitalized real estate [2] Estimated costs within core earnings Total Hartford Next program costs Cumulative savings relative to 2019 beginning July 1, 2020 Net expense (savings) before tax Net expense (savings) before tax: To be accounted for within core earnings Restructuring costs recognized outside of core earnings Net expense (savings) before tax [1] Does not include approximately $48 of IT asset amortization after 2022. [2] Does not include approximately $19 of real estate amortization after 2022. — 14 7 21 33 15 5 3 56 77 (500) (423) (444) 21 (423) $ 73 $ — $ 2 29 104 30 19 — — 49 153 (106) 47 $ (57) $ 104 47 $ 10 23 33 56 19 1 1 77 110 (350) (240) $ (273) $ 33 (240) $ $ $ $ 40 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2020 Financial Highlights Net Income Available to Common Stockholders per Diluted Share Net Income Available to Common Stockholders Book Value per Diluted Share Þ Decreased $0.90 or 16% - Decrease in net income + Decrease in weighted average shares outstanding Ý Increased $6.54 or 15% + Increase in common stockholders' equity largely due to net income in excess of stockholder dividends and an increase in AOCI, primarily driven by an increase in net unrealized capital gains on available for sale securities + Decrease in dilutive shares outstanding Decreased $348 or 17% Þ - A change from net realized capital gains in the 2019 period to losses in the 2020 period - $220, after tax, of P&C COVID-19 claims including property, financial lines and workers’ compensation, net of favorable workers’ compensation frequency - An increase in current accident year catastrophes - A decrease in net investment income - Higher mortality within group life driven by COVID-19 - Restructuring costs related to the Hartford Next initiative + Loss on reinsurance and loss on extinguishment of debt in 2019 + Greater net favorable prior accident year development + Lower non-COVID-19 current accident year non-catastrophe property losses, lower personal automobile claim frequency, net of premium refunds, and lower P&C operating expenses Investment Yield, After Tax Property & Casualty Combined Ratio Group Benefits Net Income Margin Þ - Decreased 40 bps Lower reinvestment rates and lower yield on variable rate securities due to the decline in interest rates Þ - Improved 0.8 points Lower current accident year loss ratio in Personal Lines, due to lower automobile claim frequency Decreased 2.4 points Þ - Higher mortality in group life, driven by the direct and indirect impacts of COVID-19 - Lower net investment income - More favorable prior accident year - A decrease in net realized capital gains + A lower group disability loss ratio, driven by lower claim incidence and an increase in favorable prior incurral year development development with 2020 reserve reductions for catastrophes partially offset by reserve increases for A&E and sexual molestation and sexual abuse claims Lower expense ratio mostly driven by lower variable incentive compensation, staffing levels, and travel - + Higher current accident year catastrophes, largely due to losses from civil unrest + Higher current accident year loss ratio in Commercial Lines driven by COVID-19 losses, partially offset by lower non- catastrophe property losses 41 $2,064$1,71620192020$5.66$4.7620192020$43.85$50.3912/31/201912/31/20203.4%3.0%2019202097.296.4201920208.8%6.4%20192020 Part II - Item 7. 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 Consolidated Financial Statements and the related Notes as well as with the segment operating results sections of the MD&A. Consolidated Results of Operations Earned premiums Fee income Net investment income Net realized capital gains (losses) Other revenues Total revenues Benefits, losses and loss adjustment expenses Amortization of deferred policy acquisition costs Insurance operating costs and other expenses Loss on extinguishment of debt Loss on reinsurance transactions Interest expense Amortization of other intangible assets Restructuring and other costs 2020 2019 2018 $ 17,288 $ 16,923 $ 15,869 1,277 1,846 (14) 126 1,301 1,951 395 170 1,313 1,780 (112) 105 20,523 20,740 18,955 11,805 11,472 11,165 1,706 4,480 1,622 4,580 1,384 4,281 — — 236 72 104 90 91 259 66 — 6 — 298 68 — Total benefits, losses and expenses 18,403 18,180 17,202 Income from continuing operations, before tax 2,120 2,560 1,753 Income tax expense 383 475 268 Income from continuing operations, net of tax 1,737 2,085 1,485 Income from discontinued operations, net of tax Net income Preferred stock dividends — — 322 1,737 2,085 1,807 21 21 6 Net income available to common stockholders $ 1,716 $ 2,064 $ 1,801 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 2% (2%) (5%) (104%) (26%) (1%) 3% 5% (2%) (100%) (100%) (9%) 9% NM 1% (17%) (19%) (17%) —% (17%) —% (17%) 7% (1%) 10% NM 62% 9% 3% 17% 7% NM NM (13%) (3%) —% 6% 46% 77% 40% (100%) 15% NM 15% 42 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. In addition, for further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. Year ended December 31, 2020 compared to year ended December 31, 2019 Net income available to common stockholders decreased by $348 primarily driven by a $409 before tax change from net realized capital gains in the 2019 period to net realized capital losses in the 2020 period, $278 before tax of P&C COVID-19 claims in the 2020 period, higher mortality in group life, mostly driven by COVID-19, a $143 before tax increase in current accident year catastrophes, a $105 before tax decrease in net investment income, and $104 before tax of restructuring costs, partially offset by lower Personal Lines automobile claim frequency in the 2020 period net of premium credits given to policyholders in second quarter 2020, lower non- catastrophe property losses, a decrease in P&C insurance operating costs, higher net favorable P&C prior accident year development, and the effect of charges in 2019, including the Navigators ADC premium paid of $91 before tax and a $90 before tax loss on debt extinguishment. 43 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue Earned Premiums Net Investment Income [1]For the years ended 2020 and 2019, the total includes $9 and $10, respectively, recorded in Corporate other revenue. Year ended December 31, 2020 compared to year ended December 31, 2019 Earned premiums increased primarily due to: • • An increase in Property and Casualty reflecting a 7% increase in Commercial Lines driven by the Navigators Group acquisition, partially offset by a 6% decline in Personal Lines. Driving part of the decrease in Personal Lines earned premiums was the impact of the Company offering a 15 percent credit on policyholders’ April, May and June personal automobile insurance premiums totaling $81. A 1% decrease in Group Benefits, principally driven by a decline in group life due to lower insured exposure on in- force policies. Fee income decreased due to: • Lower fee income in Hartford Funds largely due to a shift in mix of assets to lower fee generating funds, lower installment fee income in P&C and lower fee income on administrative services only business in Group Benefits. Other revenues decreased primarily due to a decrease in income generated from the Talcott Resolution investment and less transition services revenue received related to the sale of the life and annuity business in 2018. Year ended December 31, 2020 compared to year ended December 31, 2019 Net investment income decreased primarily due to: • Lower yield on fixed maturity investments resulting from lower reinvestment rates and lower yields on floating rate securities, partially offset by a higher level of invested assets, due in part to the acquisition of Navigators Group. Net realized capital gains (losses) decreased from net gains in the 2019 period to net losses in the 2020 period, primarily driven by: • Depreciation in the value of equity securities due to the significant decline in equity market levels in the first quarter of 2020 as well as realized losses upon sales of equity securities, partially offset by net realized gains upon termination of derivatives used to hedge against a decline in equity market levels. • A loss of $48, before tax, on sale of the Company’s Continental Europe Operations, which the Company agreed to sell in September of 2020, net credit losses recognized on fixed maturities and an increase in the ACL on mortgage loans, partially offset by slightly higher net gains on sales of fixed maturity securities. For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains and MD&A - Investment Results, Net Investment Income. 44 $15,869$15,869$16,923$16,923$17,288$17,288$10,446$11,490$11,918$5,423$5,423$5,361Property & Casualty ("P&C")Group Benefits ("GB")Other [1]201820192020$0$5,000$10,000$15,000$20,000$1,780$1,780$1,951$1,951$1,846$1,846$1,575$1,719$1,624$205$232$222NII excluding limited partnerships and otheralternative investmentsLimited partnerships and otheralternative investments201820192020$0$500$1,000$1,500$2,000$2,500Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Benefits, losses and expenses – Year ended December 31, 2020 compared to year ended December 31, 2019 Losses and LAE Incurred for P&C Partially offset by more favorable Property & Casualty net prior accident year reserve development of $71, before tax. Prior accident year reserve development in the 2020 period was a favorable $136 before tax, with $529 of reserve reductions related to catastrophes, including decreases in estimated losses arising from wind and hail events in 2017, 2018 and 2019 and from the 2017 and 2018 California wildfires, including a $289 before tax subrogation benefit from PG&E. Reserve development in 2020 also included a $254 before tax increase in reserves for sexual molestation and sexual abuse claims, a $208 before tax increase in A&E reserves and a $102 before tax increase in reserves on Navigators related to 2018 and prior accident years. While $220 of A&E and $102 of Navigators’ reserve development has been economically ceded to NICO, the Company recognized a $312 deferred gain under retroactive reinsurance accounting with $10 of the $220 ceded A&E losses recognized as a benefit to income in 2020. Prior accident year development in 2019 primarily included reserve decreases for workers’ compensation, small commercial package business, catastrophes, personal lines automobile liability, and uncollectible reinsurance, partially offset by increases in general liability and professional liability, including increases in Navigators Group reserves upon acquisition of the business, and commercial lines automobile liability. For further discussion, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance. Benefits, losses and loss adjustment expenses increased due to: • An increase in incurred losses for Property & Casualty which was driven by an increase in Commercial Lines, partially offset by a decrease in Personal Lines, and was attributable to: – – An increase in Property & Casualty current accident year ("CAY") loss and loss adjustment expenses before catastrophes due to the effect on incurred losses of earned premium from the Navigators Group acquisition and COVID-19 incurred losses of $278 which is net of favorable frequency of workers’ compensation claims due to reduced business activity and lower payrolls. Partially offsetting the increase were lower weather- related non-COVID-19 non-catastrophe property claims and lower claim frequency in personal automobile due to shelter-in-place guidelines reducing miles driven. An increase in current accident year catastrophe losses of $143 before tax. Current accident year catastrophe losses for 2020 were primarily from civil unrest, a number of hurricanes and tropical storms, Pacific Coast wildfires and Northeast windstorms as well as tornado, wind and hail events in the South, Midwest and Central Plains. Catastrophe losses in the 2019 period were primarily from tornado, wind and hail events in the South, Midwest and Mountain West and winter storms across the country as well as from hurricanes and tropical storms in the Southeast. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance. Losses and LAE Incurred for Group Benefits • Losses and LAE increased in Group Benefits driven by higher mortality on group life claims, primarily caused by direct and indirect impacts of COVID-19, partially offset by the impact of a lower group disability loss ratio driven by lower claim incidence and increased favorable prior incurral year development. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the impact of COVID-19 on our financial 45 $6,940$7,398$7,6532018 YTD2019 YTD2020 YTD$0$2,000$4,000$6,000$8,000$4,214$4,055$4,1372018 YTD2019 YTD2020 YTD$0$1,000$2,000$3,000$4,000$5,000 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations condition, results of operations and liquidity section of this MD&A Amortization of deferred policy acquisition costs increased from the prior year period primarily due to an increase in Commercial Lines mainly attributable to the impact of the Navigators Group acquisition, partially offset by decreases in Personal Lines and Group Benefits consistent with the decline in earned premium in those segments. Insurance operating costs and other expenses decreased due to: • • A reduction in incentive compensation and employee travel and benefits costs, a reduction in contingent consideration of $12 before tax in Hartford Funds associated with the acquisition of Lattice, and expense reductions from the Company’s Hartford Next operational and transformation cost reduction plan. Partially offsetting the decrease in expenses were a $40 before tax increase in the ACL on uncollectible premiums receivable in 2020 due to the economic impacts of COVID-19 and higher information technology costs within INVESTMENT RESULTS Group Benefits and middle & large commercial, partially offset by Personal Lines technology expenses incurred in 2019. In addition, 2020 included a full year of operating costs incurred due to the Navigators Group acquisition in May of 2019, partially offset by lower integration and transaction costs in 2020. Restructuring and other costs are due to the Company's Hartford Next operational transformation and cost reduction plan which includes $73 of incurred severance costs. For further discussion of impacts resulting from the Hartford Next initiative, see MD&A - The Hartford's Operations, Operational Transformation and Cost Reduction Plan and Note 23 - Restructuring and Other Costs of Notes to Consolidated Financial Statements. Income tax expense decreased primarily due to a decline in income before tax. For further discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements. Fixed maturities, available-for-sale ("AFS"), at fair value $ 45,035 79.7 % $ 42,148 79.5 % Composition of Invested Assets December 31, 2020 December 31, 2019 Amount Percent Amount Percent Equity securities, at fair value Mortgage loans (net of ACL of $38 and $0) Limited partnerships and other alternative investments Other investments [1] Short-term investments 1,438 4,493 2,082 201 3,283 2.5 % 7.9 % 3.7 % 0.4 % 5.8 % 1,657 4,215 1,758 331 2,921 Total investments [1] Primarily consists of equity fund investments, overseas deposits, consolidated investment funds and derivative instruments which are carried at fair value. $ 56,532 100.0 % $ 53,030 3.1 % 8.0 % 3.3 % 0.6 % 5.5 % 100.0 % December 31, 2020 compared to December 31, 2019 Fixed maturities, AFS increased primarily due to net additions of corporate securities and an increase in valuations as a result of a decline in interest rates. Short-term investments are slightly higher in order to fund asset purchase commitments at year end 2020, which were settled in January 2021. 46     Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Investment Income (Before tax) Fixed maturities [2] Equity securities Mortgage loans Limited partnerships and other alternative investments Other [3] Investment expense Total net investment income For the years ended December 31, 2020 2019 2018 Amount Yield [1] Amount Yield [1] Amount Yield [1] $ 1,442 3.4 % $ 1,559 3.8 % $ 1,459 3.7 % 3.9 % 12.3 % 39 172 222 42 (71) 3.4 % 4.4 % 14.4 % 46 165 232 32 (83) 32 141 205 20 (77) 3.9 % 3.1 % 4.1 % 13.2 % $ 1,846 3.6 % $ 1,951 4.1 % $ 1,780 4.0 % Total net investment income excluding limited partnerships and other alternative investments [1]Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost as applicable, excluding repurchase agreement and 3.7 % $ 1,575 3.3 % $ 1,719 $ 1,624 3.7 % 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. Year ended December 31, 2020 compared to the year ended December 31, 2019 Total net investment income decreased primarily due to a lower yield on fixed maturity investments resulting from lower reinvestment rates and lower yields on floating rate securities, partially offset by a higher level of invested assets, due in part to the acquisition of Navigators Group. Annualized net investment income yield, excluding limited partnerships and other alternative investments and non-routine items on fixed maturities, which primarily include make-whole payments and prepayment fees, partially offset by paydowns, was down primarily due to lower reinvestment and short-term rates. Average reinvestment rate, on fixed maturities and mortgage loans, excluding certain U.S. Treasury securities, for the year-ended December 31, 2020, was 2.5% which was below the average yield of sales and maturities of 3.4% for the same period. The average reinvestment rate for the year-ended December 31, 2019 was 3.4% which was below the average yield of sales and maturities of 4.0%. For the 2021 calendar year, we expect the annualized net investment income yield, excluding limited partnerships and other alternative investments and non-routine items on fixed maturities, to be lower than the portfolio yield earned for the year ended December 31, 2020, due to a lower yield on short-term investments and lower reinvestment rates. The estimated impact on net investment income yield is subject to change due to evolving market conditions and active portfolio management. 47 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Realized Capital Gains (Losses) (Before tax) Gross gains on sales Gross losses on sales Equity securities [1] Net credit losses on fixed maturities, AFS [2] Change in ACL on mortgage loans [3] Intent-to-sell impairments [4] Net other-than-temporary impairment ("OTTI") losses recognized in earnings Valuation allowances on mortgage loans Other, net [5] $ For the years ended December 31, 2020 2019 2018 255 $ (50) (214) (28) (19) (5) 47 234 $ (56) 254 114 (172) (48) — (3) 1 (35) — (1) — (5) Net realized capital gains (losses) [1]The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2020, were $53 for the year-ended December 31, 2020. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2019, were $164 for the year-ended December 31, 2019. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2018, were $(80) for the year-ended December 31, 2018. 395 $ (14) $ (112) $ [2]Due to the adoption of accounting guidance for credit losses on January 1, 2020, realized capital losses previously reported as OTTI are now presented as credit losses which are net of any recoveries. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. In addition, see Credit Losses on Fixed Maturities, AFS within the Investment Portfolio Risks and Risk Management section of the MD&A. [3]Represents the change in ACL recorded during the period following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. In addition, see ACL on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A. [4]See Intent-to-Sell Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A. [5]Includes gains (losses) on non-qualifying derivatives for 2020, 2019, and 2018 of $104, $(24), and $(12), respectively, gains (losses) from transactional foreign currency revaluation of $(1), $(9) and $1, respectively, and a loss of $48 from the sale of the Continental Europe Operations for the year ended December 31, 2020. Year ended December 31, 2020 Gross gains and losses on sales were primarily driven by issuer-specific sales of corporate securities and tax- exempt municipal bonds, rebalancing within the foreign government sector, and sales of U.S. treasury securities for duration and/or liquidity management. Equity securities net losses were driven by mark-to- market losses due to the decline in equity market levels in the first quarter and losses incurred on sales across multiple issuers as the Company reduced its exposure to equity securities, partially offset by mark-to-market equity gains given recent equity market performance and tighter credit spreads, which resulted in price appreciation of preferred equities. Other, net gains are primarily due to $75 of realized gains on terminated derivatives used to hedge against a decline in equity market levels and $21 of gains on interest rate derivatives due to a decline in interest rates. These gains were partially offset by a loss of $48, before tax, on the sale of the Company’s Continental Europe Operations which the Company agreed to sell in September of 2020. Year ended December 31, 2019 Gross gains and losses on sales were primarily driven by issuer-specific selling of corporate securities, continued reduction of tax-exempt municipal bonds and sales of U.S. treasuries for duration management. Equity securities net gains were primarily driven by appreciation of equity securities due to higher equity market levels. Other, net losses includes losses on interest rate derivatives of $34 due to higher rates, losses on equity derivatives of $17 due 48 to an increase in domestic equity markets, and losses of $9 due to foreign currency revaluation. These losses were partially offset by gains on credit derivatives of $27 due to credit spread tightening. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ, and in the past have differed, from those estimates. The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability: • • • • • property and casualty insurance product reserves, net of reinsurance; group benefit long-term disability ("LTD") reserves, net of reinsurance; evaluation of goodwill for impairment; valuation of investments and derivative instruments including evaluation of credit losses on fixed maturities, AFS and ACL on mortgage loans; and contingencies relating to corporate litigation and regulatory matters. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 Consolidated Financial Statements. In developing these estimates management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements. Property & Casualty Insurance Product Reserves P&C Loss and Loss Adjustment Expense Reserves, Net of Reinsurance, by Segment as of December 31, 2020 Loss and LAE Reserves, Net of Reinsurance as of December 31, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance % Total Reserves -net Workers’ compensation $ 10,886 $ — $ — $ 10,886 45.6% General liability Marine Package business [1] Commercial property Automobile liability Automobile physical damage Professional liability Bond Homeowners Asbestos and environmental Assumed reinsurance All other Total reserves-net Reinsurance and other recoverables 4,105 279 1,852 475 1,066 13 1,184 381 — 139 218 189 20,787 4,271 — — — — 1,399 25 — — 372 10 — 2 1,808 28 — — — — — — — — — 789 87 426 1,302 1,426 Total reserves-gross 2,728 $ $ [1]Commercial Lines policy packages that include property and general liability coverages are generally referred to as the package line of business. 25,058 $ 1,836 $ 4,105 17.2% 279 1,852 475 1.2% 7.7% 2.0% 2,465 10.3% 38 1,184 381 372 938 305 617 0.1% 5.0% 1.5% 1.6% 3.9% 1.3% 2.6% 23,897 100.0% 5,725 29,622 For descriptions of the coverages provided under the lines of business shown above, see Part I - Item1, Business. Overview of Reserving for Property and Casualty Insurance Claims It typically takes many months or years to pay claims incurred under a property and casualty insurance product; accordingly, the Company must establish reserves at the time the loss is incurred. Most of the Company’s policies provide for occurrence-based 49 Commercial Lines$20,78787%Personal Lines$1,8088%Property &Casualty OtherOperations$1,3025% Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations coverage where the loss is incurred when a claim event happens like an automobile accident, house or building fire or injury to an employee under a workers’ compensation policy. Some of the Company's policies, mostly for directors and officers insurance and errors and omissions insurance, are claims-made policies where the loss is incurred in the period the claim event is reported to the Company even if the loss event itself occurred in an earlier period. Loss and loss adjustment expense reserves provide for the estimated ultimate costs of paying claims under insurance policies written by the Company, less amounts paid to date. These reserves include estimates for both claims that have been reported and those that have not yet been reported, and include estimates of all expenses associated with processing and settling these claims. Case reserves are established by a claims handler on each individual claim and are adjusted as new information becomes known during the course of handling the claim. Incurred but not reported (“IBNR”) reserves represent the difference between the estimated ultimate cost of all claims and the actual loss and loss adjustment expenses reported to the Company by claimants (“reported losses”). Reported losses represent cumulative loss and loss adjustment expenses paid plus case reserves for outstanding reported claims. For most lines, Company actuaries evaluate the total reserves (IBNR and case reserves) on an accident year basis. An accident year is the calendar year in which a loss is incurred, or, in the case of claims- made policies, the calendar year in which a loss is reported. For certain lines acquired from the Navigators Group book of business, total reserves are evaluated on a policy year basis and then converted to accident year. A policy year is the calendar year in which a policy incepts. Factors that Change Reserve Estimates- Reserve estimates can change over time because of unexpected changes in the external environment. Inflation in claim costs, such as with medical care, hospital care, automobile parts, wages and home and building repair, would cause claims to settle for more than they are initially reserved. Changes in the economy can cause an increase or decrease in the number of reported claims (claim frequency). For example, an improving economy could result in more automobile miles driven and a higher number of automobile reported claims, or a change in economic conditions can lead to more or less workers’ compensation reported claims. An increase in the number or percentage of claims litigated can increase the average settlement amount per claim (claim severity). Changes in the judicial environment can affect interpretations of damages and how policy coverage applies which could increase or decrease claim severity. Over time, judges or juries in certain jurisdictions may be more inclined to determine liability and award damages. New legislation can also change how damages are defined or change the statutes of limitations for the filing of civil suits, resulting in greater claim frequency or severity. In addition, new types of injuries may arise from exposures not contemplated when the policies were written. Past examples include pharmaceutical products, silica, lead paint, sexual molestation and sexual abuse and construction defects. Reserve estimates can also change over time because of changes in internal Company operations. A delay or acceleration in handling claims may signal a need to increase or reduce reserves from what was initially estimated. New lines of business may have loss development patterns that are not well established. Changes in the geographic mix of business, changes in the mix of business 50 by industry and changes in the mix of business by policy limit or deductible can increase the risk that losses will ultimately develop differently than the loss development patterns assumed in our reserving. In addition, changes in the quality of risk selection in underwriting and changes in interpretations of policy language could increase or decrease ultimate losses from what was assumed in establishing the reserves. In the case of assumed reinsurance, all of the above risks apply. The Company assumes property and casualty risks from other insurance companies as part of its Global Re business acquired from Navigators Group and from certain pools and associations. Global Re, which is a part of the global specialty business, mostly assumes property, casualty, surety, agriculture, and marine risks and, until recently, assumed accident and health insurance risks. Changes in the case reserving and reporting patterns of insurance companies ceding to The Hartford can create additional uncertainty in estimating the reserves. Due to the inherent complexity of the assumptions used, final claim settlements may vary significantly from the present estimates of direct and assumed reserves, particularly when those settlements may not occur until well into the future. Reinsurance Recoverables- Through both facultative and treaty reinsurance agreements, the Company cedes a share of the risks it has underwritten to other insurance companies. The Company records reinsurance recoverables for loss and loss adjustment expenses ceded to its reinsurers representing the anticipated recovery from reinsurers of unpaid claims, including IBNR. The Company estimates the portion of losses and loss adjustment expenses to be ceded based on the terms of any applicable facultative and treaty reinsurance, including an estimate of IBNR for losses that will ultimately be ceded. The Company provides an allowance for uncollectible reinsurance, reflecting management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. The ACL primarily considers the credit quality of the Company's reinsurers while the allowance for disputes considers recent outcomes in arbitration and litigation in disputes between reinsurers and cedants and recent commutation activity between reinsurers and cedants that may signal how the Company’s own reinsurance claims may settle. Where its reinsurance contracts permit, the Company secures funding of future claim obligations with various forms of collateral, including irrevocable letters of credit, secured trusts, funds held accounts and group-wide offsets. The allowance for uncollectible reinsurance was $105 as of December 31, 2020, comprised of $44 related to Commercial Lines, $1 related to Personal Lines and $60 related to Property & Casualty Other Operations. The Company’s estimate of reinsurance recoverables, net of an allowance for uncollectible reinsurance, is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses for direct and assumed exposures. Review of Reserve Adequacy- The Hartford regularly reviews the appropriateness of reserve levels at the line of business or more detailed level, taking into consideration the variety of trends that impact the ultimate settlement of claims. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For Property & Casualty Other Operations, asbestos and environmental (“Run-off A&E”) reserves are reviewed by type of event rather than by line of business. Reserve adjustments, which may be material, are reflected in the operating results of the period in which the adjustment is determined to be necessary. In the judgment of management, information currently available has been properly considered in establishing the reserves for unpaid losses and loss adjustment expenses and in recording the reinsurance recoverables for ceded unpaid losses. Reserving Methodology The following is a discussion of the reserving methods used for the Company's property and casualty lines of business other than asbestos and environmental. Reserves are set by line of business within the operating segments. A single line of business may be written in more than one segment. Lines of business for which reported losses emerge over a long period of time are referred to as long-tail lines of business. Lines of business for which reported losses emerge more quickly are referred to as short-tail lines of business. The Company’s shortest-tail lines of business are homeowners, commercial property, marine and automobile physical damage. The longest tail lines of business include workers’ compensation, general liability, professional liability and assumed reinsurance. For short-tail lines of business, emergence of paid loss and case reserves is credible and likely indicative of ultimate losses. For long-tail lines of business, emergence of paid losses and case reserves is less credible in the early periods after a given accident year and, accordingly, may not be indicative of ultimate losses. Use of Actuarial Methods and Judgments- The Company’s reserving actuaries regularly review reserves for both current and prior accident years using the most current claim data. A variety of actuarial methods and judgments are used for most lines of business to arrive at selections of estimated ultimate losses and loss adjustment expenses. New methods may be added for specific lines over time to inform these selections where appropriate. The reserve selections incorporate input, as appropriate, from claims personnel, pricing actuaries and operating management about reported loss cost trends and other factors that could affect the reserve estimates. Most reserves are reviewed fully each quarter, including loss and loss adjustment expense reserves for homeowners, commercial property, marine, automobile physical damage, automobile liability, package property business, and workers’ compensation. Other reserves, including most general liability and professional liability lines, are reviewed semi-annually. Certain additional reserves are also reviewed semi-annually or annually, including reserves for losses incurred in accident years older than twelve years for Personal Lines and older than twenty years for Commercial Lines, as well as reserves for bond, assumed reinsurance, latent exposures such as construction defects, and unallocated loss adjustment expenses. For reserves that are reviewed semi-annually or annually, management monitors the emergence of paid and reported losses in the intervening quarters and, if necessary, performs a reserve review to determine whether the reserve estimate should change. An expected loss ratio is used in initially recording the reserves for both short-tail and long-tail lines of business. This expected loss ratio is determined by starting with the average loss ratio of 51 recent prior accident years and adjusting that ratio for the effect of expected changes to earned pricing, loss frequency and severity, mix of business, ceded reinsurance and other factors. For short-tail lines, IBNR for the current accident year is initially recorded as the product of the expected loss ratio for the period, earned premium for the period and the proportion of losses expected to be reported in future calendar periods for the current accident period. For long-tailed lines, IBNR reserves for the current accident year are initially recorded as the product of the expected loss ratio for the period and the earned premium for the period, less reported losses for the period. As losses emerge or develop in periods subsequent to a given accident year, reserving actuaries use other methods to estimate ultimate unpaid losses in addition to the expected loss ratio method. These primarily include paid and reported loss development methods, frequency/severity techniques and the Bornhuetter-Ferguson method (a combination of the expected loss ratio and paid development or reported development method). Within any one line of business, the methods that are given more influence vary based primarily on the maturity of the accident year, the mix of business and the particular internal and external influences impacting the claims experience or the methods. The output of the reserve reviews are reserve estimates representing a range of actuarial indications. Reserve Discounting- Most of the Company’s property and casualty insurance product reserves are not discounted. However, the Company has discounted liabilities funded through structured settlements and has discounted a portion of workers’ compensation reserves that have a fixed and determinable payment stream. For further discussion of these discounted liabilities, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements. Differences Between GAAP and Statutory Basis Reserves- As of December 31, 2020 and 2019, U.S. property and casualty insurance product reserves for losses and loss adjustment expenses, net of reinsurance recoverables, reported under U.S. GAAP were lower than net reserves reported on a statutory basis, primarily due to reinsurance recoverables on two ceded retroactive reinsurance agreements that are recorded as a reduction of other liabilities under statutory accounting. One of the retroactive reinsurance agreements covers substantially all adverse development on asbestos and environmental reserves subsequent to 2016 and the other covers adverse development on Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018. Under both agreements, the Company cedes to NICO, a subsidiary of Berkshire Hathaway Inc. ("Berkshire"). Reserving Methods by Line of Business- Apart from Run-off A&E which is discussed in the following section on Property & Casualty Other Operations, below is a general discussion of which reserving methods are preferred by line of business. Because the actuarial estimates are generated at a much finer level of detail than line of business (e.g., by distribution channel, coverage, accident period), other methods than those described for the line of business may also be employed for a coverage and accident year within a line of business. Also, as circumstances change, the methods that are given more influence will change. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Commercial property, homeowners and automobile physical damage Personal automobile liability Commercial automobile liability Preferred Reserving Methods by Line of Business These short-tailed lines are fast-developing and paid and reported development techniques are used as these methods use historical data to develop paid and reported loss development patterns, which are then applied to cumulative paid and reported losses by accident period to estimate ultimate losses. In addition to paid and reported development methods, for the most immature accident months, the Company uses frequency and severity techniques and the initial expected loss ratio. The advantage of frequency/severity techniques is that frequency estimates are generally easier to predict and external information can be used to supplement internal data in estimating average severity. For personal automobile liability, and bodily injury in particular, in addition to traditional paid and reported development methods, the Company relies on frequency/severity techniques and Berquist-Sherman techniques. Because the paid development technique is affected by changes in claim closure patterns and the reported development method is affected by changes in case reserving practices, the Company uses Berquist-Sherman techniques which adjust these patterns to reflect current settlement rates and case reserving practices. The Company generally uses the reported development method for older accident years and a combination of reported development, frequency/severity and Berquist-Sherman methods for more recent accident years. For older accident periods, reported losses are a good indicator of ultimate losses given the high percentage of ultimate losses reported to date. For more recent periods, the frequency/severity techniques are not affected as much by changes in case reserve practices and changing disposal rates and the Berquist-Sherman techniques specifically adjust for these changes. The Company performs a variety of techniques, including the paid and reported development methods and frequency/severity techniques. For older, more mature accident years, the Company primarily uses reported development techniques. For more recent accident years, the Company relies on several methods that incorporate expected loss ratios, reported loss development, paid loss development, frequency/severity, case reserve adequacy, and claim settlement rates. Professional liability Reported and paid loss development patterns for this line tend to be volatile. Therefore, the Company typically relies on frequency and severity techniques. General liability, bond and large deductible workers’ compensation Workers’ compensation Marine Assumed reinsurance and all other For these long-tailed lines of business, the Company generally relies on the expected loss ratio and reported development techniques. The Company generally weights these techniques together, relying more heavily on the expected loss ratio method at early ages of development and shifting more weight onto the reported development method as an accident year matures. For certain general liability lines the Company uses a Berquist-Sherman technique to adjust for changes in claim reserving patterns. The Company also uses various frequency/severity methods aimed at capturing large loss development. Workers’ compensation is the Company’s single largest reserve line of business and a wide range of methods are used. Due to the long-tailed nature of workers' compensation, the selection of methods is driven by expected loss ratio methods ("ELR") at early evaluations with emphasis shifting first to Bornhuetter-Ferguson methods, then to paid and reported development methods (with more reliance placed on paid methods), and finally to methods that are responsive to the inventory of open claims. Across these techniques, there are adjustments related to changes in emergence patterns across years, projections of future cost inflation, outlier claims, and analysis of larger states. For marine liability, the Company generally relies on the expected loss ratio, Berquist-Sherman, and reported development techniques. The Company generally weights these techniques together, relying more heavily on the expected loss ratio method at early ages of development and then shifts towards Berquist-Sherman and then more towards the reported development method as an accident year matures. For marine property segments, the Company relies on a Berquist-Sherman method for early development ages then shifts to reported development techniques. Standard methods, such as expected loss ratio, Berquist-Sherman and reported development techniques are applied. These methods and analyses are informed by underlying treaty by treaty analyses supporting the expected loss ratios, and cedant data will often inform the loss development patterns. In some instances, reserve indications may also be influenced by information gained from claims and underwriting audits. For the A&H business where the reporting is quick and treaties are not written evenly throughout the year, policy quarter analyses are performed to avoid potential distortions. Policy quarter and policy year loss reserve estimates are then converted to an accident year basis. Allocated loss adjustment expenses ("ALAE") Unallocated loss adjustment expenses ("ULAE") For some lines of business (e.g., professional liability, assumed reinsurance, and the acquired Navigators Group book of business), ALAE and losses are analyzed together. For most lines of business, however, ALAE is analyzed separately, using paid development techniques and a ratio of paid ALAE to paid loss is applied to loss reserves to estimate unpaid ALAE. ULAE is analyzed separately from loss and ALAE. For most lines of business, future ULAE costs to be paid are projected based on an expected claim handling cost per claim year, the anticipated claim closure pattern and the ratio of paid ULAE to paid loss is applied to estimated unpaid losses. For some lines, a simplified paid-to-paid approach is used. In the final step of the reserve review process, senior reserving actuaries and senior management apply their judgment to determine the appropriate level of reserves considering the actuarial indications and other factors not contemplated in the actuarial indications. Those factors include, but are not limited to, the assessed reliability of key loss trends and assumptions used in the current actuarial indications, the maturity of the accident year, pertinent trends observed over the recent past, the level of volatility within a particular line of business, and the improvement or deterioration of actuarial indications in the current period as compared to the prior periods. The Company also considers the magnitude of the difference between the actuarial indication and the recorded reserves. 52 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. 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. For a discussion of changes to reserve estimates recorded in 2020, see Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses in the Notes to Consolidated Financial Statements. Current Trends Contributing to Reserve Uncertainty The Hartford is a multi-line company in the property and casualty insurance business. The Hartford is, therefore, subject to reserve uncertainty stemming from changes in loss trends and other conditions which could become material at any point in time. As market conditions and loss trends develop, management must assess whether those conditions constitute a long-term trend that should result in a reserving action (i.e., increasing or decreasing the reserve). General liability- Within Commercial Lines, including the acquired Navigators Group book of business, and Property & Casualty Other Operations, the Company has exposure to general liability claims, including from bodily injury, property damage and product liability. Reserves for these exposures can be particularly difficult to estimate due to the long development pattern and uncertainty about how cases will settle. In particular, the Company has exposure to bodily injury claims that is the result of long-term or continuous exposure to harmful products or substances. Examples include, but are not limited to, pharmaceutical products, silica, talcum powder, head injuries and lead paint. The Company also has exposure to claims from construction defects, where property damage or bodily injury from negligent construction is alleged. In addition, the Company has exposure to claims asserted against religious institutions, and other organizations, including the Boy Scouts of America, relating to sexual molestation and sexual abuse. State “reviver” statutes, extending statutes of limitations for certain sexual molestation and sexual abuse claims, could result in additional litigation or could result in unexpected sexual molestation and sexual abuse losses. Such exposures may involve potentially long latency periods and may implicate coverage in multiple policy periods, which can raise complex coverage issues with significant effects on the ultimate scope of coverage. Such exposures may also be impacted by insured bankruptcies. These factors make reserves for such claims more uncertain than other bodily injury or property damage claims. With regard to these exposures, the Company monitors trends in litigation, the external environment including legislation, the similarities to other mass torts and the potential impact on the Company’s reserves. Additionally, uncertainty in estimated claim severity causes reserve variability, particularly with respect to changes in internal claim handling and case reserving practices. Workers’ compensation- Included in both small commercial and in middle & large commercial, workers’ compensation is the Company’s single biggest line of business and the property and casualty line of business with the longest pattern of loss emergence. To the extent that patterns in the frequency of settlement payments deviate from historical patterns, loss reserve estimates would be less reliable. Medical costs make up approximately 50% of workers’ compensation payments. As such, reserve estimates for workers’ compensation are particularly sensitive to changes in medical inflation, the changing use of medical care procedures and changes in state legislative and regulatory environments. In addition, a deteriorating economic environment can reduce the ability of an injured worker to return to work and lengthen the time a worker receives disability benefits. In National Accounts, reserves for large deductible workers’ compensation insurance require estimating losses attributable to the deductible amount that will be paid by the insured; if such losses are not paid by the insured due to financial difficulties, the Company is contractually liable. Commercial Lines automobile- Uncertainty in estimated claim severity causes reserve variability for commercial automobile losses including reserve variability due to changes in internal claim handling and case reserving practices as well as due to changes in the external environment. Directors' and officers' insurance- Uncertainty regarding the number and severity of class action suits can result in reserve volatility for both directors' and officers' insurance claims. Additionally, the Company’s exposure to losses under directors’ and officers’ insurance policies, both domestically and internationally, is primarily in excess layers, making estimates of loss more complex. Personal Lines automobile- While claims emerge over relatively shorter periods, estimates can still vary due to a number of factors, including uncertain estimates of frequency and severity trends. Severity trends are affected by changes in internal claim handling and case reserving practices as well as by changes in the external environment. Changes in claim practices increase the uncertainty in the interpretation of case reserve data, which increases the uncertainty in recorded reserve levels. Severity trends have increased in recent accident years, in part driven by more expensive parts associated with new automobile technology, causing additional uncertainty about the reliability of past patterns. In addition, the introduction of new products and class plans has led to a different mix of business by type of insured than the Company experienced in the past. Such changes in mix increase the uncertainty of the reserve projections, since historical data and reporting patterns may not be applicable to the new business. Assumed reinsurance- While the pricing and reserving processes can be challenging and idiosyncratic for insurance companies, the inherent uncertainties of setting prices and estimating such reserves are even greater for the reinsurer. This is primarily due to the longer time between the date of an occurrence and the reporting of claims to the reinsurer, the diversity of development patterns among different types of reinsurance treaties or contracts, the necessary reliance on the ceding companies for information regarding reported claims and differing pricing and reserving practices among ceding companies. In addition, trends that have affected development of liabilities in the past may not necessarily occur or impact liability 53 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations to court delays and closings, may also have potential impacts on development patterns for liability lines. Impact of Key Assumptions on Reserves As stated above, the Company’s practice is to estimate reserves using a variety of methods, assumptions and data elements within its reserve estimation process. The Company does not consistently use statistical loss distributions or confidence levels around its reserve estimate and, as a result, does not disclose reserve ranges. Across most lines of business, the most important reserve assumptions are future loss development factors applied to paid or reported losses to date. The trend in loss cost frequency and severity is also a key assumption, particularly in the most recent accident years, where loss development factors are less credible. The following discussion discloses possible variation from current estimates of loss reserves due to a change in certain key indicators of potential losses. For automobile liability lines in both Personal Lines and Commercial Lines, the key indicator is the annual loss cost trend, particularly the severity trend component of loss costs. For workers’ compensation and general liability, loss development patterns are a key indicator, particularly for more mature accident years. For workers’ compensation, paid loss development patterns have been impacted by medical cost inflation and other changes in loss cost trends. For general liability, incurred loss development patterns have been impacted by, among other things, emergence of new types of claims (e.g., construction defect claims) and a shift in the mixture between smaller, more routine claims and larger, more complex claims. Each of the impacts described below is estimated individually, without consideration for any correlation among key indicators or among lines of business. Therefore, it would be inappropriate to take each of the amounts described below and add them together in an attempt to estimate volatility for the Company’s reserves in total. For any one reserving line of business, the estimated variation in reserves due to changes in key indicators is a reasonable estimate of possible variation that may occur in the future, likely over a period of several calendar years. The variation discussed is not meant to be a worst-case scenario, and, therefore, it is possible that future variation may be more than the amounts discussed below. development in the same manner or to the same degree in the future. As a result, actual losses and LAE may deviate, perhaps substantially, from the expected estimates. International business- In addition to several of the line-specific trends listed above, the International business acquired through the Navigators Group book of business may have additional uncertainty due to geopolitical, foreign currency, and trade dispute risks. COVID-19 impacts- As further explained under "Impacts of COVID-19" within The Hartford's Operations section of MD&A, through December 31, 2020, the Company incurred $278 of COVID-19 claims in P&C, including in workers' compensation, property and financial lines. Under workers’ compensation, we could experience a continuation of COVID-19 incurred losses, particularly due to laws or directives in certain states that require coverage of COVID-19 claims for health care and other essential workers based on a presumption that they contracted the virus while working. We could also incur losses on general liability policies if claimants can successfully assert that insureds were negligent from protecting employees, customers and others from exposure though we do not expect this exposure to be significant. Under commercial property policies, we have reserved for business interruption claims that pertain to policies in middle & large commercial and in global specialty which do not require direct physical loss or property damage. We have also experienced an increase in COVID-19 related claims under director's and officer's insurance policies. In other cases, particularly in small commercial, where there are policy exclusions and the requirement that there be direct physical loss or damage to the property, we have not recorded loss reserves as there is no coverage though we have recorded a reserve for legal defense costs. In addition to the direct impacts of COVID-19 mentioned above, we are monitoring for indirect impacts as well. In our commercial surety lines there continues to be the potential for elevated frequency and severity due to an increase in the number of bankruptcies, especially in small businesses and impacted industries such as hospitality, entertainment and transportation. In construction surety, there is the potential for elevated losses from contractors who experience project shutdowns or payment delays, which negatively impact their cash flows, or result in disruptions in their supply chains, labor shortages or inflation in the cost of materials. Reserve estimates for COVID-19 claims are difficult to estimate. In establishing reserves for COVID-19 incurred claims through December 31, 2020, we have provided IBNR at a higher percentage of ultimate estimated incurred losses than usual as we expect longer claim reporting patterns given the economic effects of COVID-19. For example, we expect longer delays than usual between the time a worker is treated and the date the claim is eventually submitted for workers' compensation coverage. Reserve estimates for D&O, E&O and employment practices liability are subject to significant uncertainty given that estimates must be made of the expected ultimate severity of claims that have recently been reported. Several lines have experienced a decline in frequency during the pandemic months; however, uncertainty remains with respect to severity given the pandemic's potential impact on economic activity, driving behaviors, and the healthcare and legal systems. Changes in the legal environment and litigation process, including but not limited 54 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Personal Automobile Liability Commercial Automobile Liability Workers' Compensation General Liability Possible Change in Key Indicator +/- 2.5. points to the annual assumed change in loss cost severity for the two most recent accident years +/- 2.5 points to the annual assumed change in loss cost severity for the two most recent accident years 2% change in paid loss development patterns 8% change in reported loss development patterns Reserves, Net of Reinsurance December 31, 2020 $1.4 billion Estimated Range of Variation in Reserves +/-$70 $1.1 billion +/-$30 $10.9 billion +/- $400 $4.1 billion +/- $450 Reserving for Asbestos and Environmental Claims How A&E Reserves are Set- The process for establishing reserves for asbestos and environmental claims first involves estimating the required reserves gross of ceded reinsurance and then estimating reinsurance recoverables. In establishing reserves for gross asbestos claims, the Company evaluates its insureds’ estimated liabilities for such claims by examining exposures for individual insureds and assessing how coverage applies. The Company considers a variety of factors, including the jurisdictions where underlying claims have been brought, past, pending and anticipated future claim activity, the level of plaintiff demands, disease mix, past settlement values of similar claims, dismissal rates, allocated loss adjustment expense, and potential impact of other defendants being in bankruptcy. Similarly, the Company reviews exposures to establish gross environmental reserves. The Company considers several factors in estimating environmental liabilities, including historical values of similar claims, the number of sites involved, the insureds’ alleged activities at each site, the alleged environmental damage, the respective shares of liability of potentially responsible parties, the appropriateness and cost of remediation, the nature of governmental enforcement activities or mandated remediation efforts and potential impact of other defendants being in bankruptcy. After evaluating its insureds’ probable liabilities for asbestos and/ or environmental claims, the Company evaluates the insurance coverage in place for such claims. The Company considers its insureds’ total available insurance coverage, including the coverage issued by the Company. The Company also considers relevant judicial interpretations of policy language, the nature of how policy limits are enforced on multi-year policies and applicable coverage defenses or determinations, if any. 55 The estimated liabilities of insureds and the Company’s exposure to the insureds depends heavily on an analysis of the relevant legal issues and litigation environment. This analysis is conducted by the Company’s lawyers and is subject to applicable privileges. For both asbestos and environmental reserves, the Company also analyzes its historical paid and reported losses and expenses year by year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity. The historical losses and expenses are analyzed on both a direct basis and net of reinsurance. Once the gross ultimate exposure for indemnity and allocated loss adjustment expense is determined for its insureds by each policy year, the Company calculates its ceded reinsurance projection based on any applicable facultative and treaty reinsurance and the Company’s experience with reinsurance collections. See the section that follows entitled A&E Adverse Development Cover that discusses the impact the reinsurance agreement with NICO may have on future adverse development of asbestos and environmental reserves, if any. Uncertainties Regarding Adequacy of A&E Reserves- A number of factors affect the variability of estimates for gross asbestos and environmental reserves including assumptions with respect to the frequency of claims, the average severity of those claims settled with payment, the dismissal rate of claims with no payment, resolution of coverage disputes with our policyholders and the expense to indemnity ratio. Reserve estimates for gross asbestos and environmental reserves are subject to greater variability than reserve estimates for more traditional exposures. The process of estimating asbestos and environmental reserves remains subject to a wide variety of uncertainties, which are detailed in Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements. The Company believes that its current asbestos and environmental reserves are appropriate. Future developments could continue to cause the Company to change its estimates of its gross asbestos and environmental reserves. Losses ceded under the adverse development cover ("A&E ADC") with NICO in excess of the ceded premium paid of $650 have resulted in a deferred gain resulting in a timing difference between when gross reserves are increased and when reinsurance recoveries are recognized. This timing difference results in a charge to net income until such periods when the recoveries are recognized. Consistent with past practice, the Company will continue to monitor its reserves in Property & Casualty Other Operations regularly, including its annual reviews of asbestos liabilities, reinsurance recoverables, the allowance for uncollectible reinsurance, and environmental liabilities. Where future developments indicate, we will make appropriate adjustments to the reserves at that time. Total P&C Insurance Product Reserves Development In the opinion of management, based upon the known facts and current law, the reserves recorded for the Company’s property and casualty insurance products at December 31, 2020 represent the Company’s best estimate of its ultimate liability for unpaid losses and loss adjustment expenses related to losses covered by policies written by the Company. However, because of the significant uncertainties surrounding reserves, it is possible that management’s estimate of the ultimate liabilities for these claims Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations may change in the future and that the required adjustment to currently recorded reserves could be material to the Company’s results of operations and liquidity. Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Year Ended December 31, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 23,363 $ 2,201 $ 2,697 $ 28,261 Reinsurance and other recoverables [1] Beginning liabilities for unpaid losses and loss adjustment expenses, net Provision for unpaid losses and loss adjustment expenses Current accident year before catastrophes Current accident year ("CAY") catastrophes Prior accident year development ("PYD") [2] Total provision for unpaid losses and loss adjustment expenses Change in deferred gain on retroactive reinsurance included in other liabilities [2] Payments Net reserves transferred to liabilities held for sale Foreign currency adjustment Ending liabilities for unpaid losses and loss adjustment expenses, net Reinsurance and other recoverables Ending liabilities for unpaid losses and loss adjustment expenses, gross Earned premiums and fee income Loss and loss expense paid ratio [3] Loss and loss expense incurred ratio $ $ 4,029 19,334 5,493 397 44 5,934 (102) (4,348) (45) 14 20,787 4,271 68 2,133 1,695 209 (438) 1,466 — (1,791) — — 1,808 28 1,178 1,519 — — 258 258 (210) (265) — — 1,302 1,426 5,275 22,986 7,188 606 (136) 7,658 (312) (6,404) (45) 14 23,897 5,725 25,058 $ 1,836 $ 2,728 $ 29,622 8,940 $ 3,042 48.6 66.5 58.9 48.7 Prior accident year development (pts) [4] [1]Includes a cumulative effect adjustment of $1 and $(1) for Commercial Lines and Property & Casualty Other Operations respectively, representing an adjustment to the ACL (14.6) 0.5 recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements for further information. [2]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADC which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the two adverse development cover reinsurance agreements, refer to Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. [3]The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income. [4]“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums. Current Accident Year Catastrophe Losses for the Year Ended December 31, 2020, Net of Reinsurance Wind and hail Civil Unrest Hurricanes and Tropical Storms Wildfires Other Total catastrophe losses Commercial Lines Personal Lines Total $ $ 167 $ 105 96 21 8 97 $ — 51 61 — 397 $ 209 $ 264 105 147 82 8 606 In December, 2019, the judge overseeing the bankruptcy of PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) approved an $11 billion settlement of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. That settlement was contingent upon, among other things, the judge entering an order confirming PG&E’s chapter 11 bankruptcy plan (“PG&E Plan”) incorporating the settlement 56           Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations agreement. On June 20, 2020, the bankruptcy court judge approved the PG&E Plan and PG&E subsequently transferred the $11 billion settlement amount to a trust designed to allocate and distribute the settlement among subrogation holders, including certain of the Company’s insurance subsidiaries. In the second quarter of 2020, the Company recorded an estimated $289 subrogation benefit though the ultimate amount it collects will depend on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. In 2020, the Company received distributions, net of attorney costs, of $227. Unfavorable (Favorable) Prior Accident Year Development for the Year Ended December 31, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation $ (110) $ — $ — $ Workers’ compensation discount accretion General liability Marine Package business Commercial property Professional liability Bond Assumed reinsurance Automobile liability Homeowners Net asbestos reserves Net environmental reserves Catastrophes Uncollectible reinsurance Other reserve re-estimates, net Prior accident year development before change in deferred gain Change in deferred gain on retroactive reinsurance included in other liabilities Total prior accident year development $ 35 237 3 (58) (4) (14) (19) (6) 27 — — — (149) — — (58) 102 44 $ — — — — — — — — (61) 7 — — (380) — (4) (438) — — — — — — — — — — (2) — — (8) 58 48 — (438) $ 210 258 $ (110) 35 237 3 (58) (4) (14) (19) (6) (34) 7 (2) — (529) (8) 54 (448) 312 (136) 57 Part II - Item 7. 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 Year Ended December 31, 2019 Beginning liabilities for unpaid losses and loss adjustment expenses, gross Reinsurance and other recoverables Beginning liabilities for unpaid losses and loss adjustment expenses, net Navigators Group acquisition Provision for unpaid losses and loss adjustment expenses Current accident year before catastrophes Current accident year catastrophes Prior accident year development [1] Total provision for unpaid losses and loss adjustment expenses Change in deferred gain on retroactive reinsurance included in other liabilities [1] Payments Foreign currency adjustment Ending liabilities for unpaid losses and loss adjustment expenses, net Reinsurance and other recoverables Ending liabilities for unpaid losses and loss adjustment expenses, gross Earned premiums and fee income Loss and loss expense paid ratio [2] Loss and loss expense incurred ratio Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance $ 19,455 $ 2,456 $ 2,673 $ 3,137 16,318 2,001 4,913 323 (44) 5,192 (16) (4,161) (1) 19,333 4,030 108 2,348 — 2,087 140 (42) 2,185 — (2,400) — 2,133 68 987 1,686 — — — 21 21 — (187) — 1,520 1,177 24,584 4,232 20,352 2,001 7,000 463 (65) 7,398 (16) (6,748) (1) 22,986 5,275 $ $ 23,363 $ 8,325 $ 50.0 62.6 2,201 $ 2,697 $ 28,261 3,235 74.2 68.3 Prior accident year development (pts) [3] [1]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators ADC which, under retroactive reinsurance accounting, is deferred (0.5) (1.3) and recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the Navigators ADC agreement, refer to Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to 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. 58   Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Current Accident Year Catastrophe Losses for the Year Ended December 31, 2019, Net of Reinsurance Commercial Lines Personal Lines Total Wind and hail Winter storms Tropical storms Hurricanes Wildfires Tornadoes Typhoons Other $ 157 $ 54 18 20 4 53 16 1 102 $ 18 5 4 4 7 — — 259 72 23 24 8 60 16 1 Total catastrophe losses $ 323 $ 140 $ 463 Unfavorable (Favorable) Prior Accident Year Development for the Year Ended December 31, 2019 Total Property & Casualty Insurance Property & Casualty Other Operations Commercial Lines Personal Lines Workers’ compensation $ (120) $ — $ — $ (120) Workers’ compensation discount accretion General liability Marine Package business Commercial property Professional liability Bond Assumed reinsurance Automobile liability Homeowners Net asbestos reserves Net environmental reserves Catastrophes Uncollectible reinsurance Other reserve re-estimates, net Total prior accident year development Change in deferred gain on retroactive reinsurance included in other liabilities Total prior accident year development $ 33 61 8 (47) (11) 29 (3) 3 27 — — — (40) (5) 5 (60) 16 (44) $ — — — — — — — — (38) 3 — — (2) — (5) (42) — (42) $ — — — — — — — — — — — — — (25) 46 21 — 21 $ 33 61 8 (47) (11) 29 (3) 3 (11) 3 — — (42) (30) 46 (81) 16 (65) 59 Part II - Item 7. 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 Year Ended December 31, 2018 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 18,893 $ 2,294 $ 2,588 $ Reinsurance and other recoverables 3,147 71 739 23,775 3,957 Beginning liabilities for unpaid losses and loss adjustment expenses, net Provision for unpaid losses and loss adjustment expenses Current accident year before catastrophes Current accident year catastrophes Prior accident year development Total provision for unpaid losses and loss adjustment expenses Payments Ending liabilities for unpaid losses and loss adjustment expenses, net Reinsurance and other recoverables Ending liabilities for unpaid losses and loss adjustment expenses, gross Earned premiums and fee income Loss and loss expense paid ratio [1] Loss and loss expense incurred ratio 15,746 2,223 1,849 19,818 4,037 275 (200) 4,112 (3,540) 16,318 3,137 2,249 546 (32) 2,763 (2,638) 2,348 108 — — 65 65 (228) 1,686 987 6,286 821 (167) 6,940 (6,406) 20,352 4,232 $ $ 19,455 $ 7,081 $ 50.0 58.4 2,456 $ 2,673 $ 24,584 3,439 76.7 81.3 Prior accident year development (pts) [2] [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. (2.8) (0.9) Current Accident Year Catastrophe Losses for the Year Ended December 31, 2018, Net of Reinsurance Wind and hail Winter storms Flooding Volcanic eruption Wildfire Hurricanes Massachusetts gas explosion Earthquake Total catastrophe losses Less: reinsurance recoverable under the property aggregate treaty [1] Commercial Lines Personal Lines Total $ 124 $ 164 $ 50 1 — 56 71 1 — 303 (28) 25 1 2 384 23 — 1 600 (54) Net catastrophe losses [1]Refers to reinsurance recoverable under the Company's Property Aggregate treaty. For further information on the treaty, refer to Part II, Item 7, MD&A — Enterprise 275 $ 546 $ $ 288 75 2 2 440 94 1 1 903 (82) 821 Risk Management — Insurance Risk. 60   Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Unfavorable (Favorable) Prior Accident Year Development for the Year Ended December 31, 2018 Workers’ compensation $ (164) $ — $ — $ (164) Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty Insurance Workers’ compensation discount accretion General liability Package business Commercial property Professional liability Bond Automobile liability Homeowners Net asbestos reserves Net environmental reserves Catastrophes Uncollectible reinsurance Other reserve re-estimates, net 40 52 (26) (12) (12) 2 (15) — — — (67) — 2 Total prior accident year development $ (200) $ — — — — — — (18) (25) — — 18 — (7) (32) $ — — — — — — — — — — — 22 43 40 52 (26) (12) (12) 2 (33) (25) — — (49) 22 38 65 $ (167) P&C Other Operations Total Reserves, Net of Reinsurance For discussion of the factors contributing to unfavorable (favorable) prior accident year reserve development, refer to Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. Property & Casualty Other Operations Net reserves and reserve activity in Property & Casualty Other Operations are categorized and reported as asbestos, environmental, and “all other”. The “all other” category of reserves covers a wide range of insurance and assumed reinsurance coverages, including, but not limited to, potential liability for construction defects, lead paint, silica, pharmaceutical products, head injuries, sexual molestation and sexual abuse and other long-tail liabilities. In addition to various insurance and assumed reinsurance exposures, "all other" includes unallocated loss adjustment expense reserves. "All other" also includes the Company’s allowance for uncollectible reinsurance. When the Company commutes a ceded reinsurance contract or settles a ceded reinsurance dispute, net reserves for the related cause of loss (including asbestos, environmental or all other) are increased for the portion of the allowance for uncollectible reinsurance attributable to that commutation or settlement. Asbestos and Environmental Reserves The vast majority of the Company's exposure to A&E relates to policy coverages provided prior to 1986, reported within the P&C Other Operations segment (“Run-off A&E”). In addition, since 1986, the Company has written asbestos and environmental exposures under general liability policies and pollution liability under homeowners policies, which are reported in the Commercial Lines and Personal Lines segments. 61 $1,686$1,686$1,520$1,520$1,302$1,302$551$526$513$151$120$87$984$874$702All otherEnvironmentalAsbestos12/31/1812/31/1912/31/20$0$500$1,000$1,500$2,000 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Run-off A&E Summary as of December 31, 2020 Gross Direct Asbestos Environmental Total A&E $ 1,252 $ 449 $ 1,701 Assumed Reinsurance 460 Total 1,712 67 516 527 2,228 Ceded- other than NICO (444) (97) (541) Ceded - NICO A&E ADC "Run-off"[1] (566) (332) (898) Net [1]Including $898 of ceded losses for Run-off A&E and a ($38) reduction in ceded 702 $ 87 $ $ 789 losses for Commercial Lines and Personal Lines, cumulative net incurred losses of $860 have been ceded to NICO under an adverse development cover reinsurance agreement. See the section that follows entitled A&E Adverse Development Cover for additional information. Rollforward of Run-off A&E Losses and LAE Asbestos Environmental 2020 Beginning liability — net $ 874 $ Losses and loss adjustment expenses incurred Losses and loss adjustment expenses paid Reclassification of allowance for uncollectible insurance [1] Ending liability — net 2019 Beginning liability — net Losses and loss adjustment expenses incurred Losses and loss adjustment expenses paid Reclassification of allowance for uncollectible insurance [1] $ $ (2) (172) 2 702 $ 984 $ — (111) 1 Ending liability — net $ 874 $ 2018 Beginning liability — net $ 1,143 $ Losses and loss adjustment expenses incurred Losses and loss adjustment expenses paid — (159) 120 — (33) — 87 151 — (32) 1 120 182 — (31) 151 Ending liability — net [1] Related to the reclassification of an allowance for uncollectible reinsurance from 984 $ $ the "all other" category of P&C Other Operations reserves. A&E Adverse Development Cover Effective December 31, 2016, the Company entered into an A&E ADC reinsurance agreement with NICO, a subsidiary of Berkshire, to reduce uncertainty about potential adverse development. Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss and allocated loss adjustment expense reserve development up to $1.5 billion above the Company’s existing net A&E reserves 62 as of December 31, 2016 of approximately $1.7 billion, including both Run-off A&E and A&E reserves in Commercial Lines and Personal Lines. The $650 reinsurance premium was placed in a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit. Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid have been recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid have resulted in a deferred gain. As of December 31, 2020, the Company has incurred a cumulative $860 in adverse development on A&E reserves that have been ceded under the A&E ADC treaty with NICO, including $898 for Run-off A&E reserves and ($38) for A&E reserves in Commercial Lines and Personal Lines. As such, $640 of coverage is available for future adverse net reserve development, if any. As a result, the Company has recorded a $210 deferred gain within other liabilities, representing the difference between the reinsurance recoverable of $860 and ceded premium paid of $650. The deferred gain is recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims will result in charges against earnings, which may be significant. Net and Gross Survival Ratios Net and gross survival ratios are a measure of the quotient of the carried reserves divided by average annual payments (net of reinsurance and on a gross basis) and is an indication of the number of years that carried reserves would last (i.e. survive) if future annual payments were consistent with the calculated historical average. Since December 31, 2016, asbestos and environmental net reserves have been declining since all adverse development has been ceded to NICO, up to a limit of $1.5 billion and the deferred gain on retroactive reinsurance has been recorded within other liabilities rather than in net loss and loss adjustment expense reserves. Recoveries from NICO will not be collected until the Company has cumulative loss payments of more than the $1.7 billion carrying value of net reserves as of December 31, 2016. Accordingly, the payment of losses without any current collection of recoveries from NICO has reduced the Company’s net loss reserves which decreases the net survival ratios such that, unadjusted, the net survival ratios would not be representative of the true number of years of average loss payments covered by the reserves. Therefore, the net survival ratios presented in the table below are calculated before considering the effect of the A&E ADC reinsurance agreement but net of other reinsurance in place.             Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net and Gross Survival Ratios One year net survival ratio [1] Three year net survival ratio [1] One year gross survival ratio Asbestos Environmental 7.3 8.6 6.8 12.7 13.1 13.2 12.5 Three year gross survival ratio [1] As of December 31, 2020, the one year net survival ratios after considering the reduction in reserves for losses ceded to the ADC were 4.1 and 2.6 for asbestos and environmental, respectively. As of December 31, 2020, the three year net survival ratios after considering the ADC were 4.7 and 2.7, respectively. 8.6 Run-off A&E Paid and Incurred Losses and LAE Development Asbestos Environmental Paid Losses & LAE Incurred Losses & LAE Paid Losses & LAE Incurred Losses & LAE $ 252 $ 170 $ 40 $ 141 (80) (40) (7) (35) — (132) — (106) 172 $ (2) $ 33 $ — 131 $ 115 $ 39 $ 95 (20) (39) — (76) (7) — 111 $ — $ 32 $ (39) (56) — 213 $ 249 $ 47 $ 83 $ $ $ $ 2020 Gross Ceded- other than NICO Ceded - NICO A&E ADC Net 2019 Gross Ceded- other than NICO Ceded - NICO A&E ADC Net 2018 Gross Ceded- other than NICO Ceded - NICO A&E ADC (54) (85) (16) — (164) — (12) (71) — Net $ 159 $ — $ 31 $ Annual Reserve Reviews Review of Asbestos and Environmental Reserves The Company performs its regular comprehensive annual review of asbestos and environmental reserves in the fourth quarter, including both Run-off A&E (P&C Other Operations) and asbestos and environmental reserves included in Commercial Lines and Personal Lines. As part of the evaluation of asbestos and environmental reserves in the fourth quarter of 2020, the Company reviewed all of its open direct domestic insurance accounts exposed to asbestos and environmental liability, as well as assumed reinsurance accounts. 2020 comprehensive annual reviews As a result of the 2020 fourth quarter review, the Company increased estimated asbestos reserves before NICO reinsurance in P&C Other Operations by $130, primarily due to an increase in the rate of asbestos claims settlements for both mesothelioma 63 and non-mesothelioma claims. In addition, average settlement values and defense costs were higher than anticipated, driven by elevated plaintiff demands. Overall, the number of claim filings in the period covered by the 2020 study was roughly flat with the 2019 study, driven by an increase in non-mesothelioma claim filings, while the number of mesothelioma claim filings decreased as expected. The increase in asbestos reserves was offset by $132 reinsurance recoverable under the NICO treaty, recognizing ($2) in reserve releases not subject to the NICO treaty. As a result of the 2020 fourth quarter review, the Company increased estimated environmental reserves before NICO reinsurance in P&C Other Operations by $106, primarily due to an increasing number of claims and suits alleging contamination from or exposure to per & polyfluoroalkyl substances ("PFAS"). In addition, higher than anticipated remediation costs and legal defense costs also contributed to the reserve increase. The increase in environmental reserves was offset by a $106 reinsurance recoverable under the NICO treaty. The total $236 increase in asbestos and environmental reserves in P&C Other Operations was offset by a $238 reinsurance recoverable under the NICO treaty, with a ($2) release in asbestos reserves not subject to the NICO treaty. Including a reduction of asbestos and environmental reserves in Commercial Lines and Personal Lines, the net increase in A&E reserves ceded to the A&E ADC in 2020 was $220 offset by a $220 increase in reinsurance recoverables under the NICO treaty. However, since cumulative losses ceded to the A&E ADC of $860 exceed the $650 of ceded premium paid, the Company recognized a $210 increase in deferred gain on retroactive reinsurance, resulting in the Company recording a charge to earnings of $208 in 2020, consisting of the $210 deferred gain net of the $2 of favorable development on A&E reserves not subject to the NICO treaty. 2019 comprehensive annual reviews During the 2019 fourth quarter review, the Company increased estimated asbestos reserves before NICO reinsurance in P&C Other Operations by $76, primarily due to an increase in average settlement values, most notably from mesothelioma claims, driven by elevated plaintiff demands. In addition, cost-sharing agreements and settlements with certain insureds reduced the uncertainty of the Company’s asbestos liability but resulted in a reserve increase. Partially offsetting the adverse development was a decrease in the number of claim filings, most notably from mesothelioma claims. The increase in reserves was offset by a $76 reinsurance recoverable under the NICO treaty. As a result of the 2019 fourth quarter review, the Company increased estimated environmental reserves before NICO reinsurance in P&C Other Operations by $56, primarily due to regulatory remediation requirements that changed in 2019 for certain sites polluted by coal ash and resulted in more costly and extensive remediation plans, a higher than anticipated number of claims associated with PFAS, and increased defense and cleanup costs associated with Superfund sites. The increase in environmental reserves was offset by a $56 reinsurance recoverable under the NICO treaty. The total $132 increase in asbestos and environmental reserves in P&C Other Operations was offset by a $132 reinsurance recoverable under the NICO treaty. Including a reduction of asbestos and environmental reserves in Commercial Lines and Personal Lines, the net increase in A&E reserves in 2019 was $117 offset by a $117 increase in reinsurance recoverables under the NICO treaty.                 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For information regarding the 2018 comprehensive annual review, refer to Part 2, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in The Hartford’s 2019 Form 10-K Annual Report. Major Categories of Asbestos Accounts Direct asbestos exposures include both Known and Unallocated Direct Accounts. • Known Direct Accounts- includes both Major Asbestos Defendants and Non-Major Accounts, and represent approximately 71% of the Company's total Direct gross asbestos reserves as of December 31, 2020 compared to approximately 73% as of December 31, 2019. Major Asbestos Defendants have been defined as the “Top 70” accounts in Tillinghast's published Tiers 1 and 2 and Wellington accounts, while Non-Major accounts are comprised of all other direct asbestos accounts and largely represent smaller and more peripheral defendants. Major Asbestos Defendants have the fewest number of asbestos accounts. • Unallocated Direct Accounts- includes an estimate of the reserves necessary for asbestos claims related to direct insureds that have not previously tendered asbestos claims to the Company and exposures related to liability claims that may not be subject to an aggregate limit under the applicable policies. These exposures represent approximately 29% of the Company's Direct gross asbestos reserves as of December 31, 2020 compared to approximately 27% as of December 31, 2019. Review of "All Other" Reserves in Property & Casualty Other Operations Prior year development on all other reserves resulted in increases of $50, $21 and $65, respectively for calendar years 2020, 2019 and 2018. Included in the 2020 adverse reserve development was a $35 increase in reserves for unallocated loss adjustment expenses ("ULAE"), primarily due to an increase in expected aggregate claim handling costs associated with asbestos and environmental claims, as well as higher than anticipated unallocated loss adjustment expenses in recent years, prompting an increase in the projected run rate expense. In addition, elevated claim activity related to certain mass torts and assumed residual value policies contributed to the overall reserve increases, offset by favorable development from previously disputed or potentially uncollectible reinsurance. The Company provides an allowance for uncollectible reinsurance, reflecting management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. In performing its assessment, the Company evaluates the collectibility of the reinsurance recoverables and the adequacy of the allowance for uncollectible reinsurance associated with older, long-term casualty liabilities reported in Property & Casualty Other Operations. In conducting these evaluations, the company used its most recent detailed evaluations of ceded liabilities reported in the segment. The Company analyzed the overall credit quality of the Company’s reinsurers, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers, and recent developments in commutation activity between reinsurers and cedants. As of 2020, 2019, and 2018 the allowance for uncollectible reinsurance for Property & Casualty Other Operations totaled $60, $71 and $105, respectively. Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, particularly for older, long-term casualty liabilities, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required. Impact of Re-estimates on Property and Casualty Insurance Product Reserves Estimating property and casualty insurance product reserves uses a variety of methods, assumptions and data elements. Ultimate losses may vary materially from the current estimates. Many factors can contribute to these variations and the need to change the previous estimate of required reserve levels. Prior accident year reserve development is generally due to the emergence of additional facts that were not known or anticipated at the time of the prior reserve estimate and/or due to changes in interpretations of information and trends. The table below shows the range of annual reserve re-estimates experienced by The Hartford over the past ten years. The amount of prior accident year development (as shown in the reserve rollforward) for a given calendar year is expressed as a percent of the beginning calendar year reserves, net of reinsurance. The ranges presented are significantly influenced by the facts and circumstances of each particular year and by the fact that only the last ten years are included in the range. Accordingly, these percentages are not intended to be a prediction of the range of possible future variability. For further discussion of the potential for variability in recorded loss reserves, see Preferred Reserving Methods by Line of Business and Impact of Key Assumptions on Reserves sections. Range of Prior Accident Year Unfavorable (Favorable) Development for the Ten Years Ended December 31, 2020 Commercial Lines Personal Lines Property & Casualty Other Operations Total Property & Casualty [1] Annual range of prior accident year unfavorable (favorable) development for the ten years ended December 31, 2020 [1]Excluding the reserve increases for asbestos and environmental reserves, over the past ten years, reserve re-estimates for total property and casualty insurance ranged from (1.5%) (20.5%) - 8.3% (1.3%) - 1.0% (0.8%) - 2.4% 0.9% - 17.0% to 1.0%. The potential variability of the Company’s property and casualty insurance product reserves would normally be expected to vary by segment and the types of loss exposures insured by those segments. Illustrative factors influencing the potential reserve 64 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations variability for each of the segments are discussed under Critical Accounting Estimates for Property & Casualty Insurance Product Reserves and Asbestos and Environmental Reserves. See the section entitled Property & Casualty Other Operations, Annual Reserve Reviews about the impact that the A&E ADC retroactive reinsurance agreement with NICO may have on net reserve changes of asbestos and environmental reserves going forward. The following table summarizes the effect of reserve re- estimates, net of reinsurance, on calendar year operations for the ten-year period ended December 31, 2020. The total of each column details the amount of reserve re-estimates made in the indicated calendar year and shows the accident years to which the re-estimates are applicable. The amounts in the total column on the far right represent the cumulative reserve re-estimates during the ten year period ended December 31, 2020 for the indicated accident year in each row. This table does not include Navigators Group reserve re-estimates for periods prior to the acquisition of the business on May 23, 2019. Effect of Net Reserve Re-estimates on Calendar Year Operations By Accident Year 2010 & Prior 2011 2012 2013 2014 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Calendar Year $ 367 $ (40) $ 25 $ 330 $ 350 $ 316 $ 87 $ (37) $ 38 $ 499 $ 1,935 36 148 (4) 12 19 — (98) (55) (43) (14) (6) (35) (29) 20 6 (12) (33) (19) 11 (15) (2) (54) (19) (15) (26) (29) (10) 174 (25) (138) (8) (239) (25) (121) 2015 67 (9) 2016 (55) (29) 2017 (276) (169) 2018 (190) (268) 2019 (92) (92) (81) $ (136) $ 1,065 Increase (decrease) in net reserves [1] [2] $ 367 $ [1]For the 2020 and 2019 calendar years, net favorable prior accident year development recognized in the Consolidated Statement of Operations was $(448) rather than $(136) and $65 rather than $81, respectively, as shown in this table as the Company recognized a $312 and $16 deferred gain on retroactive reinsurance. For additional information regarding the two adverse development cover reinsurance agreements, refer to Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. (4) $ 192 $ 228 $ 250 $ 457 $ 19 (11) (116) 78 (93) 14 9 (41) $ (167) $ (41) (29) 191 [2]For calendar years before 2017, the 2010 and prior accident year development includes adverse development for A&E reserves. Beginning with the 2017 calendar year, A&E reserve development has been ceded to NICO. The commentary below explains, by accident year, the total prior accident year development recognized over the past 10 years. Accident years 2010 and Prior The net increases in estimates of ultimate losses for accident years 2010 and prior are driven mostly by increased reserves for asbestos and environmental reserves, and also by increased estimates for customs bonds, sexual molestation and sexual abuse and other mass torts claims. Partially offsetting these reserve increases was favorable development in general liability and personal automobile liability. Accident year 2011 Unfavorable changes in estimates of ultimate losses on accident year 2011 were primarily related to workers' compensation and commercial automobile liability. Workers' compensation loss cost trends were higher than initially expected as an increase in frequency outpaced a moderation of severity trends. Unfavorable commercial automobile liability reserve re-estimates were driven by higher frequency of large loss bodily injury claims. Accident years 2012 and 2013 Estimates of ultimate losses were decreased for accident years 2012 and 2013 due to favorable frequency and/or medical severity trends for workers’ compensation and favorable professional liability claim emergence. Favorable emergence of property lines of business, including catastrophes, for the 2013 accident year, is partially offset by increased reserves in automobile liability due to increased severity of large claims. Accident years 2014 and 2015 Changes in estimates of ultimate losses for accident years 2014 and 2015 were largely driven by unfavorable frequency and severity trends for personal and commercial automobile liability, increased severity of liability claims on package business and increased estimated severity on the acquired Navigators Group book of business related to U.S. construction, premises liability, products liability and excess casualty offset by favorable frequency and medical severity trends for workers' compensation. Accident year 2016 Estimates of ultimate losses were decreased for the 2016 accident year largely due to reserve decreases on short-tail lines of business, where results emerge more quickly, and workers’ compensation due to lower estimated claim severity, somewhat offset by unfavorable reserve estimates for higher hazard general liability exposures due to increased frequency and severity trends, higher estimated severity in middle & large commercial and on the acquired Navigators Group book of business related to U.S. construction, premises liability, products liability and excess casualty. Accident year 2017 Ultimate loss estimates were decreased for the 2017 accident year mainly due to release of reserves related to catastrophes, lower reserve estimates in personal automobile liability due to emergence of lower estimated severity and lower reserve estimates for workers’ compensation related to lower than previously estimated claim severity , somewhat offset by 65                           Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations increases in estimates of ultimate losses in general liability and bond. Partially offsetting was an increase to general liability reserves that was related to high hazard exposures which experienced increased frequency and severity trends. In addition, unfavorable bond reserve re-estimates were driven by large claims. On the Navigators Group book of business, reserve increases for professional liability were related to large syndicate D&O losses. Accident year 2018 Ultimate loss estimates were decreased for the 2018 accident year mainly due to reduction in estimated catastrophe reserves for California wildfires and for various wind and hail events. Reserve estimates were also reduced, to a lesser extent, for personal automobile liability which decreased due to lower than previously expected claim severity. These reserve decreases were slightly offset by increases in commercial automobile liability, professional liability and general liability. Commercial automobile liability reserve increases were related to higher estimated severity on middle & large commercial. Increases in general liability reserves for middle market and complex liability claims were also largely due to higher than previously expected severity. On the Navigators Group book of business, reserve increases for professional liability were related to large loss activity and increased estimated severity on directors and officers reserves. Accident year 2019 Ultimate loss estimates were decreased for the 2019 accident year mainly due to favorable emergence of property lines of business, mainly related to catastrophes, slightly offset by increases in commercial automobile liability reserves due to higher than expected large losses in middle & large commercial. Group Benefit LTD Reserves, Net of Reinsurance The Company establishes reserves for group life and accident & health contracts, including long-term disability coverage, for both reported claims and claims related to insured events that the Company estimates have been incurred but have not yet been reported. As long-term disability reserves are long-tail claim liabilities, they are discounted because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The Company held $6,494 and $6,616 of LTD unpaid losses and loss adjustment expenses, net of reinsurance, as of December 31, 2020 and 2019, respectively. Reserving Methodology How Reserves are Set - A Disabled Life Reserve ("DLR") is calculated for each LTD claim. The DLR for each claim is the expected present value of all future benefit payments starting with the known monthly gross benefit which is reduced for estimates of the expected claim recovery due to return to work or claimant death, offsets from other income including offsets from Social Security benefits, and discounting where the discount rate is tied to expected investment yield at the time the claim is incurred. Estimated future benefit payments represent the monthly income benefit that is paid until recovery, death or expiration of benefits. Claim recoveries are estimated based on claim characteristics such as age and diagnosis and represent an estimate of benefits that will terminate, generally as a result of the claimant returning to work or being deemed able to return to work. For claims recently closed due to recovery, a portion of the 66 DLR is retained for the possibility that the claim reopens upon further evidence of disability. In addition, a reserve for estimated unpaid claim expenses is included in the DLR.  The DLR also includes a liability for potential payments to pending claimants beyond the elimination period who have not yet been approved for LTD. In these cases, the present value of future benefits is reduced for the likelihood of claim denial based on Company experience. Estimates for incurred but not reported ("IBNR") claims are made by applying completion factors to expected emerged experience by line of business. Included within IBNR are bulk reserves for claims reported but still within the waiting period until benefits are paid, typically 3 or 6 months depending on the contract. Completion factors are derived from standard actuarial techniques using triangles that display historical claim count emergence by incurral month. These estimates are reviewed for reasonableness and are adjusted for current trends and other factors expected to cause a change in claim emergence. The reserves include an estimate of unpaid claim expenses, including a provision for the cost of initial set-up of the claim once reported. For all products, including LTD, there is a period generally ranging from two to twelve months, depending on the product and line of business, where emerged claims for an incurral year are not yet credible enough to be a basis for estimating reserves. In these cases, the ultimate loss is estimated using earned premium multiplied by an expected loss ratio based on pricing assumptions of claim incidence, claim severity, and earned pricing. Impact of Key Assumptions on Reserves The key assumptions affecting our group life and accident & health reserves including disability include: Discount Rate - The discount rate is the interest rate at which expected future claim cash flows are discounted to determine the present value. A higher selected discount rate results in a lower reserve. If the discount rate is higher than our future investment returns, our invested assets will not earn enough investment income to cover the discount accretion on our claim reserves which would negatively affect our profits. For each incurral year, the discount rates are estimated based on investment yields expected to be earned net of investment expenses. The incurral year is the year in which the claim is incurred and the estimated settlement pattern is determined. Once established, discount rates for each incurral year are unchanged except that LTD reserves assumed from the acquisition of Aetna's U.S. group life and disability business are all discounted using rates as of the November 1, 2017 acquisition date. The weighted average discount rate on LTD reserves was 3.4% in 2020 and 2019. Had the discount rate for each incurral year been 10 basis points lower at the time they were established, our LTD unpaid loss and loss adjustment expense reserves would be higher by $29, pretax, as of December 31, 2020. Claim Termination Rates (inclusive of mortality, recoveries, and expiration of benefits) - Claim termination rates are an estimate of the rate at which claimants will cease receiving benefits during a given calendar year. Terminations result from a number of factors, including death, recoveries and expiration of benefits. The probability that benefits will terminate in each future month Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for each claim is estimated using a predictive model that uses past Company experience, contract provisions, job characteristics and other claimant-specific characteristics such as diagnosis, time since disability began, and age. Actual claim termination experience will vary from period to period. Over the past 9 years, claim termination rates for a single incurral year have generally increased and have ranged from 6% below to 7% above current assumptions over that time period. For a single recent incurral year (such as 2020), a one percent decrease in our assumption for LTD claim termination rates would increase our reserves by $9. For all incurral years combined, as of December 31, 2020, a one percent decrease in our assumption for our LTD claim termination rates would increase our Group Benefits unpaid losses and loss adjustment expense reserves by $22. Impact of COVID-19 on 2020 Results of Operations Within Group Benefits, the Company experienced excess mortality in its group life business of $239 in 2020, primarily caused by direct and indirect impacts of COVID-19. Within the group disability business, in 2020 the Company recognized $29 of COVID-19 direct losses from short-term disability claims, more than offset by $38 of favorable frequency on other short-term disability claims. Current Trends Contributing to Reserve Uncertainty We hedge our interest rate exposure over a three year period at the time we price and sell long-term disability policies and our weighted average discount rate assumption for the 2020 incurral year is up slightly from that of the 2019 incurral year. While we have not seen a significant change in claim recovery patterns to date, in future periods, because of COVID-19, we could experience a delay in the Social Security Administration’s processing of disability claims and a delay in physicians approving a disability claimant’s ability to return to work, resulting in lower expected claim terminations or recoveries, including Social Security offsets. Also, due to the effects on the economy, including higher unemployment, we could experience an increase in claim incidence on long-term disability claims. Evaluation of Goodwill for Impairment Goodwill balances are reviewed for impairment at least annually, or more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred. Effective January 1, 2020, the Company adopted updated accounting guidance on recognition and measurement of goodwill impairment, as required. The updated guidance requires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reporting unit over its estimated fair value, up to the amount of the reporting unit’s goodwill. The estimated fair value of each reporting unit incorporates multiple inputs into discounted cash flow calculations including assumptions that market participants would make in valuing the reporting unit. Assumptions include levels of economic capital, future business growth, earnings projections, assets under management for Hartford Funds and the weighted average cost of capital used for purposes of discounting. Decreases in business 67 growth, decreases in earnings projections and increases in the weighted average cost of capital will all cause a reporting unit’s fair value to decrease, increasing the possibility of impairment. A reporting unit is defined as an operating segment or one level below an operating segment. The Company’s reporting units, for which goodwill has been allocated consist of Commercial Lines, Personal Lines, Group Benefits and Hartford Funds. The carrying value of goodwill was $1,911 as of December 31, 2020 and was comprised of $659 for Commercial Lines, $119 for Personal Lines, $861 for Group Benefits, and $272 for Hartford Funds. The annual goodwill assessment for the reporting units was completed as of October 31, 2020, and resulted in no write- downs of goodwill for the year ended December 31, 2020. All reporting units passed the annual impairment test with a significant margin. For information regarding the 2019 and 2018 impairment tests see Note 11 - Goodwill & Other Intangible Assets of Notes to Consolidated Financial Statements. Due to the continuing impacts in the economy because of the COVID-19 pandemic, near-term expected net cash flows over the forecast period reflect estimated COVID-19 claims and economic effects of the pandemic. Considering the impacts of COVID-19, if the weighted average cost of capital used for purposes of discounting increases significantly or if the economic downturn worsens or persists for an extended period and the Company's actual and forecasted operating results deteriorate, the Company may determine it is more likely than not that a reporting unit's fair value is below its carrying value, including goodwill, which could result in an impairment of goodwill. Valuation of Investments and Derivative Instruments Fixed Maturities, Equity Securities, Short-term Investments, and Derivatives The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources which are listed in priority order: quoted prices, prices from third-party pricing services, internal matrix pricing, and independent broker quotes. The fair value of derivative instruments are determined primarily using a discounted cash flow model or option model technique and incorporate counterparty credit risk. In some cases, quoted market prices for exchange-traded transactions and transactions cleared through central clearing houses ("OTC-cleared") may be used and in other cases independent broker quotes may be used. For further discussion, see the Fixed Maturities, Equity Securities, Short-term Investments and Derivatives section in Note 5 - Fair Value Measurements of Notes to Consolidated Financial Statements. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Evaluation of Credit Losses on Fixed Maturities, AFS and ACL on Mortgage Loans Each quarter, a committee of investment and accounting professionals evaluates investments to determine if a credit loss is present for fixed maturities, AFS or an ACL is required for mortgage loans. This evaluation is a quantitative and qualitative process, which is subject to risks and uncertainties. For further discussion of the accounting policies, see the Significant Investment Accounting Policies Section in Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements. For a discussion of credit losses recorded, see the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments and ACL on Mortgage Loans sections within the Investment Portfolio Risks and Risk Management section of the MD&A. Contingencies Relating to Corporate Litigation and Regulatory Matters Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management establishes reserves for these contingencies at its “best estimate,” or, if no one number within the range of possible losses is more probable than any other, the Company records an estimated reserve at the low end of the range of losses. The Company has a quarterly monitoring process involving legal and accounting professionals. Legal personnel first identify outstanding corporate litigation and regulatory matters posing a reasonable possibility of loss. These matters are then jointly reviewed by accounting and legal personnel to evaluate the facts and changes since the last review in order to determine if a provision for loss should be recorded or adjusted, the amount that should be recorded, and the appropriate disclosure. The outcomes of certain contingencies currently being evaluated by the Company, which relate to corporate litigation and regulatory matters, are inherently difficult to predict, and the reserves that have been established for the estimated settlement amounts are subject to significant changes. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of the Company. In view of the uncertainties regarding the outcome of these matters, as well as the tax-deductibility of payments, it is possible that the ultimate cost to the Company of these matters could exceed the reserve by an amount that would have a material adverse effect on the Company’s consolidated results of operations and liquidity in a particular quarterly or annual period. 68 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations SEGMENT OPERATING SUMMARIES Results of Operations COMMERCIAL LINES Underwriting Summary Written premiums Change in unearned premium reserve Earned premiums Fee income Losses and loss adjustment expenses 2020 2019 2018 $ 8,969 $ 8,452 $ 7,136 59 162 89 8,910 8,290 7,047 30 35 34 Current accident year before catastrophes 5,488 4,913 4,037 Current accident year catastrophes [1] Prior accident year development [1] Total losses and loss adjustment expenses Amortization of DAC Underwriting expenses Amortization of other intangible assets Dividends to policyholders Underwriting (loss) gain Net servicing income Net investment income [2] Net realized capital gains (losses) [2] Loss on reinsurance transaction Other (expenses) Income before income taxes Income tax expense [3] Net income 397 44 5,929 1,397 1,594 28 29 (37) 4 323 (44) 5,192 1,296 1,600 18 30 189 2 1,160 1,129 (60) 271 — (35) (91) (38) 1,032 1,462 275 (200) 4,112 1,048 1,369 4 23 525 2 997 (43) — (2) 1,479 176 267 270 856 $ 1,192 $ 1,212 $ Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 6% (64%) 7% (14%) 12% 23% NM 14% 8% —% 56% (3%) (120%) 100% 3% (122%) 100% 8% (29%) (35%) (28%) 18% 82% 18% 3% 22% 17% 78% 26% 24% 17% NM 30% (64%) —% 13% NM NM NM (1%) 1% (2%) [1]For discussion of 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 12- Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. [2]For discussion of consolidated investment results, see MD&A - Investment Results. [3]For discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements. 69 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Small Commercial: Net new business premium Policy count retention Renewal written price increases Renewal earned price increases Premium retention Premium Measures 2020 2019 2018 $ 557 $ 646 $ 600 84 % 2.0 % 2.3 % 84 % 83 % 1.8 % 1.9 % 85 % 82 % 2.5 % 3.8 % 84 % Policies in-force as of end of period (in thousands) 1,283 1,291 1,271 Middle Market [1]: Net new business premium Policy count retention Renewal written price increases Renewal earned price increases Premium retention Policies in-force as of end of period (in thousands) Global Specialty: Global specialty gross new business premium [2] U.S. global specialty renewal written price increases U.S. global specialty renewal earned price increases [1]Middle market disclosures exclude loss sensitive and programs businesses. [2]Excludes Global Re and Continental Europe Operations and is before ceded reinsurance. Underwriting Ratios $ 479 $ 584 $ 540 80 % 3.8 % 2.7 % 84 % 62 78 % 2.0 % 1.7 % 83 % 64 78 % 7.4 % 6.4 % 77 % 59 752 17.6 % 13.1 % $ Loss and loss adjustment expense ratio Current accident year before catastrophes Current accident year catastrophes Prior accident year development Total loss and loss adjustment expense ratio Expense ratio Policyholder dividend ratio Combined ratio 2020 2019 2018 61.6 4.5 0.5 66.5 33.5 0.3 100.4 59.3 3.9 57.3 3.9 (0.5) (2.8) 62.6 34.7 0.4 97.7 58.4 33.9 0.3 92.6 Impact of current accident year catastrophes and prior year development (5.0) (3.4) (1.1) Impact of current accident year change in loss reserves upon acquisition of a business [1] — (0.3) — Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 2.3 0.6 1.0 3.9 (1.2) (0.1) 2.7 (1.6) 0.3 2.0 — 2.3 4.2 0.8 0.1 5.1 (2.3) (0.3) 2.5 Underlying combined ratio [1]Upon acquisition of Navigators Group and a review of Navigators Insurers reserves, the year ended December 31, 2019 included $68 of prior accident year reserve increases and 94.0 95.5 91.5 1.5 $29 of current accident year reserve increases which were excluded for the purposes of the underlying combined ratio calculation. 2021 Outlook The Company expects higher Commercial Lines written premiums in 2021, with growth across small commercial, middle & large commercial, and global specialty. In small commercial, policy retention is expected to remain strong with new business growth across all lines of business. Assuming the economy recovers with the rollout of vaccines, we expect an increase in insured exposures, including from higher payrolls on workers’ compensation policies. In middle & large commercial, assuming a continued economic recovery, we expect written premium growth in our general industries book of business driven by new business growth and an increase in insured exposures and that we will generate new business growth in specialized industries as well as with large and complex solutions. In global specialty, premium growth in 2021 is expected primarily in wholesale and financial lines benefiting from written pricing increases. In 2021, management expects positive renewal written pricing in all lines of business except workers' compensation, with workers' compensation pricing expected to be flat to slightly positive in middle market and down in small commercial. In small commercial 70       Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and middle & large commercial, high-single digit rate increases are expected to continue in commercial auto, general liability and property. In global specialty, in 2021, we expect written pricing increases in the high teens in international, low double-digits in wholesale and high single digits in US financial lines. Written pricing increases in 2021 in lines other than workers’ compensation are driven by a number of factors including the effects of social inflation, increased catastrophe losses due to changing weather patterns, and a prolonged low interest rate environment, that puts added pressure on the need for underwriting profits to make up for the lost investment yield. The Company expects the Commercial Lines combined ratio will be between approximately 93.5 and 95.5 for 2021, compared to 100.4 in 2020, primarily due to lower current accident year catastrophe losses expected in 2021 and lower COVID-19 incurred claims. The underlying combined ratio is expected to be lower as fewer COVID-19 claims are expected in 2021 as we emerge from the pandemic. Apart from lower expected COVID-19 claims, earned pricing increases in excess of moderate increases in loss costs in most lines will be partially offset by continued margin compression in small commercial workers’ compensation, while the expense ratio is expected to improve by nearly a point. Current accident year catastrophes are assumed to be 3.1 points of the combined ratio in 2021 compared to 4.5 points in 2020. Net Income Underwriting Gain (Loss) Year ended December 31, 2020 compared to the year ended December 31, 2019 Underwriting loss in 2020 compared with an underwriting gain in 2019 with the underwriting loss in 2020 primarily due to COVID-19 incurred losses in property, workers’ compensation and financial and other lines, higher current accident year catastrophes, a change from net favorable prior accident year development in 2019 to net unfavorable prior accident year development in 2020 and the effect of lower earned premiums excluding the effect of the Navigators acquisition. Underwriting expenses were down slightly as a decrease in incentive compensation, benefits costs, commissions and travel costs were largely offset by the inclusion of Navigators for a full twelve months in 2020, an increase in the ACL on premiums receivable in 2020 due to the economic impacts of COVID-19 and the effect of a reduction in state taxes and assessments in 2019. In 2020, the acquisition of Navigators Group contributed to an increase in earned premiums with a corresponding increase to losses and loss adjustment expenses, amortization of DAC and underwriting expenses. Year ended December 31, 2020 compared to the year ended December 31, 2019 Net income decreased primarily due to a change from an underwriting gain in 2019 to an underwriting loss in 2020 and a change from net realized capital gains in 2019 to net realized capital losses in 2020, partially offset by higher net investment income. Also partially offsetting the decline in net income was $91 before tax of ADC ceded premium in the prior year period. For further discussion of investment results, see MD&A - Investment Results. 71 $1,212$1,192$856201820192020$0$500$1,000$1,500$525$189$(37)201820192020$-200$0$200$400$600Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Earned Premiums automobile. The international lines also achieved strong price increases, led by D&O. New business premium decreased in 2020 in most lines driven by lower quote volume due to the economic effects of COVID-19 and a competitive pricing environment, though to a lesser extent in the second half of 2020. Also contributing to the decrease in new business in small commercial was the effect of new business from the 2018 Foremost renewal rights agreement in 2019. • Small commercial written premium declined in 2020 driven by a decrease in workers compensation, partially offset by growth in package business. • Middle & large commercial written premium decreased in 2020 driven by lower new business and premium retention across all lines, partially offset by the acquisition of Navigators Group. Middle & large commercial premium decreases in 2020 were primarily driven by declines in general industries, driven by underwriting actions to improve the profitability of that book, as well as in industry verticals and national accounts, partially offset by growth in specialty and commercial excess lines. • Global specialty written premium increased in 2020 with the increase driven by the acquisition of Navigators Group. Apart from Navigators Group, written premium decreased slightly in 2020 due to a decline in wholesale and bond business, partially offset by growth in professional liability. Current Accident Year Loss and LAE Ratio before Catastrophes [1]Other of $43, $42, and $45 for 2020, 2019, and 2018, respectively, is included in the total. Year ended December 31, 2020 compared to the year ended December 31, 2019 Earned premiums increased in 2020 with the increase in reflecting a full twelve months of premium from the acquisition of Navigators Group. Excluding Navigators, earned premiums declined in 2020, with decreases in both small commercial and in middle & large commercial. Written premiums increased in 2020 with the growth attributable to the acquisition of Navigators Group. Excluding Navigators, written premiums declined in 2020 due to the economic impacts of COVID-19, including lower new business across most lines as well as reductions in estimated audit premiums and endorsements reducing premium in workers’ compensation due to a declining exposure base, partially offset by continued written pricing increases in all lines except workers' compensation. In small commercial, renewal written price increases were slightly higher in 2020 than 2019, with mid-single digit to high single-digit rate increases in most lines, largely offset by written pricing decreases in workers’ compensation. In middle market, higher written pricing increases in 2020 were mostly due to double digit rate increases in middle market automobile and specialty excess liability lines and mid-single digit to high single-digit rate increases in most other middle market lines. In global specialty, our US wholesale book achieved an approximate 25% renewal written price increase, led by excess casualty, property and 72 $7,047$7,047$8,290$8,290$8,910$8,910$605$1,547$2,241$2,746$2,983$2,976$3,651$3,718$3,650Global SpecialtyMiddle & Large CommercialSmall CommercialOther [1]201820192020$0$2,000$4,000$6,000$8,000$10,00057.359.361.6201820192020010203040506070Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Year ended December 31, 2020 compared to the year ended December 31, 2019 Current Accident Year Loss and LAE ratio before catastrophes increased in 2020, primarily due to COVID-19 incurred losses, net of favorable non-COVID-19 workers' compensation frequency as well as a slightly higher loss ratio in small commercial workers' compensation, partially offset by lower non-catastrophe property losses and margin improvement in the Navigators book, primarily in wholesale and global re. 2020 included COVID-19 incurred losses of $278 before tax, including losses of $141 in property, $66 in workers’ compensation, net of favorable frequency on other workers' compensation claims, and $71 in financial and other lines. Included in the $141 of COVID-19 property incurred losses and loss adjustment expenses in 2020 were $101 of losses arising from a small number of property policies that do not require direct physical loss or damage and from policies intended to cover specific business needs, including crisis management and performance disruption. In addition, we recorded a reserve of $40 for legal defense costs in 2020. Workers’ compensation COVID-19 incurred losses in 2020 were driven by claims in both states with presumptive coverage and in other states where the claimant must prove their COVID-19 illness was contracted at work. Financial lines COVID-19 claims in 2020 were primarily driven by exposures in D&O, E&O and employment practices liability and the recessionary impacts on the surety book of business. Catastrophes and Unfavorable (Favorable) Prior Accident Year Development Year ended December 31, 2020 compared to the year ended December 31, 2019 Current accident year catastrophe losses for 2020 were primarily from civil unrest, a number of hurricanes and tropical storms, Pacific Coast wildfires, and Northeast windstorms as well as tornado, wind and hail events in the South, Midwest and Central Plains. Catastrophe losses for 2019 were primarily from tornado, wind and hail events in various areas of the Midwest, Mountain West and Southeast and, to a lesser extent, winter storms in the northern plains, Midwest and Northeast. Prior accident year development was a net unfavorable $44 before tax in 2020 compared to a net favorable $44 before tax in the comparable 2019 period. Net unfavorable reserve development for 2020 included reserve increases for general liability driven primarily by increases in reserves for sexual molestation and sexual abuse claims, and increases in commercial automobile liability reserves, partially offset by net reserve decreases for catastrophes, workers' compensation and package business. Favorable development on prior year catastrophe reserves in 2020 was due to recognizing a $29 before tax subrogation benefit from a settlement with PG&E over certain of the 2017 and 2018 California wildfires and a reduction in estimated catastrophe losses from a number of wind and hail events that occurred in 2017, 2018 and 2019. Prior accident year development in 2020 also included $102 of 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. Net reserve decreases for 2019 were primarily related to lower loss reserve estimates for workers' compensation claims, package business reserves and catastrophes, partially offset by a $68 before tax increase to Navigators Group reserves upon acquisition of the business and increases in reserves for automobile liability and general liability. The increase in Navigators Group reserves upon acquisition of the business principally related to higher reserve estimates for general liability, professional liability and marine. 73 $275$323$397$(200)$(44)$44CAY CATsPYD201820192020$-300$-200$-100$0$100$200$300$400Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations PERSONAL LINES Underwriting Summary Written premiums Change in unearned premium reserve Earned premiums Fee income Losses and loss adjustment expenses Current accident year before catastrophes Current accident year catastrophes [1] Prior accident year development [1] Total losses and loss adjustment expenses Amortization of DAC Underwriting expenses Amortization of other intangible assets Underwriting gain (loss) Net servicing income [2] Net investment income [3] Net realized capital gains (losses) [3] Other expenses Income (loss) before income taxes Income tax expense (benefit) [4] Net income (loss) 2020 2019 2018 $ 2,936 $ 3,131 $ 3,276 (72) (67) 3,008 34 3,198 37 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 (6%) (7%) (6%) (8%) (19%) 49% NM (33%) (6%) (5%) (33%) NM 8% (12%) (112%) —% 129% 142% 126% (4%) 46% (6%) (8%) (7%) (74%) (31%) (21%) (6%) 2% 50% 175% (19%) 15% NM —% NM NM NM (123) 3,399 40 2,249 546 (32) 2,087 140 (42) 2,185 2,763 259 625 6 160 13 179 43 (1) 394 76 318 $ 275 611 4 (214) 16 155 (7) (1) (51) (19) (32) 1,695 209 (438) 1,466 244 591 4 737 14 157 (5) (1) 902 184 718 $ $ [1]For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance. [2]Includes servicing revenues of $81, $83, and $84 for 2020, 2019, and 2018, respectively and includes servicing expenses of $67, $70, and $68 for 2020, 2019, and 2018, respectively. [3]For discussion of consolidated investment results, see MD&A - Investment Results. [4]For discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements. Written and Earned Premiums Written Premiums Product Line Automobile Homeowners Total Earned Premiums Product Line Automobile Homeowners Total 2020 2019 2018 $ $ $ $ 2,003 $ 933 2,936 $ 2,176 $ 955 3,131 $ 2,058 $ 950 3,008 $ 2,221 $ 977 3,198 $ 2,273 1,003 3,276 2,369 1,030 3,399 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 (8%) (2%) (6%) (7%) (3%) (6%) (4%) (5%) (4%) (6%) (5%) (6%) 74         Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Premium Measures 2020 2019 2018 Policies in-force end of period (in thousands) Automobile Homeowners New business written premium Automobile Homeowners Policy count retention Automobile Homeowners Renewal written price increase Automobile Homeowners Renewal earned price increase Automobile Homeowners Premium retention Automobile [1] Homeowners 1,369 826 1,422 877 $ $ 223 63 $ $ 220 73 $ $ 86 % 86 % 2.4 % 6.4 % 3.4 % 5.7 % 85 % 85 % 4.6 % 6.5 % 5.5 % 8.4 % 1,510 927 169 46 82 % 83 % 7.2 % 9.7 % 9.6 % 9.3 % 85 % 90 % [1] Premium retention for automobile decreased in the twelve months ended December 31, 2020 largely due to $81 of premium credits given to automobile policyholders. Excluding 82 % 91 % 87 % 89 % the impact of the premium credits, automobile premium retention would have been 86% in the twelve month period ended December 31, 2020. Underwriting Ratios 2020 2019 2018 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 Loss and loss adjustment expense ratio Current accident year before catastrophes Current accident year catastrophes Prior accident year development Total loss and loss adjustment expense ratio Expense ratio Combined ratio Impact of current accident year catastrophes and prior year development Underlying combined ratio 56.3 6.9 (14.6) 48.7 26.8 75.5 7.7 83.1 65.3 4.4 (1.3) 68.3 26.7 95.0 (3.1) 91.9 66.2 16.1 (0.9) 81.3 25.0 106.3 (15.2) 91.2 (9.0) 2.5 (13.3) (19.6) 0.1 (19.5) 10.8 (8.8) (0.9) (11.7) (0.4) (13.0) 1.7 (11.3) 12.1 0.7 Automobile Combined ratio Underlying combined ratio Homeowners Combined ratio Underlying combined ratio Product Combined Ratios 2020 2019 2018 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 96.6 97.9 91.7 78.3 98.6 98.2 124.3 75.1 (11.1) (9.9) (37.5) (5.8) (2.0) (0.3) (32.6) 3.2 85.5 88.0 54.2 72.5 75           Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2021 Outlook Written premium is expected to be relatively flat in 2021 compared with 2020 despite $81 of premium credits issued in 2020 as non-renewal of premium more than offsets new business. While new business conversions are expected to increase, new business premium is expected to be relatively flat as the Company begins to transition from 12-month automobile policies to 6- month automobile policies for AARP members as we roll out our new automobile and homeowners products in certain states. In 2021, the Company expects written pricing increases in 2021 to be in the low single digits for automobile and high-single digits for homeowners. Rate increases in automobile will likely continue to moderate as lower claim frequency due to shelter-in-place guidelines during the pandemic is reflected in rate filings. The Company expects the combined ratio for Personal Lines will be between approximately 94.0 and 96.0 for 2021 compared to 75.5 in 2020 as 2020 benefited from lower claim frequency due to fewer miles driven as a result of the pandemic as well as from favorable prior accident year development. The underlying combined ratio for Personal Lines is expected to be higher due to an increase in the current accident year loss and loss adjustment expense ratio before catastrophes in both automobile and homeowners. Current accident year catastrophes are assumed to be 7.2 points of the combined ratio in 2021 compared with 6.9 points in 2020. For automobile, we expect the underlying combined ratio to increase as automobile claim frequency rises again as we emerge from the pandemic. The underlying combined ratio for homeowners is also expected to increase in 2021, primarily driven by a return to a higher, more normal, level of non- catastrophe weather loss experience, partially offset by the effect of earned pricing increases. Net Income (Loss) Underwriting Gain (Loss) Year ended December 31, 2020 compared to the year ended December 31, 2019 Underwriting gain in 2020 increased primarily due to favorable prior accident year development in the 2020 period driven by a reduction in prior year catastrophe reserves, lower current accident year losses in automobile due to effects of the COVID-19 pandemic, a reduction in non-catastrophe weather losses in homeowners, and lower underwriting expenses, partially offset by a reduction in earned premium, including the effect of $81 in premium credits given to automobile policyholders in the second quarter of 2020. Earned Premiums Year ended December 31, 2020 compared to the year ended December 31, 2019 Earned premiums decreased in 2020, reflecting a decline in written premium over the prior twelve months in both Agency and in AARP Direct and, the effect of $81 of premium credits given to automobile policyholders in the second quarter of 2020 in recognition of shelter-in-place guidelines that have resulted in a decline in miles driven. Year ended December 31, 2020 compared to the year ended December 31, 2019 Net income increased by $400, primarily due to favorable prior accident year catastrophe reserve development in the 2020 period, lower non-catastrophe current accident year losses in automobile and homeowners, and lower underwriting expenses, partially offset by an increase in current accident year catastrophes, a reduction in earned premium, including the effect of $81 in premium credits given to automobile policyholders in the second quarter of 2020, a change to net realized capital losses in the 2020 period and lower net investment income. 76 $(32)$318$718201820192020$-200$0$200$400$600$800$(214)$160$737201820192020$-400$-200$0$200$400$600$800$3,399$3,399$3,198$3,198$3,008$3,008$1,030$977$950$2,369$2,221$2,058HomeownersAutomobile201820192020$0$1,500$3,000$4,500Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Year ended December 31, 2020 compared to the year ended December 31, 2019 Current accident year loss and LAE ratio before catastrophes decreased in 2020 in both automobile and homeowners. For automobile, the loss and loss adjustment expense ratio benefited from earned pricing increases and from lower claim frequency, primarily driven by shelter-in- place guidelines due to the COVID-19 pandemic. For homeowners, the primary driver was fewer non-catastrophe weather claims. Current Accident Year Catastrophes and Unfavorable (Favorable) Prior Accident Year Development Written premiums decreased in 2020 in AARP Direct and Agency. For automobile, written premium in 2020 included a reduction for the $81 of premium credits given to policyholders in the second quarter. Written premium for both automobile and homeowners declined as the amount of non-renewed premium exceeded the new business premium. New business increased slightly in automobile and declined in homeowners. Renewal written pricing increases were lower in 2020 in automobile in response to moderating loss cost trends. For homeowners, while written pricing increases had moderated during the first half of 2020, written pricing increases were higher in the second half of 2020 due to the rate need arising from catastrophe and other property claims experience. Policy count retention increased for both automobile and homeowners reflecting the effect of moderating renewal written price increases during all of 2020 for automobile and during the first six months of 2020 for homeowners. Premium retention for automobile decreased in 2020 mostly due to the $81 of automobile premium credits given to policyholders in the second quarter of 2020. Premium retention for homeowners improved in 2020 driven by renewal rate increases, partially offset by a decline in policy count retention in the second half of 2020. Policies in-force decreased in 2020 in both automobile and homeowners, driven by not generating enough new business to offset the loss of non-renewed policies. Current Accident Year Loss and Loss Adjustment Expense Ratio before Catastrophes Year ended December 31, 2020 compared to the year ended December 31, 2019 Current accident year catastrophe losses for the year ended December 31, 2020 were primarily from a number of hurricanes and tropical storms, Pacific Coast wildfires and Northeast windstorms as well as tornado, wind and hail events in the South, Midwest and Central Plains. Catastrophe losses for 2019 primarily included winter storms across the country and tornado, wind and hail events in the South, Midwest, and Mountain West. Prior accident year development was favorable in 2020, principally due to a reduction in catastrophe loss reserves and, to a lesser extent, lower than previously expected AARP Direct automobile liability claim severity for the 2017 to 2019 accident years. The reduction in catastrophe loss reserves was 77 66.265.356.3201820192020010203040506070$546$140$209$(32)$(42)$(438)CAY CATsPYD201820192020$-600$-500$-400$-300$-200$-100$0$100$200$300$400$500$600Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations driven by lower estimated losses for the 2017 and 2018 California wildfires, including a $260 subrogation benefit from PG&E, as well as a reduction in losses for various 2017, 2018 and 2019 wind and hail events. Prior accident year development was favorable in 2019 primarily due to a decrease in automobile liability reserves for the 2017 accident year. PROPERTY & CASUALTY OTHER OPERATIONS Results of Operations Written Premiums Change in unearned premium reserve Earned premiums Losses and loss adjustment expenses Prior accident year development [1] Total losses and loss adjustment expenses Underwriting expenses Underwriting loss Net investment income [2] Net realized capital gains (losses) [2] Other income (expenses) Income (loss) before income taxes Income tax expense (benefit) [3] Net income (loss) Underwriting Summary 2020 2019 2018 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 $ $ — $ — — 258 258 11 (269) 55 (1) 1 (214) (46) (168) $ — $ (2) 2 21 21 12 (31) 84 20 — 73 12 61 $ (4) (4) — 65 65 12 (77) 90 (4) (1) 8 (7) 15 —% 100% (100%) NM NM (8%) NM (35%) (105%) NM NM NM NM 100% 50% NM (68%) (68%) —% 60% (7%) NM 100% NM NM NM [1]For discussion of prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance. [2]For discussion of consolidated investment results, see MD&A - Investment Results. [3]For discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements. Net Income (Loss) Year ended December 31, 2020 compared to the year ended December 31, 2019 Net loss in 2020 changed from net income in 2019, primarily due to an increase in net unfavorable prior accident year development, a decrease in net investment income and a change from net realized capital gains to net realized capital losses. Unfavorable prior accident year development in 2020 primarily included a $208 charge for increases in A&E reserves and a $35 increase in ULAE reserves which was largely driven by the higher estimate for A&E claims. Before NICO reinsurance, A&E reserves were increased by $236 in P&C Other Operations, including $130 for asbestos and $106 for environmental. Cumulative adverse A&E reserve development on both ongoing operations and P&C Other Operations totaled $860 through December 31, 2020 and since this amount exceeds ceded premium paid for the A&E ADC of $650, the Company recognized a $210 deferred gain on retroactive reinsurance in 2020, all recognized within P&C Other Operations. Asbestos Reserves prior accident year development in 2020 before NICO reinsurance of $130 was primarily due to a higher rate of claim settlements, particularly with certain larger, national defendants, higher than expected average settlement values and defense costs, and an increase in the Company's 78 $15$61$(168)201820192020$-200$-150$-100$-50$0$50$100 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations estimated share of liability under pending or potential cost sharing agreements and settlements. Environmental Reserves prior accident year development in 2020 before NICO reinsurance of $106 was primarily due to an increasing number of claims and suits alleging contamination from or exposure to per & polyfluoroalkyl substances ("PFAS"), and increased defense and cleanup costs associated with Superfund sites. Results of Operations GROUP BENEFITS Operating Summary Premiums and other considerations Net investment income [1] Net realized capital gains (losses) [1] Total revenues Benefits, losses and loss adjustment expenses Amortization of DAC Insurance operating costs and other expenses Amortization of other intangible assets Total benefits, losses and expenses Income before income taxes Income tax expense [2] Net income 2020 2019 2018 $ 5,536 $ 5,603 $ 5,598 448 22 6,006 4,137 50 1,308 40 5,535 471 486 34 6,123 4,055 54 1,311 41 5,461 662 88 383 $ 126 536 $ $ 474 (47) 6,025 4,214 45 1,282 60 5,601 424 84 340 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 (1%) (8%) (35%) (2%) 2% (7%) —% (2%) 1% (29%) (30%) (29%) —% 3% 172% 2% (4%) 20% 2% (32%) (2%) 56% 50% 58% [1]For discussion of consolidated investment results, see MD&A - Investment Results. [2]For discussion of income taxes, see Note 17 - Income Taxes of Notes to the Consolidated Financial Statements. Premiums and Other Considerations Fully insured — ongoing premiums Buyout premiums Fee income Total premiums and other considerations Fully insured ongoing sales, excluding buyouts 2020 2019 2018 $ 5,305 $ 5,416 $ 5,418 56 7 175 5,536 $ 717 $ 180 5,603 $ 647 $ $ $ 5 175 5,598 704 Ratios, Excluding Buyouts Group disability loss ratio Group life loss ratio Total loss ratio 2020 2019 2018 66.1 % 87.5 % 74.5 % 67.3 % 79.5 % 72.3 % 73.1 % 78.4 % 75.3 % 24.0 % Expense ratio [1] [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. 24.5 % 25.2 % Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 (2%) NM (3%) (1%) 11% —% 40% 3% —% (8%) Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 (1.2) 8.0 2.2 0.7 (5.8) 1.1 (3.0) 0.5 79 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Margin 2020 2019 2018 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 Net income margin 6.4% 8.8% 5.6% (2.4) 3.2 Adjustments to reconcile net income margin to core earnings margin: Net realized capital losses (gains) excluded from core earnings, before tax (0.4%) (0.5%) 0.9% 0.3% —% 0.1% 6.4% 0.6% —% —% 8.9% 0.8% (0.3%) —% 7.0% Net Income 0.1 (0.3) 0.0 0.1 (2.5) (1.4) (0.2) 0.3 0.0 1.9 Integration and transaction costs associated with acquired business, before tax Income tax benefit Impact of excluding buyouts from denominator of core earnings margin Core earnings margin 2021 Outlook The Company expects Group Benefits fully insured ongoing premiums to increase modestly in 2021 due to modestly higher book persistency and continued strong sales which is expected to offset continued lagging employment levels as a result of the pandemic. In 2021, the segment's net income margin is expected to be between 3.5% and 4.5%, compared to a net income margin of 6.4% in 2020. The expected decrease in net income margin largely reflects downward pressure on pricing due to recent historical favorable claim incidence, an expectation of less favorable claim incidence and recoveries on long-term disability claims in 2021 and lower expected investment yields, partially offset by an expectation of lower excess mortality caused by COVID-19 though that is subject to significant uncertainty. The expected net income margin of 3.5% to 4.5% assumes excess mortality of $160 before tax, largely in the first half of 2021 with the most significant portion in the first quarter of 2021. Margins on long-term disability business are expected to decline as the favorable long-term disability loss trends begin to reverse due to economic factors and as price competition intensifies, partly driven by customer behavior to seek multiple bids for renewal. Margins on group life business in 2021 will largely depend on how long COVID-19 infections continue in 2021 pending the timing of distribution and citizen acceptance of vaccines. Management expects that the 2021 core earnings margin, which does not include the effect of net realized capital gains (losses) or integration costs associated with the acquired business, will be in the range of 3.7% to 4.7%, down from a 2020 core earnings margin of 6.4%. 80 Year ended December 31, 2020 compared to the year ended December 31, 2019 Net income decreased primarily due to higher mortality in group life, and, to a lesser extent, lower net investment income, and lower net realized capital gains, partially offset by modestly higher recoveries and lower claim incidence on group disability claims. The increased mortality in group life included $239 of claims deemed to be excess mortality due to direct and indirect impacts of COVID-19. Lower net investment income was primarily driven by lower reinvestment rates and, to a lesser extent, lower income from limited partnership and other alternative investments. Insurance operating costs and other expenses were relatively flat in 2020 as higher information technology ("IT") and other costs related to improving the customer experience were largely offset by lower incentive compensation, employee benefits, travel costs, and lower integration costs. $340$536$383201820192020$0$100$200$300$400$500$600 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Year ended December 31, 2020 compared to the year ended December 31, 2019 Total loss ratio increased 2.2 points in 2020 reflecting a higher group life loss ratio, partially offset by a lower group disability loss ratio. The group life loss ratio increased 8.0 points primarily due to a higher current incurral year loss ratio driven by higher mortality, including $239 of excess mortality due to the direct and indirect effects of COVID-19. Prior incurral year development for group life was more favorable due to favorable mortality emergence on the prior incurral year recognized in the three month period ended March 31, 2020, partially offset by the reserve assumption update related to late reported death claims. The group disability loss ratio decreased 1.2 points with a 0.6 point improvement in the current incurral year loss ratio and 0.3 points of more favorable prior incurral year development. The current incurral year group disability loss ratio improved 0.6 points as lower claim incidence more than offset 1.0 points ($29) of COVID-19 short-term disability and New York Paid Family Leave claims. The more favorable prior incurral year development in group disability was driven by higher claim recoveries and continued improving claim incidence, partially offset by the favorable impacts in 2019 from the long term disability reserve assumption update. Expense ratio increased 0.7 points in 2020. The expense ratio increased largely due to the decline in premiums and other considerations as higher IT and other costs related to improving the customer experience was largely offset by lower incentive compensation, employee benefits, and travel costs. Fully Insured Ongoing Premiums Year ended December 31, 2020 compared to the year ended December 31, 2019 Fully insured ongoing premiums decreased in 2020 with a decrease in both group disability and group life with the declines resulting primarily from lower insured exposure on in- force policies. Premiums for voluntary business increased primarily due to strong sales and persistency. Fully insured ongoing sales, excluding buyouts increased in 2020 with increases in both group disability and group life. Ratios 81 $5,418$5,418$5,416$5,416$5,305$5,305$241$254$270$2,610$2,515$2,405$2,567$2,647$2,630OtherGroup lifeGroup disability201820192020$0$1,000$2,000$3,000$4,000$5,000$6,00024.024.525.275.372.374.5Expense ratioLoss ratio201820192020020406080100 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations HARTFORD FUNDS Operating Summary 2020 2019 2018 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 (1%) (43%) 60% (1%) 17% (5%) (5%) 15% 19% 14% 3% 1.6 (0.4) 0.1 1.3 (3%) 40% NM (2%) (25%) (2%) (3%) —% (3%) 1% 1% (0.1) (0.7) 0.1 (0.7) Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 23% 27% (33%) (121%) NM (27%) 11% 3% 10% (8%) 1% 1% (5%) 165% NM 23% 9% 21% Fee income and other revenue Net investment income Net realized capital gains (losses) Total revenues Amortization of DAC Operating costs and other expenses Total benefits, losses and expenses Income before income taxes Income tax expense [1] Net income Daily average total Hartford Funds segment AUM Return on Assets ("ROA") [2] Adjustments to reconcile ROA to ROA, core earnings: Effect of net realized capital (gains) losses, excluded from core earnings, before tax Effect of income tax expense (benefit) $ 989 $ 4 8 1,001 14 773 787 214 44 170 $ 999 $ 7 5 1,011 12 813 825 186 37 149 $ 1,032 5 (4) 1,033 16 831 847 186 38 $ 148 $ 120,908 $ 117,914 $ 116,876 12.6 14.1 12.5 (0.7) 0.1 13.5 (0.3) — 12.2 0.4 (0.1) 12.9 Return on Assets ("ROA"), core earnings [2] [1]For discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements. [2]Represents annualized earnings divided by a daily average of assets under management, as measured in basis points. Hartford Funds Segment AUM Mutual Fund and ETP AUM - beginning of period $ 112,533 $ 91,557 $ 99,090 2020 2019 2018 Sales - mutual fund Redemptions - mutual fund Net flows - ETP Net Flows - mutual fund and ETP Change in market value and other 28,604 22,479 22,198 (31,412) (23,624) (23,888) (276) 1,332 (3,084) 187 1,404 (286) 15,178 20,789 (7,247) Mutual Fund and ETP AUM - end of period 124,627 112,533 Talcott Resolution life and annuity separate account AUM [1] 14,809 14,425 91,557 13,283 Hartford Funds AUM - end of period [1]Represents AUM of the life and annuity business sold in May 2018 that is still managed by the Company's Hartford Funds segment. $ 139,436 $ 126,958 $ 104,840 82 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Mutual Fund AUM by Asset Class Equity Fixed Income Multi-Strategy Investments [1] Exchange-traded products Mutual Fund and ETP AUM [1]Includes balanced, allocation, and alternative investment products. 2021 Outlook Assuming continued growth in equity markets in 2021, the Company expects net income for Hartford Funds to increase from 2020 to 2021. From its diversified lineup of mutual funds and ETFs, the Company expects strong sales, though net flows are more uncertain given market volatility and historical redemption rates. Net Income 2020 2019 2018 $ 82,123 $ 71,629 $ 56,986 17,034 22,645 2,825 16,130 21,332 3,442 14,467 18,233 1,871 $ 124,627 $ 112,533 $ 91,557 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 15% 6% 6% (18%) 11% 26% 11% 17% 84% 23% costs. Fee income and other revenues decreased slightly as the effect of a continued shift to lower fee generating assets was largely offset by higher daily average assets under management. See Note 5 - Fair Value Measurements of Notes to Consolidated Financial Statements for additional information on the Lattice contingent consideration. Hartford Funds AUM Year ended December 31, 2020 compared to the year ended December 31, 2019 Net income increased primarily due to lower operating costs and other expenses driven by a $12 before tax decrease in Lattice contingent consideration in 2020, a $7 before tax increase in Lattice contingent consideration in 2019 and a reduction in travel December 31, 2020 compared to December 31, 2019 Hartford Funds AUM increased compared to the prior year due to an increase in market values, partially offset by net outflows, along with the continued runoff of AUM related to the Talcott Resolution life and annuity separate account AUM. 83 $148$149$170201820192020$0$50$100$150$200$104,840$126,958$139,43612/31/1812/31/1912/31/20$0$50,000$100,000$150,000 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations CORPORATE Operating Summary 2020 2019 2018 Increase (Decrease) From 2019 to 2020 Increase (Decrease) From 2018 to 2019 $ 49 $ 50 $ Fee income Net investment income Net realized capital gains (losses) Other revenue Total revenues Benefits, losses and loss adjustment expenses [1] Insurance operating costs and other expenses Loss on extinguishment of debt [2] Interest expense [2] Restructuring and other costs Total benefits, losses and expenses Loss before income taxes Income tax benefit [3] Loss from continuing operations, net of tax Income from discontinued operations, net of tax Net income (loss) Preferred stock dividends 22 22 53 146 15 76 — 236 104 431 (285) (63) (222) — (222) 21 (243) $ 66 22 96 234 19 83 90 259 — 451 (217) (46) (171) — (171) 21 (192) $ 32 59 (7) 21 105 11 83 6 298 — 398 (293) (95) (198) 322 124 6 118 (2%) (67%) —% (45%) (38%) (21%) (8%) (100%) (9%) NM (4%) (31%) (37%) (30%) —% (30%) —% (27%) 56% 12% NM NM 123% 73% —% NM (13%) —% 13% 26% 52% 14% (100%) NM NM NM Net income (loss) available to common stockholders $ [1]Includes benefits expense on life and annuity business previously underwritten by the Company. [2]For discussion of debt, see Note 14 - Debt of Notes to Consolidated Financial Statements. [3]For discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements. Net Income (Loss) income, lower transition services revenue, and lower income from the Company's retained equity interest in the former life and annuity operations, partially offset by a $90 before tax loss on extinguishment of debt in 2019, transaction costs incurred in 2019 in connection with the acquisition of Navigators Group and lower interest expense. Income before tax from the Company's retained equity interest in the former life and annuity operations was $42 and $66 for the years ended December 31, 2020 and 2019, respectively. Net investment income was lower in 2020 than 2019 primarily due to a lower yield on short-term investments as well as lower asset levels. Year ended December 31, 2020 compared to the year ended December 31, 2019 Net loss increased in 2020 compared to 2019 primarily due to restructuring costs of $104 before tax, lower net investment 84 $124$(171)$(222)201820192020$0 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Interest Expense Year ended December 31, 2020 compared to the year ended December 31, 2019 Interest expense decreased primarily due to the repayment of our 5.5% senior notes in March of 2020. For additional information, see Note 14 - Debt of Notes to the Consolidated Financial Statements. 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. As illustrated below, a number of functional committees sit underneath the ERCC, providing oversight of specific risk areas and recommending risk mitigation strategies to the ERCC. ERCC ERCC Members CEO (Chair) President Chief Financial Officer Chief Investment Officer Chief Risk Officer Chief Underwriting Officer General Counsel Others as deemed necessary by the Committee Chair Asset Liability Committee Underwriting Risk Committee Emerging Risk Steering Committee Operational Risk Committee Economic Capital Executive Committee Model Oversight Committee 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, each of which is described in more detail below. 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. 85 $298$259$236201820192020$0$100$200$300$400Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Sources of Insurance Risk Non-catastrophe insurance risks exist within each of the Company's segments except Hartford Funds and include: • • Property- Risk of loss to personal or commercial property from automobile related accidents, weather, explosions, smoke, shaking, fire, theft, vandalism, inadequate installation, faulty equipment, collisions and falling objects, and/or machinery mechanical breakdown resulting in physical damage and other covered perils. Liability- Risk of loss from automobile related accidents, uninsured and underinsured drivers, lawsuits from accidents, defective products, breach of warranty, negligent acts by professional practitioners, environmental claims, latent exposures, fraud, coercion, forgery, failure to fulfill obligations per contract surety, liability from errors and omissions, losses from political and credit coverages, losses from derivative lawsuits, and other securities actions and covered perils. • Mortality- Risk of loss from unexpected trends in insured deaths impacting timing of payouts from group life insurance, personal or commercial automobile related accidents, and death of employees or executives during the course of employment, while on disability, or while collecting workers compensation benefits. • Morbidity- Risk of loss to an insured from illness incurred during the course of employment or illness from other covered perils. • Disability- Risk of loss incurred from personal or commercial automobile related losses, accidents arising outside of the workplace, injuries or accidents incurred during the course of employment, or from equipment, with each loss resulting in short term or long-term disability payments. • • Longevity- Risk of loss from increased life expectancy trends among policyholders receiving long-term benefit payments. Cyber Insurance- Risk of loss to property, breach of data and business interruption from various types of cyber-attacks. Catastrophe risk primarily arises in the property, automobile, workers' compensation, casualty, group life, and group disability lines of business. Not all insurance losses arising from catastrophe risk are categorized as catastrophe losses within the segment operating results. For example, losses arising from the COVID-19 pandemic were not categorized as catastrophe losses within either the P&C or Group Benefits segments as the pandemic was not identified as a catastrophe event by the Property Claim Service in the U.S. 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. 86 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Definition Details and Company Limits Risk Natural catastrophe Exposure arising from natural phenomena (e.g., earthquakes, wildfires, etc.) that create a concentration or aggregation of loss across the Company's insurance or asset portfolios and the inherent volatility of weather or climate pattern changes. The Company generally limits its estimated pre-tax loss as a result of natural catastrophes for property & casualty exposures from a single 250-year event to less than 30% of the reported capital and surplus of the property and casualty insurance subsidiaries prior to reinsurance and to less than 15% of the reported capital and surplus of the property and casualty insurance subsidiaries after reinsurance. From time to time the estimated loss to natural catastrophes from a single 250-year event prior to reinsurance may fluctuate above or below these limits due to changes in modeled loss estimates, exposures or statutory surplus. [2] - The estimated 250 year pre-tax probable maximum loss from earthquake events is estimated to be $1.2 billion before reinsurance and $0.6 billion net of reinsurance. [1] - The estimated 250 year pre-tax probable maximum losses from hurricane events are estimated to be $1.8 billion before reinsurance and $0.9 billion net of reinsurance. [1] Enterprise limits for terrorism apply to aggregations of risk across property- casualty, group benefits and specific asset portfolios and are defined based on a deterministic, single-site conventional terrorism attack scenario. The Company manages its potential estimated loss from a conventional terrorism loss scenario, up to $2.0 billion net of reinsurance and $2.5 billion gross of reinsurance, before coverage under the Terrorism Risk Insurance Program established under “TRIPRA”. In addition, the Company monitors exposures monthly and employs both internally developed and vendor-licensed loss modeling tools as part of its risk management discipline. Our modeled exposures to conventional terrorist attacks around landmark locations may fluctuate above and below our stated limits. The Company generally limits its estimated pre-tax loss from a single 250 year pandemic event to less than 18% of the aggregate reported capital and surplus of the property and casualty and group benefits insurance subsidiaries. In evaluating these scenarios, the Company assesses the impact on group life, short-term disability, long-term disability and property & casualty claims. While ERM has a process to track and manage these limits, from time to time, the estimated loss for pandemics may fluctuate above or below these limits due to changes in modeled loss estimates, exposures, or statutory surplus. In addition, the Company assesses losses in the investment portfolio associated with market declines in the event of a widespread pandemic. [2] Terrorism The risk of losses from terrorist attacks, including losses caused by single-site and multi-site conventional attacks, as well as the potential for attacks using nuclear, biological, chemical or radiological weapons (“NBCR”). Pandemic The exposure to loss arising from widespread influenza or other pathogens or bacterial infections that create an aggregation of loss across the Company's insurance or asset portfolios. [1]The loss estimates represent total property losses for hurricane events and property and workers compensation losses for earthquake events resulting from a single event. The estimates provided are based on 250-year return period loss estimates that have a 0.4% likelihood of being exceeded in any single year. The net loss estimates provided assume that the Company is able to recover all losses ceded to reinsurers under its reinsurance programs. The Company also manages natural catastrophe risk for group life and group disability, which in combination with property and workers compensation loss estimates are subject to separate enterprise risk management net aggregate loss limits as a percent of enterprise surplus. [2]For U.S. insurance subsidiaries, reported capital and surplus is equal to actual U.S. statutory capital and surplus. For Navigators Insurers in non-U.S. jurisdictions, reported capital and surplus is equal to U.S. GAAP equity of those subsidiaries less certain assets such as goodwill and intangible assets. Reinsurance as a Risk Management Strategy The Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers' compensation exposures, and individual risk (including facultative reinsurance) or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program (“TRIPRA”) and other reinsurance programs relating to particular risks or specific lines of business. Reinsurance for Catastrophes- The Company utilizes various reinsurance programs to mitigate catastrophe losses including excess of loss occurrence-based treaties covering property and workers’ compensation, and an aggregate property catastrophe treaty. The aggregate property catastrophe treaty covers the aggregate of catastrophe events designated by the Property Claim Services office of Verisk and, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand, in excess of a $700 retention. The occurrence-based property catastrophe treaties respond in excess of $100 per occurrence for all perils other than named storm and earthquake (subject to a $50 annual aggregate deductible). Our per occurrence property catastrophe treaties and workers’ compensation catastrophe treaty incepting January 1, 2020 did not exclude pandemic losses from coverage and did not require a pandemic to be designated as a catastrophe event by PCS for coverage. Accordingly, we would have the opportunity for recovery if COVID-19 related losses were to exceed the retentions and fall within the terms and conditions of the contracts, including that losses are sustained by the Company during a defined period of time, commonly referred to as an hours clause. Based on current estimates of ultimate incurred losses from the pandemic, we have not booked a recovery under our per occurrence property or workers’ compensation catastrophe treaties. Our aggregate property catastrophe program requires a PCS catastrophe designation for events in the U.S. and since the pandemic has not been designated a PCS event, COVID-19 losses would not be covered by the aggregate program. In addition to 87 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations catastrophe reinsurance, the Company has per risk and quota share reinsurance that would respond to certain COVID-19 related losses. The reinsurance market has shifted to require communicable disease exclusions and, as such, our per occurrence property catastrophe treaty and workers’ compensation catastrophe treaty incepting January 1, 2021 do not cover pandemic losses. The Company has reinsurance in place to cover individual group life losses in excess of $1 per person. With respect to civil unrest, losses relating to civil unrest that in 2020 was designated by the Property Claim Services office of Verisk as a catastrophe event will cede to our property catastrophe aggregate cover. Such losses are not expected to be covered by the property catastrophe occurrence treaties because the unrest occurred in non-contiguous areas though the Company has property per risk and property quota share reinsurance that would cover certain losses related to the civil unrest. For our property catastrophe treaty incepting January 1, 2021, losses from most cyber events are not covered. Primary Catastrophe Treaty Reinsurance Coverages as of January 1, 2021 Per Occurrence Property Catastrophe Treaty from 1/1/2021 to 12/31/2021 [1] [2] Losses of $0 to $100 Losses of $100 to $350 for earthquakes and named hurricanes and tropical storms [6] Losses of $100 to $350 from one event other than earthquakes and named hurricanes and tropical storms (subject to a $50 Annual Aggregate Deductible ("AAD")) [6] Losses of $350 to $500 from one event (all perils) Losses of $500 to $1.1 billion from one event [3] (all perils) Aggregate Property Catastrophe Treaty for 1/1/2021 to 12/31/2021 [4] $0 to $700 of aggregate losses $700 to $900 of aggregate losses Workers' Compensation Catastrophe Treaty for 1/1/2021 to 12/31/2021 Losses of $0 to $100 from one event Portion of losses reinsured Portion of losses retained by The Hartford None None 100% retained 100% retained 70% of $250 in excess of $100 75% of $150 in excess of $350 90% of $600 in excess $500 30% co-participation 25% co-participation 10% co-participation None 100% None 100% retained None 100% retained Losses of $100 to $450 from one event [5] [1] These treaties do not cover the assumed reinsurance business which purchases its own retrocessional coverage. [2]In addition to the Per Occurrence Property Catastrophe Treaty, for Florida wind events, The Hartford has purchased the mandatory FHCF reinsurance for the annual period 20% co-participation 80% of $350 in excess of $100 starting at June 1, 2020. Retention and coverage varies by writing company. The writing company with the largest coverage under FHCF is Hartford Insurance Company of the Midwest, with coverage estimated at approximately $55 of per event losses in excess of a $24 retention (estimates are based on best available information at this time and are periodically updated as information is made available by Florida). [3]Portions of this layer of coverage extend beyond a traditional one year term. [4]The aggregate treaty is not limited to a single event; rather, it is designed to provide reinsurance protection for the aggregate of all catastrophe events (up to $350 per event), either designated by the Property Claim Services office of Verisk or, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand. All catastrophe losses apply toward satisfying the $700 attachment point under the aggregate treaty. [5]In addition to the limits shown, the workers' compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of $30 in per event losses in excess of a $20 retention. [6]Named hurricanes and tropical storms are defined as any storm or storm system declared to be a hurricane or tropical storm by the US National Hurricane Center, US Weather Prediction Center, or their successor organizations (being divisions of the US National Weather Service). In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other reinsurance agreements that cover property catastrophe losses. The Per Occurrence Property Catastrophe Treaty, and Workers' Compensation Catastrophe Treaty include a provision to reinstate one limit in the event that a catastrophe loss exhausts limits on one or more layers under the treaties. Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by nuclear, biological, chemical or radiological attacks. As such, the Company's principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through TRIPRA to the end of 2027. TRIPRA provides a backstop for insurance-related losses resulting from any “act of terrorism”, which is certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General, for losses that exceed a threshold of industry losses of $200. Under the program, in any one calendar year, the federal government will pay a percentage of losses incurred from a certified act of terrorism after an insurer's losses exceed 20% of the Company's eligible direct commercial earned premiums of the prior calendar year up to a combined annual aggregate limit for the federal government and all insurers of $100 billion. The percentage of losses paid by the federal government is 80% . The Company's estimated deductible under the program is $1.6 billion for 2021. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit, Congress would be responsible for determining how additional losses in excess of $100 billion will be paid. 88 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Reinsurance for A&E and Navigators Group Reserve Development - The Company has two adverse development cover (“ADC”) reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all A&E reserve development for 2016 and prior accident years (the “A&E ADC”) and the other covers substantially all reserve development of Navigators Insurance Reinsurance Recoverables Property and Casualty insurance product reinsurance recoverables represent loss and loss adjustment expense recoverables from a number of entities, including reinsurers and pools. A portion of the total gross reinsurance recoverables balance relates to the Company’s participation in various mandatory (assigned) and involuntary risk pools and the value of annuity contracts held under structured settlement agreements. Group Benefits and Corporate reinsurance recoverables represent reserves for future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable that are recoverable from a number of reinsurers. The table below shows the gross and net reinsurance recoverables reported in the Property and Casualty and Group Benefits reporting segments as well as Corporate. To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management and operational quality of each potential reinsurer. In placing reinsurance, the Company considers the nature of the risk reinsured, including the expected liability payout duration, and establishes limits tiered by reinsurer credit rating. Where its Company and certain of its affiliates for 2018 and prior accident years (“Navigators ADC”). For more information on the A&E ADC and the Navigators ADC, see Note 1, Basis of Presentation and Significant Accounting Policies, and Note 12, Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. contracts permit, the Company secures future claim obligations with various forms of collateral or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers. For further discussion on reinsurance recoverables, including details of recoverables by AM Best credit rating, see Note 9 – Reinsurance of Notes to Consolidated Financial Statements. Annually, the Company completes evaluations of the reinsurance recoverable asset associated with older, long-term casualty liabilities reported in the Property & Casualty Other Operations and Group Benefits reporting segments as well as recoverables in Corporate, and the allowance for uncollectible reinsurance reported in the Commercial Lines reporting segment. For a discussion regarding the results of these evaluations, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance and Group Benefit LTD Reserves, Net of Reinsurance. Reinsurance Recoverables as of December 31 Property and Casualty Group Benefits Corporate Total 2020 2019 2020 2019 2020 2019 2020 2019 Paid loss and loss adjustment expenses $ 269 $ 249 $ 6 $ 6 $ — $ — $ 275 $ 255 Unpaid loss and loss adjustment expenses Gross reinsurance recoverables 5,297 5,566 4,819 5,068 239 245 Allowance for uncollectible reinsurance (105) (114) (1) 247 253 — 308 308 (2) 320 320 — 5,844 6,119 5,386 5,641 (108) (114) Net reinsurance recoverables $ 5,461 $ 4,954 $ 244 $ 253 $ 306 $ 320 $ 6,011 $ 5,527 Guaranty Funds and Other Insurance-related Assessments As part of its risk management strategy, the Company regularly monitors the financial strength of other insurers and, in particular, activity by insurance regulators and various state guaranty associations in the U.S. relating to troubled insurers. In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund. Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from external events. Sources of Operational Risk Operational risk is inherent in the Company's business and functional areas. Operational risks include: compliance with laws and regulation, cybersecurity, business disruption, technology failure, inadequate execution or process management, reliance on model and data analytics, internal fraud, external fraud, third party dependency and attraction and retention of talent. Impact Operational risk can result in financial loss, disruption of our business, regulatory actions or damage to our reputation. Management Responsibility for day-to-day management of operational risk lies within each business unit and functional area. ERM provides an enterprise-wide view of the Company's operational risk on an aggregate basis. ERM is responsible for establishing, maintaining and communicating the framework, principles and guidelines of the Company's operational risk management program. Operational risk mitigation strategies include the following: 89 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Establishing policies and monitoring risk tolerances and exceptions; trading the Company's securities during the investigation and assessment of such cybersecurity incidents. • • • • • Conducting business risk assessments and implementing action plans where necessary; Validating existing crisis management protocols; Identifying and monitoring emerging risks; and Purchasing insurance coverage. In response to COVID-19 the Company has implemented a number of mitigation strategies to address potential operational impacts, including: • • • • • Activated our cross-functional Crisis Management Team ("CMT") comprising representatives from areas such as the Business Resiliency Office, IT, Corporate Health & Well- being, Employee Relations, Security, Facilities and Communications ; Enabled the vast majority of employees to work from home with no material impacts to operations; for employees in the office, various protocols have been implemented to promote employee health and safety including, but not limited to, the use of personal protective equipment, practicing social distancing and enhanced cleaning; Strengthened technology infrastructure and expanded policies for accessing the Company’s network remotely; Actively worked with sourcing partners to ensure they were implementing their business continuity plans; and Provided support to employees through our Corporate, Health & Well-being team composed of healthcare professionals to identify and isolate employees with potential COVID-19 exposure. Cybersecurity Risk The Hartford has implemented an information protection program with established governance routines that promote an adaptive approach for assessing and managing risks. The Hartford employs a ‘defense-in-depth’ strategy that uses multiple security measures to protect the integrity of the Company's information assets. This ‘defense-in-depth’ strategy aligns to the National Institute of Standards and Technology ("NIST") Cyber Security Framework and provides preventative, detective and responsive measures that collectively protects the Company. Various cyber assurance methods, including security metrics, third party security assessments, external penetration testing, red team exercises, and cyber war game exercises are used to test the effectiveness of the overall cybersecurity control environment. The Hartford, like many other large financial services companies, blocks attempted cyber intrusions on a daily basis. In the event of a cyber intrusion, the Company invokes its Cyber Incident Response Program (the "Program") commensurate with the nature of the intrusion. While the actual methods employed differ based on the event, our approach uses internal teams and outside advisors with specialized skills to support the response and recovery efforts and requires elevation of issues, as necessary, to senior management. In addition, we have procedures to ensure timely notification of critical cybersecurity incidents pursuant to the Program to help identify employees who may have material non-public information and to implement blackout restrictions on 90 From a governance perspective, senior members of our Enterprise Risk Management, Information Protection and Internal Audit functions provided detailed, regular reports on cybersecurity matters in 2020 to the Board, including the Finance, Investment, and Risk Management Committee ("FIRMCo"), a committee consisting of all directors and the Audit Committee, which oversees controls for the Company's major risk exposures, and has principal responsibility for oversight of cybersecurity risk. The topics covered by these updates include the Company's activities, policies and procedures to prevent, detect and respond to cybersecurity incidents, as well as lessons learned from cybersecurity incidents and internal and external testing of our cyber defenses. Financial Risk Financial risks include direct and indirect risks to the Company's financial objectives from events that impact financial market conditions and the value of financial assets. Some events may cause correlated movement in multiple risk factors. The primary sources of financial risks are the Company's invested assets. Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss on a U.S. GAAP, statutory, and economic basis. Exposures are actively monitored and managed, with risks mitigated where appropriate. The Company uses various risk management strategies, including limiting aggregation of risk, portfolio re-balancing and hedging with over-the-counter and exchange-traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve the following Company-approved objectives: hedging risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rate risk or volatility; managing liquidity; controlling transaction costs; and engaging in income generation covered call transactions and synthetic replication transactions. Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management. The Company identifies different categories of financial risk, including liquidity, credit, interest rate, equity and foreign currency exchange. Liquidity Risk Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual funding obligations as they come due. Sources of Liquidity Risk Sources of liquidity risk include funding risk, company-specific liquidity risk and market liquidity risk resulting from differences in the amount and timing of sources and uses of cash as well as company-specific and general market conditions. Stressed market conditions may impact the ability to sell assets or otherwise transact business and may result in a significant loss in value. Impact Inadequate capital resources and liquidity could negatively affect the Company’s overall financial strength and its ability to generate cash flows from its businesses, borrow funds at competitive rates and raise new capital to meet operating and growth needs. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations across its investment, reinsurance, and insurance portfolios and limiting exposure to any specific reinsurer or counterparty. Potential credit losses can be mitigated through diversification (e.g., geographic regions, asset types, industry sectors), hedging and the use of collateral to reduce net credit exposure. The Company manages credit risk through the use of various surveillance, analyses and governance processes. The investment, derivatives and reinsurance areas have formal policies and procedures for counterparty approvals and authorizations, which establish criteria defining minimum levels of creditworthiness and financial stability for eligible counterparties. Potential investments are subject to underwriting reviews and private securities are also subject to management approval. Mitigation strategies vary across the three sources of credit risk, but may include: • • Investing in a portfolio of high-quality and diverse securities; Selling investments subject to credit risk; • Hedging through use of credit default swaps; • • • Clearing derivative transactions through central clearing houses that require daily variation margin; Entering into derivative and reinsurance contracts only with strong creditworthy institutions Requiring collateral; and • Non-renewing policies/contracts or reinsurance treaties. The Company has developed credit exposure thresholds which are based upon counterparty ratings. Aggregate counterparty credit quality and exposure are monitored on a daily basis utilizing an enterprise-wide credit exposure information system that contains data on issuers, ratings, exposures, and credit limits. Exposures are tracked on a current and potential basis and aggregated by ultimate parent of the counterparty across investments, reinsurance receivables, insurance products with credit risk, and derivatives. As of December 31, 2020, 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 6 - Investments of Notes to Consolidated Financial Statements. Management The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise under both current and stressed market conditions. The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability of liquid assets among legal entities. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact operating cash flows or liquid assets. The liquidity requirements of The Hartford Financial Services Group, Inc. ("HFSG Holding Company") have been and will continue to be met by the HFSG Holding Company's fixed maturities, short-term investments and cash, and dividends from its subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or other capital securities and borrowings from its credit facilities as needed. The Company maintains multiple sources of contingent liquidity including a revolving credit facility, an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates, and access to collateralized advances from the Federal Home Loan Bank of Boston ("FHLBB") for certain affiliates. The Company's CFO has primary responsibility for liquidity risk. Refer to the Capital Resources & Liquidity section of MD&A for the discussion of what the Company is doing to manage liquidity during the COVID-19 pandemic. Credit Risk and Counterparty Risk Credit risk is the risk to earnings or capital due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with contractually agreed upon terms. Credit risk is comprised of three major factors: the risk of change in credit quality, or credit migration risk; the risk of default; and the risk of a change in value due to changes in credit spreads. Sources of Credit Risk The majority of the Company’s credit risk is concentrated in its investment holdings and use of derivatives, but it is also present in the Company’s ceded reinsurance activities and various insurance products. Impact A decline in creditworthiness is typically reflected as an increase in an investment’s credit spread and an associated decline in the investment's fair value, potentially resulting in recording an ACL and an increased probability of a realized loss upon sale. In certain instances, counterparties may default on their obligations and the Company may realize a loss on default. Premiums receivable, including premiums for retrospectively rated plans, reinsurance recoverable and deductible losses recoverable are also subject to credit risk based on the counterparty’s unwillingness or inability to pay. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. Management The objective of the Company’s enterprise credit risk management strategy is to identify, quantify, and manage credit risk in aggregate and to limit potential losses in accordance with the Company's credit risk management policy. The Company manages its credit risk by managing aggregations of risk, holding a diversified mix of issuers and counterparties 91 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Assets and Liabilities Subject to Credit Risk Investments Essentially all of the Company's invested assets are subject to credit risk. In 2020, net credit losses on fixed maturities, AFS and the increase (decrease) in ACL on mortgage loans were $28 and $19 respectively. In 2019. credit related impairments were $3 and there were no mortgage loans that had a valuation allowance. (See the Investment Portfolio Risk section of Financial Risk Management under “Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments" and "ACL on Mortgage Loans”). Reinsurance recoverables Reinsurance recoverables, net of an allowance for uncollectible reinsurance, were $6,011 and $5,527 as of December 31, 2020 and 2019 respectively. (See the Enterprise Risk Management section of the MD&A under “Reinsurance as a Risk Management Strategy.”) Premiums receivable and agents' balances Premiums receivable and agents’ balances, net of an ACL, were $4,268 and $4,384, as of December 31, 2020 and 2019, respectively. For a discussion regarding collectibility of these balances, see Note 8 - Premiums Receivable and Agents' Balances of Notes to 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. Managing the Credit Risk of Counterparties to Derivative Instruments The Company also has derivative counterparty exposure policies which limit the Company’s exposure to credit risk. The Company monitors counterparty exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The Company’s policies with respect to derivative counterparty exposure establishes market-based credit limits, favors long-term financial stability and creditworthiness of the counterparty and typically requires credit enhancement/credit risk reducing agreements, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management. The Company minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties primarily rated A or better. The Company also generally requires that OTC derivative contracts be governed by an International 92 Swaps and Derivatives Association ("ISDA") Master Agreement, which is structured by legal entity and by counterparty and permits right of offset. The Company enters into credit support annexes in conjunction with the ISDA agreements, which require daily collateral settlement based upon agreed upon thresholds. 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 notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of credit risk. 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 or negotiated thresholds, if applicable. In accordance with industry standards and the contractual requirements, collateral is typically settled on the same business day. For further discussion, see the Derivative Commitments section of Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements. Use of Credit Derivatives The Company may also use credit default swaps to manage credit exposure or to assume credit risk to enhance yield. Credit Risk Reduced Through Credit Derivatives The Company uses credit derivatives to purchase credit protection with respect to a single entity or referenced index. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio. As of December 31, 2020 and 2019, the notional amount related to credit derivatives that purchase credit protection was $6 and $124, respectively, while the fair value was less than $(1) and $(3), respectively. These amounts do not include positions that are in offsetting relationships. Credit Risk Assumed Through Credit Derivatives The Company also enters into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. These swaps primarily reference investment grade single corporate issuers and indexes. As of December 31, 2020 and 2019, the notional amount related to credit derivatives that assume credit risk was $675 and $500, respectively, while the fair value was $21 and $13, respectively. These amounts do not include positions that are in offsetting relationships. For further information on credit derivatives, see Note 7 - Derivatives of Notes to Consolidated Financial Statements. Credit Risk of Business Operations A portion of the Company's Commercial Lines business is written with large deductibles or under retrospectively-rated plans. Under some commercial insurance contracts with a large deductible, the Company is obligated to pay the claimant the full amount of the claim and the Company is subsequently reimbursed by the policyholder for the deductible amount. As such, the Company is subject to credit risk until reimbursement is made. Retrospectively-rated policies are utilized primarily for Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations to protect the firm from the economic impact associated with changes in interest rates by setting portfolio duration targets that are aligned with the duration of the liabilities that they support. The Company analyzes interest rate risk using various models including parametric models and cash flow simulation under various market scenarios of the liabilities and their supporting investment portfolios. Key metrics that the Company uses to quantify its exposure to interest rate risk inherent in its invested assets and the associated liabilities include duration, convexity and key rate duration. The Company utilizes a variety of derivative instruments to mitigate interest rate risk associated with its investment portfolio or to hedge liabilities. Interest rate caps, floors, swaps, swaptions, and futures may be used to manage portfolio duration. Interest rate swaps are primarily used to convert interest receipts or payments to a fixed or variable rate. The use of such swaps enables the Company to customize contract terms and conditions to desired objectives and manage the duration profile within established tolerances. Interest rate swaps are also used to hedge the variability in the cash flows of a forecasted purchase or sale of fixed rate securities due to changes in interest rates. As of December 31, 2020 and 2019, notional amounts pertaining to derivatives utilized to manage interest rate risk, including offsetting positions, totaled $10.7 billion and $11.4 billion, respectively, and primarily relate to hedging invested assets. The fair value of these derivatives was $(69) and $(59) as of December 31, 2020 and 2019, respectively. Assets and Liabilities Subject to Interest Rate Risk Fixed income investments The fair value of fixed income investments, which include fixed maturities, commercial mortgage loans, and short-term investments, was $52.8 billion and $49.3 billion at December 31, 2020 and 2019, respectively. The weighted average duration of the portfolio, including derivative instruments, was approximately 4.9 years and 5.0 years as of December 31, 2020 and 2019, respectively. Changes in the fair value of fixed maturities due to changes in interest rates are reflected as a component of AOCI. Long-term debt obligations The Company's variable rate debt obligations will generally result in increased interest expense as a result of higher interest rates; the inverse is true during a declining interest rate environment. Changes in the value of long-term debt as a result of changes in interest rates will impact the fair value of these instruments but not the carrying value in the Company's Consolidated Balance Sheets. workers' compensation coverage, whereby the ultimate premium is adjusted based on actual losses incurred. Although the premium adjustment feature of a retrospectively-rated policy substantially reduces insurance risk for the Company, it presents credit risk to the Company. The Company’s results of operations could be adversely affected if a significant portion of such policyholders failed to reimburse the Company for the deductible amount or the amount of additional premium owed under retrospectively-rated policies. The Company manages these credit risks through credit analysis, collateral requirements, and regular monitoring. For more information, see Note 8- Premiums Receivable and Agents' Balances of Notes to the Consolidated Financial Statements. 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 its fixed maturity investments, commercial mortgage loans we invest in as well as debt securities, preferred stock and similar securities issued by the Company and discount rate assumptions associated with the Company’s claim reserves and pension and other post retirement benefit obligations as well as from assets that support the Company's pension and other post-retirement benefit plans. Impact Changes in interest rates from current levels can have both favorable and unfavorable effects for the Company. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. Change in Interest Rates Ý Þ Favorable Effects Additional net investment income due to reinvesting at higher yields and higher yields on variable rate securities Unfavorable Effects Decrease in the fair value of the fixed income investment portfolio Increase in the fair value of the fixed income investment portfolio Lower interest expense on variable rate debt obligations Higher interest expense on variable rate debt obligations Lower net investment income due to reinvesting at lower yields and lower yields on variable rate securities Acceleration in paydowns and prepayments or calls of certain mortgage- backed and municipal securities Management The Company manages its exposure to interest rate risk by constructing investment portfolios that seek 93 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Group life and disability product liabilities The cash outflows associated with contracts issued by the Company's Group Benefits segment, primarily group life and short and long- term disability policy liabilities, are not interest rate sensitive but vary based on timing. Though the aggregate cash flow payment streams are relatively predictable, these products rely upon actuarial pricing assumptions (including mortality and morbidity) and have an element of cash flow uncertainty. As of December 31, 2020 and 2019, the Company had $8,653 and $8,667, respectively of reserves for group life and disability contracts. Changes in the value of the liabilities as a result of changes in interest rates will impact the fair value of these instruments but not the carrying value in the Company's Consolidated Balance Sheets. Pension and other post-retirement benefit obligations The Company’s pension and other post- retirement benefit obligations are exposed to interest rate risk based upon the sensitivity of present value obligations to changes in liability discount rates as well as the sensitivity of the fair value of investments in the plan portfolios to changes in interest rates. The discount rate assumption is based upon an interest rate yield curve that reflects high-quality fixed income investments consistent with the maturity profile of the expected liability cash flows. The Company is exposed to the risk of having to make additional plan contributions if the plans’ investment returns, including from investments in fixed maturities, are lower than expected. (For further discussion of discounting pension and other postretirement benefit obligations, refer to Note 19 - Employee Benefit Plans of Notes to Consolidated Financial Statements.) As of December 31, 2020 and 2019, the Company had $669 and $732, respectively, of unfunded liabilities for pension and post-retirement benefit obligations recorded within Other Liabilities in the accompanying Balance Sheets. Interest Rate Sensitivity Group Life and Disability Reserves and Invested Assets Supporting Them Included in the following table is the before tax change in the net economic value of contracts issued by the Company’s Group Benefits segment, primarily group life and disability, for which fixed valuation discount rate assumptions are established based upon investment returns assumed in pricing, along with the corresponding invested assets. Also included in this analysis are the interest rate sensitive derivatives used by the Company to hedge its exposure to interest rate risk in the investment portfolios supporting these contracts. This analysis does not include the assets and corresponding liabilities of other insurance products such as automobile, property, workers' compensation and general liability insurance. Certain financial instruments, such as limited partnerships and other alternative investments, have been omitted from the analysis as the interest rate sensitivity of these investments is generally lower and less predictable than fixed income investments. The calculation of the estimated hypothetical change in net economic value below assumes a 100 basis point upward and downward parallel shift in the yield curve. The selection of the 100 basis point parallel shift in the yield curve was made only as an illustration of the potential hypothetical impact of such an event and should not be construed as a prediction of future market events. Actual results could differ 94 materially from those illustrated below due to the nature of the estimates and assumptions used in the analysis. The Company’s sensitivity analysis calculation assumes that the composition of invested assets and liabilities remain materially consistent throughout the year and that the current relationship between short-term and long-term interest rates will remain constant over time. As a result, these calculations may not fully capture the impact of portfolio re-allocations, significant product sales or non-parallel changes in interest rates. Interest Rate Sensitivity of Group Benefits Short and Long-term Disability Reserves and Invested Assets Supporting Them Change in Net Economic Value as of December 31, 2020 2019 [1] Basis point shift -100 +100 -100 +100 Increase (decrease) in economic value, before tax [1] Prior year numbers have been updated to include the invested assets supporting the surplus associated with group benefits short and long-term disability reserves. $ 137 $ (133) $ 138 $ (140) The carrying value of assets related to the businesses included in the table above was $12.1 billion and $12.0 billion, as of December 31, 2020 and 2019, respectively, and included fixed maturities, commercial mortgage loans and short-term investments. The assets are monitored and managed within set duration guidelines and are evaluated on a daily basis, as well as annually, using scenario simulation techniques in compliance with regulatory requirements. Invested Assets not Supporting Group Life and Disability Reserves The following table provides an analysis showing the estimated before tax change in the fair value of the Company’s investments and related derivatives, excluding assets supporting group life and disability reserves which are included in the table above, assuming 100 basis point upward and downward parallel shifts in the yield curve as of December 31, 2020 and 2019. Certain financial instruments, such as limited partnerships and other alternative investments, have been omitted from the analysis as the interest rate sensitivity of these investments is generally lower and less predictable than fixed income investments. Interest Rate Sensitivity of Invested Assets Not Supporting Group Benefits Short and Long-term Disability Reserves Change in Fair Value as of December 31, 2020 2019 [1] Basis point shift -100 +100 -100 +100 Increase (decrease) in $ 2,054 $ (1,906) $ 1,893 $ (1,800) fair value, before tax [1] Prior year numbers have been updated to exclude the invested assets supporting the surplus associated with group benefits short and long-term disability reserves. The carrying value of fixed maturities, commercial mortgage loans and short-term investments related to the businesses included in the table above was $40.7 billion and $37.3 billion as of December 31, 2020 and 2019, respectively. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Long-term Debt A 100 basis point parallel decrease in the yield curve would result in an increase in the fair value of long-term debt by $670 and $607 as of December 31, 2020 and 2019, respectively. A 100 basis point parallel increase in the yield curve would result in a decrease in the fair value of long-term debt by $551 and $499 as of December 31, 2020 and 2019, respectively. Changes in the value of long-term debt as a result of changes in interest rates will not impact the carrying value in the Company's Consolidated Balance Sheets. Pension and Other Post-Retirement Plan Obligations A 100 basis point parallel decrease in the yield curve would impact both the value of the underlying pension assets and the value of the liabilities, resulting in an increase in the unfunded liabilities for pension and other post-retirement plan obligations of $196 and $185 as of December 31, 2020 and 2019, respectively. A 100 basis point parallel increase in the yield curve would have the inverse effect and result in a decrease in the unfunded liabilities for pension and other post-retirement plan obligations of $148 and $138 as of December 31, 2020 and 2019, respectively. Gains or losses due to changes in interest rates on the pension and post-retirement plan obligations are recorded within AOCI and are amortized into the actuarial loss component of net periodic benefit cost when they exceed a threshold. Discontinuation of LIBOR In July 2017, the U.K. Financial Conduct Authority ("FCA") announced that by the end of 2021 it intends to stop persuading or compelling banks to report information used to set LIBOR, which could result in LIBOR no longer being published after 2021 or a determination by regulators that LIBOR is no longer representative of its underlying market. The Company continues to monitor the potential impacts of the discontinuation of LIBOR, which is used as a benchmark or reference rate for certain investments and derivatives the Company owns and floating rate debt the Company has issued. In December 2020, based on feedback from the banks that report information used to set LIBOR, Intercontinental Exchange ("ICE") Benchmark Administration released a consultation on the potential for banks to continue to publish U.S. dollar LIBOR rates until the end of June 2023. Subject to the results of the consultation, it is possible that some U.S. dollar LIBOR rates will continue to be available for a limited period beyond the end of 2021. The Company has identified three principal types of outstanding contracts that may be affected by the discontinuation of or transition from LIBOR to an alternative reference rate, including floating rate fixed maturity investments the Company holds in its investment portfolio; derivative instruments that hedge interest rate risk; and two classes of junior subordinated debentures that the Company has issued and are currently outstanding. • Using our best estimate of expected future cash flows including prepayments and maturities, the book value of LIBOR referenced floating rate fixed maturities that the Company owns as of December 31, 2020 and that the Company expects to be outstanding at the end of 2021 is approximately $3.6 billion. The Company has performed a review of the LIBOR replacement language on these assets and believes that greater than 85% have language that supports a transition to a new standard benchmark rate. The Company will continue to assess the remaining holdings and work with counterparties, as appropriate, to determine LIBOR replacement language or manage the assets in other ways, such as through asset sales. The notional amount of derivative instruments as of December 31, 2020 with a floating rate component that references LIBOR that the Company expects to be outstanding at the end of 2021, considering maturities, is $9.6 billion, with $9.4 billion being cleared through an exchange or clearinghouse. The Company anticipates that substantially all existing derivatives referencing LIBOR, whether or not cleared through an exchange or clearing house, will transition from LIBOR to SOFR or other market alternative rates in line with new market standards currently being developed and adopted. The Company has issued $1.1 billion of junior subordinated debentures that mature after 2021 with LIBOR referenced floating interest rates. The Company is assessing options to manage the risk associated with the transition away from LIBOR related to these outstanding securities. • • The uncertainty regarding the continued use and reliability of LIBOR, including the timing of such transition, could reduce the value of some of our floating rate fixed maturity investments and increase the interest the Company pays on the junior subordinated debentures. There is also a risk that certain derivatives may no longer qualify for hedge accounting if reference rates change on derivative contracts but the reference interest rate of the instruments being hedged do not change in a substantially similar manner, particularly for cash flow hedges of floating rate investments the Company owns and junior subordinated debentures the Company has issued. The loss of hedge accounting could result in the recognition of gains or losses on derivatives in the income statement rather than in accumulated other comprehensive income. The Company has adopted the FASB's temporary guidance which allows The Hartford to account for contract modifications made solely due to rate reform (such as replacing LIBOR with another reference rate) as continuations of existing contracts and to maintain hedge accounting when the hedging effectiveness between the financial instrument and its hedge is only affected by the change to a replacement rate. The guidance expires for contract modifications made and hedge relationships entered into or evaluated after December 31, 2022, after which, there is uncertainty whether certain outstanding derivative contracts will continue to qualify for hedge accounting either because the replacement rate of the financial instrument being hedged is not sufficiently matched to the reference rate of the derivative contract or because replacement rate language for the hedged instrument has not been determined. Equity Risk Equity risk is the risk of financial loss due to changes in the value of global equities or equity indices. Sources of Equity Risk The Company has exposure to equity risk from invested assets, assets that support the Company’s pension and other post-retirement benefit plans, and fee income derived from Hartford Funds assets under management. In addition, the Company has equity exposure through its 9.7% ownership interest in the limited partnership, Hopmeadow Holdings LP, that owns the life and annuity business 95 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations sold in 2018. For further information, see Note 22 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements. Impact The investment portfolio is exposed to losses from market declines affecting equity securities and derivatives, which could negatively impact the Company's reported earnings. In addition, investments in limited partnerships and other alternative investments generally have a level of correlation to domestic equity market levels and can expose the Company to losses in earnings if valuations decline; however, earnings impacts are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. For assets supporting pension and other post-retirement benefit plans, the Company may be required to make additional plan contributions if equity investments in the plan portfolios decline in value. Hartford Funds earnings are also significantly influenced by the U.S. and other equity markets. Generally, declines in equity markets will reduce the value of average daily assets under management and the amount of fee income generated from those assets. Increases in equity markets will generally have the inverse impact. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. Management The Company uses various approaches in managing its equity exposure, including limits on the proportion of assets invested in equities, diversification of the equity portfolio, and, at times, hedging of changes in equity indices. For assets supporting pension and other post-retirement benefit plans, the asset allocation mix is reviewed on a periodic basis. In order to minimize risk, the pension plans maintain a listing of permissible and prohibited investments and impose concentration limits and investment quality requirements on permissible investment options. Assets and Liabilities Subject to Equity Risk Investment portfolio The investment portfolio is exposed to losses from market declines affecting equity securities and derivatives, and certain alternative assets and limited partnerships. Generally, declines in equity markets will reduce the value of these types of investments and could negatively impact the Company’s earnings while increases in equity will have the inverse impact. For equity securities, the changes in fair value are reported in net realized capital gains and losses. For alternative assets and limited partnerships, the Company's share of earnings for the period is recorded in net investment income, though typically on a delay based on the availability of the underlying financial statements. For a discussion of equity sensitivity, see below. Assets supporting pension and other post- retirement benefit plans The Company may be required to make additional plan contributions if equity investments in the plan portfolios decline in value. For a discussion of equity sensitivity, see below. Declines in value are recognized as unrealized losses in AOCI. Increases in equity markets are recognized as unrealized gains in AOCI. Unrealized gains and losses in AOCI are amortized into the actuarial loss component of net periodic benefit cost when they exceed a threshold. For further discussion of equity risk associated with the pension plans, see Note 19 - Employee Benefit Plans of Notes to Consolidated Financial Statements. Assets under management Assets under management in Hartford Funds may decrease in value during equity market declines, which would result in lower earnings because fee income is earned based upon the value of assets under management. Equity Sensitivity Investment portfolio and the assets supporting pension and other post-retirement benefit plans Included in the following tables are the estimated before tax change in the economic value of the Company’s invested assets and assets supporting pension and other post-retirement benefit plans with sensitivity to equity risk. The calculation of the hypothetical change in economic value below assumes a 20% upward and downward shock to the Standard & Poor's 500 Composite Price Index ("S&P 500"). For limited partnerships and other alternative investments, the movement in economic value is calculated using a beta analysis largely derived from historical experience relative to the S&P 500. The selection of the 20% shock to the S&P 500 was made only as an illustration of the potential hypothetical impact of such an event and should not be construed as a prediction of future market events. Actual results could differ materially from those illustrated below due to the nature of the estimates and assumptions used in the analysis. These calculations do not capture the impact of portfolio re-allocations. Equity Sensitivity [1] As of December 31, 2020 As of December 31, 2019 Shock to S&P 500 Shock to S&P 500 (Before tax) Investment Portfolio Assets supporting pension and other post-retirement benefit plans Fair Value +20% -20% Fair Value +20% -20% $ $ 3,520 $ 397 $ (397) $ 3,295 $ 440 $ (407) 1,573 $ 240 $ (240) $ 1,372 $ 230 $ (230) [1]Table excludes the Company's investment in Hopmeadow Holdings LP which is reported in other assets on the Company's Consolidated Balance Sheets. 96 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Hartford Funds assets under management Hartford Funds earnings are significantly influenced by the U.S. and other equity markets. If equity markets were to hypothetically decline 20% and remain depressed for one year, the estimated before tax impact on reported earnings for that one year period is approximately $60 as of December 31, 2020. The selection of the 20% shock to the S&P 500 was made only as an illustration of the potential hypothetical impact of such an event and should not be construed as a prediction of future market events. Actual results could differ materially due to the nature of the estimates and assumptions used in the analysis. 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. The impact on the fair value of fixed maturities, AFS due to changes in foreign currency exchange rates, in relation to functional currency, is reported in unrealized gains or losses as part of other comprehensive income. The realization of gains or losses resulting from investment sales or from changes in investments that record changes in fair value through the income statement due to changes in foreign currency exchange rates is reflected through net realized capital gains and losses. In regards to insurance and reinsurance contracts that the Company enters into for which we are obligated to pay losses in a foreign currency, the impact of changes in foreign currency exchange rates on assets and liabilities related to these contracts is reflected through net realized capital gains and losses. These assets or liabilities include, but are not limited to, cash and cash equivalents, premiums receivable, reinsurance recoverables, and unpaid losses and loss adjustment expenses. Additionally, the Company translates the assets, liabilities, and income of non-U.S. dollar functional currency legal entities into U.S. dollar. This translation amount is reported as a component of other comprehensive income. 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. Assets and Liabilities Subject to Foreign Currency Exchange Risk Investment portfolio The Company is exposed to foreign exchange risk affecting non-U.S. dollar denominated cash, fixed maturities, equities and derivative instruments. Changes in relative values between currencies can positively or negatively impact net realized capital gains and losses or unrealized gains (losses) as part of other comprehensive income. Assets supporting pension plan Changes in relative values between currencies can positively or negatively impact unrealized gains and losses in AOCI. Unrealized gains and losses in AOCI are amortized into the actuarial loss component of net periodic benefit cost when they exceed a threshold. As of December 31, 2020 and 2019, the Company had pension plan assets of $95 and $83, respectively, of non-U.S. dollar investments in multiple currencies. These amounts are excluded from the sensitivity analysis below. Insurance contract related assets and liabilities The Company has non-U.S. dollar denominated insurance contracts and associated premiums receivable, reinsurance recoverables and unpaid losses and loss adjustment expenses, that are exposed to foreign exchange risk. For contracts that are within U.S, dollar functional currency legal entities, changes in foreign currency exchange rates can positively or negatively impact net realized capital gains and losses. For contracts within non-U.S. dollar functional currency legal entities, changes in foreign currency exchange rates can positively or negatively impact other comprehensive income. Foreign Currency Sensitivity For the Company’s primary currencies that create foreign exchange risk, the following table provides the estimated impact of a hypothetical 10% unfavorable change in exchange rates. Actual results could differ materially due to the nature of the estimates and assumptions used in the analysis. The amounts presented are in U.S. dollars and before-tax. December 31, 2020 Net assets (liabilities) December 31, 2019 Net assets (liabilities) Foreign Currency Sensitivity [1] GBP CAD 10% Unfavorable Change 296 $ 189 $ (44) 336 $ 173 $ (46) $ $ [1]Amount excludes currencies where the value of net assets in U.S. dollar equivalent is less than 1% of total net assets of the Company. 97 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Risk on U.S. Statutory Capital U.S. Statutory surplus amounts and RBC ratios may increase or decrease in any period depending upon a variety of factors and may be compounded in extreme scenarios or if multiple factors occur at the same time. At times the impact of changes in certain market factors or a combination of multiple factors on RBC ratios can be counterintuitive. Factors include: • • A decrease in the value of certain fixed-income and equity securities in our investment portfolio, due in part to credit spreads widening or a decline in equity market levels, may result in a decrease in statutory surplus and RBC ratios. A decline in interest rates may reduce our net investment income, which may result in a decrease in statutory surplus and RBC ratios. • Decreases in the value of certain derivative instruments that do not get hedge accounting, may reduce statutory surplus and RBC ratios. • Non-market factors can also impact the amount and volatility of either our actual or potential obligation, as well as the related statutory surplus and RBC ratios. Most of these factors are outside of the Company’s control. 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 internal models that have the effect of increasing or decreasing the amount of capital we must hold in order to maintain our current ratings. 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 Consolidated Balance Sheets and are not included in the amortized cost or fair value of the fixed maturities. For further information refer to Note 6 - Investments. Fixed Maturities, AFS by Credit Quality December 31, 2020 December 31, 2019 Amortized Cost Fair Value Percent of Total Fair Value Amortized Cost Fair Value Percent of Total Fair Value United States Government/Government agencies $ 4,872 $ 5,214 11.6 % $ 5,478 $ 5,644 AAA AA A BBB BB & below 6,482 7,840 6,848 8,453 15.2 % 18.8 % 6,412 7,746 6,617 8,146 10,500 11,595 25.7 % 10,144 10,843 9,831 10,856 2,036 2,069 24.1 % 4.6 % 8,963 1,335 9,530 1,368 13.4 % 15.7 % 19.3 % 25.7 % 22.6 % 3.3 % Total fixed maturities, AFS $ 41,561 $ 45,035 100.0 % $ 40,078 $ 42,148 100.0 % The fair value of fixed maturities, AFS increased as compared to December 31, 2019, primarily due to net additions of corporate securities and an increase in valuations as a result of a decline in interest rates. 98     Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fixed Maturities, AFS by Type December 31, 2020 December 31, 2019 Amortized Cost ACL [1] Gross Unrealized Gains Gross Unrealized Losses Fair Value Percent of Total Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Asset-backed securities ("ABS") Consumer loans $ 1,396 $ — $ 35 $ — $ 1,431 3.2 % $ 1,350 $ 16 $ (3) $ 1,363 Other Collateralized loan obligations ("CLOs") CMBS Agency [2] Bonds Interest only Corporate Basic industry Capital goods 129 — 2,780 — 1,779 — 2,160 — 280 — 727 — 1,488 — Consumer cyclical 1,434 (1) Consumer non- cyclical Energy Financial services Tech./comm. Transportation Utilities Other Foreign govt./govt. agencies Municipal bonds Taxable Tax-exempt RMBS Agency Non-agency Alt-A Sub-prime 2,878 — 1,474 (1) 4,523 (21) 2,651 — 747 — 1,999 — 480 — 842 — 1,084 — 7,480 — 1,829 — 1,755 — 27 — 355 — 4 7 117 159 10 69 148 108 314 147 398 370 85 250 37 77 109 831 92 41 2 9 — 133 0.3 % 111 (7) 2,780 6.2 % 2,186 (6) 1,890 4.2 % (13) 2,306 5.1 % (2) 288 0.6 % 1,878 2,108 224 (1) 795 1.8 % 539 (11) 1,625 3.6 % 1,495 (1) 1,540 3.4 % 991 (4) 3,188 7.1 % (4) 1,616 3.6 % (4) 4,896 10.9 % (3) 3,018 6.7 % (3) 829 1.8 % 2,372 1,550 3,977 2,360 743 — 2,249 5.0 % 2,019 — — 517 1.1 % 389 919 2.0 % 1,057 (1) 1,192 2.6 % 815 — 8,311 18.5 % 7,948 (2) 1,919 4.3 % (1) 1,795 4.0 % — — 29 0.1 % 364 0.8 % 2,409 1,786 40 540 1,264 — 141 — 1,405 3.1 % 1,191 U.S. Treasuries Total fixed maturities, AFS 2 5 43 86 12 31 72 57 137 96 192 208 44 132 17 66 45 692 57 17 3 20 75 Percent of Total Fair Value 3.2 % 0.3 % — 113 (8) 2,183 5.2 % (7) 1,914 (4) 2,190 (2) 234 (1) 569 (9) 1,558 (1) 1,047 (3) 2,506 (3) 1,643 (4) 4,165 — 2,568 — 787 (4) 2,147 — 406 4.5 % 5.2 % 0.6 % 1.4 % 3.7 % 2.5 % 5.9 % 3.9 % 9.9 % 6.1 % 1.9 % 5.1 % 1.0 % — 1,123 2.7 % (1) 859 2.0 % (1) 8,639 20.5 % (1) 2,465 (2) 1,801 — — 43 560 (1) 1,265 5.8 % 4.2 % 0.1 % 1.3 % 3.0 % (63) $ 45,035 [1]Represents the ACL recorded following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation 100.0 % $ 40,078 $ 2,125 $ $ 41,561 $ (23) $ 3,560 $ (55) $ 42,148 100.0 % and Significant Accounting Policies of Notes to Consolidated Financial Statements. [2]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 increased as compared with December 31, 2019, primarily due to net additions of corporate securities and an increase in valuations as a result of a decline in interest rates. The Company increased holdings in consumer cyclical and non-cyclical, financial services and technology/ communication corporate bonds as well as in CLOs and taxable municipal bonds, while reducing holdings in tax-exempt municipal bonds, RMBS, and foreign government/government agencies. Energy Exposure Oil prices came under significant pressure during the first half of 2020, particularly during March and April, largely due to the unprecedented reduction in demand stemming from the global pandemic as well as a decision by Saudi Arabia to raise production despite declining demand. The uncertain outlook caused credit spreads to widen for corporate and sovereign issuers that participate in the exploration, production, transportation and refining of oil and gas. Subsequently, OPEC Plus' agreement to reduce production in combination with recovering demand from economic re-openings has contributed to a strong recovery in oil prices to average levels for the post 2014 cycle. With the stabilization of oil prices, credit spreads have recovered 99     Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations meaningfully. Ultimately, the impact of price volatility in the Company’s energy sector investments will be determined by the durability of the recovery in energy prices and the ability of issuers to maintain liquidity, manage indebtedness, and navigate changing regulations and growing consolidation trends within the industry. The Company's direct exposure within its investment portfolio to the energy sector totals approximately 3% of invested assets as of December 31, 2020 and is primarily comprised of investment grade corporate debt. These investments are diversified by issuer and different sub-sectors of the energy market, with the highest exposure to the midstream industry and the lowest to refining services. The following table summarizes the Company's exposure to the energy sector by security type and credit quality. Exposure to Energy December 31, 2020 December 31, 2019 Amortized Cost Fair Value Amortized Cost Fair Value $ 1,170 $ 1,307 $ 1,425 $ 1,516 304 21 309 21 125 45 127 45 1,495 1,637 1,595 1,688 189 — 189 5 214 — 214 6 232 9 241 20 254 10 264 21 $ 1,689 $ 1,857 $ 1,856 $ 1,973 Commercial & Residential Real Estate The following table presents the Company’s exposure to CMBS and RMBS by current credit quality included in the preceding Fixed Maturities, AFS by Type table. Corporate securities, AFS and Equity securities, at fair value Investment grade Below investment grade Equity securities, at fair value Total corporate, AFS and equity securities, at fair value Foreign govt./govt agencies Investment grade Below investment grade Total foreign govt./govt. agencies, AFS Other Total energy exposure The Company manages the credit risk associated with the energy sector within the investment portfolio on an on-going basis using macroeconomic analysis and issuer credit analysis. The Company considers alternate scenarios including oil prices remaining at low levels for an extended period and/or declining significantly below current levels. For additional details regarding the Company’s management of credit risks, see the Credit Risk Section of this MD&A. The Company has evaluated available-for-sale securities with exposure to energy for a potential ACL as of December 31, 2020 and concluded that for all but one of the securities in an unrealized loss position, it is more likely than not that the Company will recover the entire amortized cost basis of the securities. In addition, no other securities in the table above have been identified as intent-to-sell, nor is the Company required to sell. For additional details regarding the Company’s credit loss assessment process, see the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments section below. 100     Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Exposure to CMBS and RMBS as of December 31, 2020 AAA AA A BBB BB and Below Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value CMBS Agency [1] $ 1,771 $ 1,882 $ 8 $ 8 $ — $ — $ — $ — $ — $ — $ 1,779 $ 1,890 Bonds 1,009 1,101 Interest Only 177 183 Total CMBS 2,957 3,166 RMBS Agency 1,807 1,894 Non-Agency 1,034 1,063 541 90 639 22 371 3 25 582 93 683 25 380 3 26 423 430 170 179 8 7 4 4 431 437 174 183 — 313 2 114 429 — 315 2 116 433 — 36 2 102 140 — 36 2 105 143 17 1 18 — 1 20 14 1 15 — 1 22 113 134 116 139 2,160 2,306 280 288 4,219 4,484 1,829 1,919 1,755 1,795 27 355 29 364 3,966 4,107 — 1 — 1 2,842 2,958 421 434 $ 5,799 $ 6,124 $ 1,060 $ 1,117 $ 860 $ 870 $ 314 $ 326 $ 152 $ 154 $ 8,185 $ 8,591 Exposure to CMBS and RMBS as of December 31, 2019 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 Alt-A Sub-Prime Total RMBS Total CMBS & RMBS CMBS Agency [1] $ 1,878 $ 1,914 $ — $ — $ — $ — $ — $ — $ — $ — $ 1,878 $ 1,914 Bonds 1,013 1,055 Interest Only 150 158 Total CMBS 3,041 3,127 RMBS Agency 2,386 2,441 Non-Agency 1,215 1,226 Alt-A Sub-Prime Total RMBS — 9 — 9 561 67 628 23 300 8 56 576 70 646 24 304 8 57 3,610 3,676 387 393 416 438 118 121 — — 5 5 416 438 123 126 — — 257 257 4 167 428 4 173 434 — 13 8 164 185 — 13 9 171 193 — 2 2 — 1 20 144 165 — 1 1 — 1 22 150 173 2,108 2,190 224 234 4,210 4,338 2,409 2,465 1,786 1,801 40 540 43 560 4,775 4,869 Total CMBS & RMBS [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. $ 6,651 $ 6,803 $ 1,015 $ 1,039 $ 308 $ 319 $ 844 $ 872 $ 167 $ 174 $ 8,985 $ 9,207 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 December 31, 2020, mortgage loans had an amortized cost of $4.5 billion and carrying value of $4.5 billion, with an ACL of $38. As of December 31, 2019, mortgage loans had an amortized cost of $4.2 billion and carrying value of $4.2 billion with no valuation allowance. The increase in the allowance is attributable to both the recognition of an ACL in connection with the adoption of accounting guidance for credit losses on January 1, 2020 and the result of the COVID-19 pandemic and its impacts on the economic forecasts, as well as lower estimated property values and operating income as compared to the prior year. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements. The Company funded $647 of commercial mortgage loans with a weighted average loan-to-value (“LTV”) ratio of 59% and a weighted average yield of 3.2% during the twelve months ended December 31, 2020. The Company continues to originate commercial mortgage loans in high growth markets across the country focusing primarily on institutional-quality industrial and multi-family properties with strong LTV ratios. There were no 101 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations mortgage loans held for sale as of December 31, 2020 or December 31, 2019. municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table. Municipal Bonds The following table presents the Company’s exposure to Available For Sale Investments in Municipal Bonds December 31, 2020 December 31, 2019 Amortized Cost Fair Value Weighted Average Credit Quality Amortized Cost Fair Value Weighted Average Credit Quality $ 1,082 $ 889 1,441 1,273 905 732 644 394 401 102 701 1,232 940 1,636 1,407 985 824 694 464 450 109 762 6,593 7,331 AA+ AAA A+ A+ AA- AA AA AA A+ AA+ A+ AA- $ 1,157 $ 936 1,509 1,360 781 784 660 456 339 114 667 1,268 985 1,675 1,454 842 853 700 517 374 117 713 6,670 7,245 AA AAA A+ A+ AA- AA AA AA A AA+ AA- AA- General Obligation Pre-refunded [1] Revenue Transportation Health Care Leasing [2] Education Water & Sewer Sales Tax Power Housing Other Total Revenue Total Municipal 9,503 [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 8,564 $ 8,763 $ 9,498 AA- AA- $ $ 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. mid-sized non-public businesses with high growth potential, and strong owner sponsorship, as well as limited exposure to public markets. Income or losses on investments in limited partnerships and alternative investments are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. As of December 31, 2020, the largest issuer concentrations were the New York Dormitory Authority, the Commonwealth of Massachusetts, and the New York City Municipal Water Finance Authority, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds. As of December 31, 2019, the largest issuer concentrations were the New York Dormitory Authority, the New York City Transitional Finance Authority, and the Commonwealth of Massachusetts, 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 17% of the fair value of the Company's investment portfolio. While COVID-19 has had an impact on many municipal issuers, the average credit quality of the Company’s holdings is AA-, and the Company believes the issuers in which it invests have multiple levers to maintain the strength of their credit profile. Limited Partnerships and Other Alternative Investments The following table presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, real estate funds, and private equity funds. Real estate funds consist of investments primarily in real estate joint ventures and, to a lesser extent, equity funds. Private equity funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small to 102 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Limited Partnerships and Other Alternative Investments - Net Investment Income 2020 Year Ended December 31, 2019 2018 Hedge funds Real estate funds Private equity funds Other alternative investments [1] Total Amount $ 9 85 106 22 222 $ Yield Amount Yield Amount Yield 7.1% $ 20.3% 12.4% 5.4% 12.3% $ 5 70 126 31 232 7.2 % $ 17.0 % 16.6 % 8.2 % 14.4 % $ 4 58 144 (1) 205 9.3% 12.0% 22.5% (0.2%) 13.2% Investments in Limited Partnerships and Other Alternative Investments December 31, 2020 December 31, 2019 Amount Percent Amount Percent Hedge funds Real estate funds Private equity and other funds Other alternative investments [1] $ 158 563 944 417 2,082 7.6 % $ 27.0 % 45.4 % 20.0 % 100.0 % $ 94 407 851 406 1,758 5.3 % 23.2 % 48.4 % 23.1 % 100.0 % Total [1]Consists of an insurer-owned life insurance policy which is primarily invested in fixed income, private equity, and hedge funds. $ Fixed Maturities, AFS — Unrealized Loss Aging The total gross unrealized losses were $63 as of December 31, 2020, and have increased $8 from December 31, 2019, primarily due to wider credit spreads within higher yielding corporates and CMBS. As of December 31, 2020, $49 of the gross unrealized losses were associated with fixed maturities, AFS depressed less than 20% of amortized cost. The remaining $14 of gross unrealized losses were associated with fixed maturities, AFS depressed greater than 20%. The fixed maturities, AFS depressed more than 20% were primarily related to one variable-rate coupon corporate issuer with a long-dated maturity date as well as commercial real estate securities that were purchased at tighter credit spreads. As part of the Company’s ongoing investment monitoring process, the Company has reviewed its fixed maturities, AFS in an unrealized loss position and concluded that these fixed maturities are temporarily depressed and are expected to recover in value as the investments approach maturity or as market spreads tighten. For these fixed maturities in an unrealized loss position where an ACL has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the investment. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these investments. For further information regarding the Company’s ACL analysis, see the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments section below. Unrealized Loss Aging for Fixed Maturities, AFS December 31, 2020 December 31, 2019 Consecutive Months Three months or less Items Amortized Cost ACL [1] Unrealized Loss Fair Value Items Amortized Cost Unrealized Loss Fair Value 102 $ 625 $ — $ (3) $ 622 347 $ 2,529 $ (15) $ 2,514 Greater than three to six months Greater than six to nine months Greater than nine to eleven months Twelve months or more 46 8 186 205 367 6 1,275 994 — — (1) — (5) (1) 362 114 5 50 15 (27) 1,247 712 190 24 (8) (2) (1) 704 188 23 (27) 967 345 1,440 (29) 1,411 Total [1]Represents the ACL recorded following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation (63) $ 3,203 871 $ 547 $ 3,267 $ 4,895 $ (55) $ 4,840 (1) $ and Significant Accounting Policies. 103       Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Unrealized Loss Aging for Fixed Maturities, AFS Continuously Depressed Over 20% Consecutive Months Three months or less Greater than three to six months Greater than six to nine months Greater than nine to eleven months Twelve months or more Total December 31, 2020 December 31, 2019 Items Amortized Cost Unrealized Loss Fair Value Items Amortized Cost Unrealized Loss Fair Value 2 $ 2 $ (1) $ — 1 2 24 — 46 5 5 — (10) (1) (2) 1 — 36 4 3 — $ — $ 5 — — 32 2 — — 10 29 $ 58 $ (14) $ 44 37 $ 12 $ — $ (1) — — (4) (5) $ — 1 — — 6 7 Credit Losses on Fixed Maturities, AFS and Intent-to- Sell Impairments For the year ended December 31, 2020 The Company recorded net credit losses on fixed maturities, AFS of $28. The losses were primarily attributable to corporate fixed maturities, mainly one private regional and commercial aircraft lessor and to a lesser extent, one tax-exempt municipal bond impacted by COVID-19. Unrealized losses on securities with ACL recognized in other comprehensive income were $1. For further information, refer to Note 6 - Investments of Notes to Consolidated Financial Statements. Intent-to-sell impairments of $5 were primarily related to one corporate issuer in the energy sector and one issuer with exposure to India. The Company incorporates its best estimate of future performance using internal assumptions and judgments that are informed by economic and industry specific trends, as well as our expectations with respect to security specific developments. Future intent-to-sell impairments or credit losses may develop as the result of changes in our intent to sell specific securities that are in an unrealized loss position or if modeling assumptions, such as macroeconomic factors or security specific developments, change unfavorably from our current modeling assumptions, resulting in lower cash flow expectations. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A. For the year ended December 31, 2019 Impairments recognized in earnings were comprised of credit impairments of $3 primarily related to two corporate securities experiencing issuer-specific financial difficulties. Non-credit impairments recognized in other comprehensive income were $3. ACL on Mortgage Loans The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized capital gains and losses. Apart from an ACL recorded on 104 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 6 - Investments of Notes to Consolidated Financial Statements. For the year-ended December 31, 2020, the Company recorded an increase in the ACL on mortgage loans of $19. The increase in the allowance was due to the effects of the COVID-19 pandemic and its impacts on the economic forecasts, as well as lower estimated property values and operating income as compared to the prior year. The Company did not record an ACL on any individual mortgage loans. CAPITAL RESOURCES AND LIQUIDITY The following section discusses the overall financial strength of The Hartford and its insurance operations including their ability to generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months. SUMMARY OF CAPITAL RESOURCES AND LIQUIDITY Capital available to the holding company as of December 31, 2020: • $1.8 billion in fixed maturities, short-term investments, investment sales receivable and cash at the HFSG Holding Company. • • A senior unsecured five-year revolving credit facility that provides for borrowing capacity up to $750 of unsecured credit through March 29, 2023. As of December 31, 2020, there were no borrowings outstanding. 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 December 31, 2020, there were no borrowings outstanding. Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2021 expected dividends and other sources of capital: The future payment of dividends from our subsidiaries is dependent on several factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity • P&C - The Company's U.S. property and casualty insurance subsidiaries have dividend capacity of $1.7 billion for 2021, with $850 to $900 of net dividends expected in 2021. • Group Benefits - HLA has dividend capacity of $295 in 2021 with $250 to $295 of dividends expected in 2021. • Hartford Funds - HFSG Holding Company expects to receive $125 to $150 in dividends from Hartford Funds in 2021. Expected liquidity requirements for the next twelve months as of December 31, 2020: • $215 of interest on debt. • • $21 dividends on preferred stock, subject to the discretion of the Board of Directors. $500 of common stockholders' dividends, subject to the discretion of the Board of Directors and before share repurchases. Equity repurchase program: In December, 2020, the Company announced a $1.5 billion share repurchase authorization by the Board of Directors, which is effective from January 1, 2021 through December 31, 2022. The Company’s 2019 share repurchase program expired on December 31, 2020. Liquidity Requirements and Sources of Capital The Hartford Financial Services Group, Inc. ("HFSG Holding Company") The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. will primarily be met by HFSG Holding Company’s fixed maturities; short-term investments and cash; and dividends, principally from its subsidiaries. The Company maintains sufficient liquidity and has a variety of contingent liquidity resources to manage liquidity across a range of economic scenarios. To date, the impact of the pandemic and resulting economic downturn on net operating cash flows have been relatively modest. The amount of such impacts will ultimately depend on the length and severity of the pandemic and its effects on the economy. We continue to expect to successfully manage our liquidity throughout the pandemic. In parts of the second and third quarters of 2020, the Company waived late payment fees for a period of time for business and personal insurance customers and temporarily suspended the policy cancellation process for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments. Due to those actions and the economic effects of the pandemic, we experienced an increase in uncollectible premiums receivable and, accordingly, increased our current expected credit loss allowance on premiums receivable by $40 before tax for the year ended December 31, 2020. 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 that could arise due to the COVID-19 pandemic, the Company has the ability to meet short-term cash requirements, if needed, by borrowing under its revolving credit facility or by having its insurance subsidiaries take collateralized advances under a facility with the Federal Home Loan Bank of Boston (“FHLBB”). The Company could also choose to have its insurance subsidiaries sell certain highly liquid, high quality fixed maturities or the Company could issue debt in the public markets under its shelf registration. No borrowings or advances have occurred to date. During the second quarter of 2020, fixed maturities, with a value of $63 as of December 31, 2020, were deposited by Hartford Fire Insurance Company into a Lloyd’s trust account to provide required capital to The Hartford’s Lloyd’s Syndicate. During the fourth quarter of 2020, additional fixed maturities, with a value of $112 as of December 31, 2020, were deposited by Hartford Fire Insurance Company into this trust account. This transaction provided required capital to The Hartford's Lloyd's syndicate, by which we reduced the amount of letters of credit under the Lloyd's Letter of Credit Facility supporting Lloyd's capital requirements. This was in accordance with the Lloyd's requirements reducing the maximum amount of letters of credit permitted to support Lloyd's capital requirements as of the end of 2020. As of December 31, 2020, a total of $175 of fixed maturities were held by Hartford Fire Insurance Company in this trust account. In July 2020, the Company contributed €18 million to Navigators Holdings (Europe) N.V., a Belgium holding company. In September 2020, the Company received a $30 dividend from its retained equity interest in the legal entity that acquired the life and annuity business sold in May 2018. Through December 30, 2020, HFSG Holding Company received cash tax receipts of $533, including realization of net operating losses and refunds of prior period AMT credits. Debt On March 30, 2020, The Hartford repaid at maturity the $500 principal amount of its 5.5% senior notes. For additional information on Debt, see Note 14 - Debt of Notes to Consolidated Financial Statements. Equity In December, 2020, the Company announced a $1.5 billion share repurchase authorization by the Board of Directors which is effective from January 1, 2021 through December 31, 2022. 105 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations During the period from January 1, 2021 through February 18, 2021, the Company repurchased 1.1 million shares for $56. The timing of any future repurchases will be dependent upon several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, and other considerations. Under the previous $1.0 billion share repurchase authorization that was effective through December 31, 2020, the Company repurchased 2.7 million and 3.4 million shares for $150 and $200 during the years ended 2020 and 2019, respectively. The Company’s 2019 share repurchase program expired on December 31, 2020. For further information, see Note 16 - Equity of Notes to Consolidated Financial Statements. Dividends The Hartford's Board of Directors declared the following quarterly dividends since October 1, 2020: Common Stock Dividends Declared Record October 21, 2020 December 1, 2020 Payable January 5, 2021 $ Amount per share 0.325 February 4, 2021 March 1, 2021 April 2, 2021 $ 0.35 Preferred Stock Dividends Declared October 21, 2020 Record February 1, 2021 Payable February 16, 2021 $ Amount per share 375.00 February 18, 2021 May 1, 2021 May 17, 2021 $ 375.00 There are no current restrictions on HFSG Holding Company's ability to pay dividends to its stockholders. For a discussion of restrictions on dividends to 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 Part I, Item 1A, — Risk Factors for the risk factor "Our ability to declare and pay dividends is subject to limitations." Dividends from Subsidiaries Dividends to HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. Upon the acquisition of Navigators Group, the Company’s principal insurance subsidiaries are domiciled in the United States, the United Kingdom and Belgium. The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s statutory policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under 106 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. As part of the New York state insurance commissioner's approval of the Navigators Group acquisition, and as is common practice, any dividend from NIC and NSIC before May 2021 will require prior approval from the state insurance commissioner. The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when determining dividends from subsidiaries. These considerations include, but are not limited to, expected earnings and capitalization of the subsidiaries, regulatory capital requirements and liquidity requirements of the individual operating company. Corporate members of Lloyd's Syndicates may pay dividends to its parent to the extent of available profits that have been distributed from the syndicate in excess of the Funds at Lloyd's ("FAL") capital requirement. The FAL is determined based on the syndicate’s solvency capital requirement 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. Belgium domiciled insurers may only pay dividends if, at the end of their previous fiscal year, the total amount of their assets, as reduced by its provisions and debts, are in excess of certain minimum capital thresholds calculated under Belgian law. In 2020, HFSG Holding Company received $350 of dividends from HLA and $127 from Hartford Funds. In addition, HFSG Holding Company received $900 of net dividends from P&C subsidiaries in 2020 which excludes $50 of P&C dividends that were subsequently contributed to a run-off P&C subsidiary and $78 of P&C dividends related to interest payments on an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company. 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 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 due to additional interest expense. Shelf Registrations The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on May 17, 2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement. For further information regarding Shelf Registrations, see Note 14 - Debt of Notes to Consolidated Financial Statements. Revolving Credit Facilities The Company has a senior unsecured five-year revolving credit facility (the "Credit Facility") that provides up to $750 of unsecured credit through March 29, 2023. As of December 31, 2020, no borrowings were outstanding, no letters of credit were issued under the Credit Facility and the Company was in compliance with all financial covenants. Commercial Paper On December 17, 2020, the Board of Directors terminated the HFSG Holding Company's commercial paper program, under which the maximum borrowings available were $750. The Company maintains sufficient liquidity and continues to have a variety of other contingent liquidity resources to meet its short- term liquidity requirements. 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 December 31, 2020, 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 HLA, are members of the Federal Home Loan Bank of Boston (“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 December 31, 2020, there were no advances outstanding. The Connecticut Department of Insurance permits Hartford Fire and HLA to pledge up to $1.2 billion and $0.6 billion in qualifying assets, respectively, without prior approval, to secure FHLBB advances in 2021. For further information regarding the Company's collateralized advances with Federal Home Loan Bank of Boston, see Note 14 - Debt of Notes to Consolidated Financial Statements. Lloyd's Letter of Credit Facilities As a result of the acquisition of Navigators Group, The Hartford had two letter of credit facility agreements: the Club Facility and the Bilateral Facility, which were used to provide a portion of the capital requirements at Lloyd's. As of September 30, 2020, uncollateralized letters of credit with an aggregate face amount of $165 and £60 million, or $78, were outstanding under the Club Facility and £18 million, or $23, was outstanding under the $25 Bilateral Facility. These agreements terminated on November 5, 2020. On November 5, 2020, The Hartford entered into a new committed credit facility agreement with a syndicate of lenders (the “Club Facility”). The Club Facility has two tranches with one tranche extending a $104 commitment and the other tranche extending a £85 million ($116 as of December 31, 2020) commitment. In addition, on November 5, 2020, The Hartford entered into a new non-committed $25 credit facility with a lender (the “Bilateral Facility”). The term of both of these facilities is two years. The purpose of these facilities is to issue letters of credit to provide Funds at Lloyd’s to support underwriting capacity provided by the Navigators Corporate Underwriters Limited to the Lloyd’s Syndicate for the 2021 and 2022 underwriting years of account (and prior open years). As of December 31, 2020, letters of credit with an aggregate face amount of $104 and £85 million, or $116, 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 at Lloyd’s, consistent with Lloyd’s requirements. As of December 31, 2020, The Hartford was in compliance with all financial covenants of both facilities. Pension Plans and Other Postretirement Benefits While the Company has significant discretion in making voluntary contributions to the U. S. qualified defined benefit pension plan, minimum contributions are mandated in certain circumstances pursuant to the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, the Worker, Retiree, and Employer Recovery Act of 2008, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21) and Internal Revenue Code regulations. The Company made contributions to the U. S. qualified defined benefit pension plan of approximately $70, $70 and $101 in 2020, 2019 and 2018, respectively. No contributions were made to the other postretirement plans in 2020, 2019 and 2018. The Company’s 2020, 2019 and 2018 required minimum funding contributions were immaterial. The Company does not have a 2021 required minimum funding contribution for the U.S. qualified defined benefit pension plan and the funding requirements for all pension plans are expected to be immaterial. The Company has not determined whether, and to what extent, contributions may be made to the U.S. qualified defined benefit pension plan in 2021. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during 2021 to make this determination. 107 Part II - Item 7. 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 agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances enable the counterparties to terminate the agreements and demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. For further information, refer to Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements. As of December 31, 2020, no derivative positions would be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings. This could change as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. Insurance Operations While subject to variability period to period, underwriting and investment cash flows continue to provide sufficient liquidity to meet anticipated demands over the next twelve months. For information about the impact of COVID-19 on the Company's cash flows see Part I, Item 1A, Risk Factors of this Annual Report. For a discussion and tabular presentation of the Company’s current contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A. The principal sources of operating funds are premiums, fees earned from assets under management and investment income, while investing cash flows primarily originate from maturities and sales of invested assets. The primary uses of funds are to pay claims, claim adjustment expenses, commissions and other underwriting and insurance operating costs, to pay taxes, to purchase new investments and to make dividend payments to the HFSG Holding Company. The Company’s insurance operations consist of property and casualty insurance products (collectively referred to as “Property & Casualty Operations”) and Group Benefits. The Company's insurance operations hold fixed maturity securities including a significant short-term investment position (securities with maturities of one year or less at the time of purchase) to meet liquidity needs. Liquidity requirements that are unable to be funded by the Company's insurance operations' short-term investments would be satisfied with current operating funds, including premiums or investing cash flows, which includes proceeds received through the sale of invested assets. A sale of invested assets could result in significant realized capital 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 Fixed maturities Short-term investments Cash Less: Derivative collateral Total As of December 31, 2020 $ $ 34,173 1,086 120 77 35,302 Group Benefits Operations Fixed maturities Short-term investments Cash Less: Derivative collateral Total As of December 31, 2020 $ $ 10,521 254 13 42 10,746 Off-balance Sheet Arrangements and Aggregate Contractual Obligations The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity, or capital resources of the Company, except for unfunded commitments to purchase investments in limited partnerships and other alternative investments, private placements, and mortgage loans as disclosed in Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements. 108 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Aggregate Contractual Obligations as of December 31, 2020 Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Property and casualty obligations [1] Group life and disability obligations [2] Operating lease obligations [3] Long-term debt obligations [4] Purchase obligations [5] Other liabilities reflected on the balance sheet [6] Total [1]The following points are significant to understanding the cash flows estimated for obligations (gross of reinsurance) under property and casualty contracts: 7,157 $ 1,403 47 215 2,233 45 11,100 $ 29,989 $ 10,407 243 9,371 2,814 45 52,869 $ 7,865 $ 3,457 81 427 444 — 12,274 $ 3,901 $ 1,514 52 427 127 — 6,021 $ $ $ 11,066 4,033 63 8,302 10 — 23,474 • Reserves for Property & Casualty unpaid losses and loss adjustment expenses include IBNR and case reserves. While payments due on claim reserves are considered contractual obligations because they relate to insurance policies issued by the Company, 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. • In estimating the timing of future payments by year, the Company has assumed that its historical payment patterns will continue. However, the actual timing of future payments could vary materially from these estimates 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. In addition, the table does not include future cash flows related to the receipt of premiums that may be used, in part, to fund loss payments. • Under U.S. GAAP, the Company is only permitted to discount reserves for losses and loss adjustment expenses in cases where the payment pattern and ultimate loss costs are fixed and determinable on an individual claim basis. For the Company, these include claim settlements with permanently disabled claimants. As of December 31, 2020, the total property and casualty reserves in the above table are gross of a reserve discount of $367. • Amounts shown do not consider $5.7 billion of reinsurance and other recoverables the Company expects to collect related to property and casualty obligations. [2] Estimated group life and disability obligations are based on assumptions comparable with the Company’s historical experience, modified for recent observed trends. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As of December 31, 2020, the total group life and disability obligations in the above table are gross of a reserve discount of $1.4 billion. [3]Includes undiscounted lease payments on operating lease agreements, including leases that have not yet commenced. See Note 21 - Leases of Notes to Consolidated Financial Statements for additional discussion on lease commitments. [4] Long-term debt obligations include payments of contractual principal and interest through final maturity. Contractual interest payments are based on stated rates for fixed rate notes and based on prevailing rates at December 31, 2020 for the period of time the Company’s junior subordinated debentures have floating rates. Interest payments do not consider the impact of future rate movements. Payments exclude amounts associated with an interest rate swap of the Company’s $500 junior subordinated debenture. See Note 14 - Debt of Notes to Consolidated Financial Statements for additional discussion of long-term debt obligations. [5]Includes $1.1 billion in commitments to purchase investments including approximately $804 of limited partnership and other alternative investments, $79 of private debt and equity securities, and $236 of mortgage loans. Of the $1.1 billion in commitments to purchase investments, $149 are related to mortgage loan commitments which the Company can cancel unconditionally. Outstanding commitments under these limited partnerships and mortgage loans are included in payments due in less than 1 year since the timing of funding these commitments cannot be reliably estimated. In addition, $904 relates to commitments to purchase investments which are reflected on the Company’s Consolidated Balance Sheets. The remaining balance relates to contractual commitments to purchase various goods and services such as maintenance, human resources, and information technology in the normal course of business, as well as unfunded tax credit investments. Purchase obligations exclude contracts that are cancellable without penalty or contracts that do not specify minimum levels of goods or services to be purchased. [6]Includes cash collateral of $30 which the Company has accepted in connection with the Company’s derivative instruments. Since the timing of the return of the collateral is uncertain, the return of the collateral has been included in the payments due in less than 1 year. Capitalization Short-term debt (includes current maturities of long-term debt) $ — $ Capital Structure December 31, 2020 December 31, 2019 Long-term debt Total debt Common stockholders' equity, excluding AOCI, net of tax Preferred stock AOCI, net of tax Total stockholders’ equity Total capitalization Debt to stockholders’ equity Debt to capitalization 4,352 4,352 17,052 334 1,170 $ $ 18,556 22,908 $ $ 500 4,348 4,848 15,884 334 52 16,270 21,118 23% 19% 30% 23% Change (100%) —% (10%) 7% —% NM 14% 8% Total capitalization increased $1,790, or 8%, as of December 31, 2020 compared to December 31, 2019 primarily due to an increase in AOCI and net income in excess of stockholder dividends, partially offset by a paydown of debt. For additional information on AOCI, net of tax, including 109   Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations unrealized capital gains from securities, see Note 18 - Changes in and Reclassifications From Accumulated Other Comprehensive Income (Loss) and Note 6 - Investments of Notes to Consolidated Cash Flow [1][2] Net cash provided by operating activities Net cash used for investing activities Net cash used for financing activities Financial Statements. For additional information on debt, see Note 14 - Debt of Notes to Consolidated Financial Statements. 2020 2019 2018 $ $ $ 3,871 $ (2,066) $ (1,778) $ 3,489 $ (2,148) $ (1,191) $ 2,843 (1,962) (1,467) Cash and restricted cash— end of year [1]Cash activities in 2018 include cash flows from Discontinued Operations; see Note 22 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial 239 $ 262 $ $ 121 Statements for information on cash flows from Discontinued Operations. [2]Cash activities in 2020 include cash flows related to Continental Europe Operations classified as held for sale beginning in the third quarter of 2020. See Note 2 - Business Acquisition and Disposition of Notes to Consolidated Financial Statements for discussion of this transaction. Year ended December 31, 2020 compared to the year ended December 31, 2019 Net cash provided by operating activities increased as compared to the prior year period primarily driven by the inclusion of Navigators Group for the full year in 2020, subrogation benefit distributions collected of $227 arising from the PG&E settlement agreement, a decrease in claims paid for Group Benefits and P&C excluding Navigators, lower operating expenses paid and the deferral of paying payroll taxes as a result of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, partially offset by lower P&C premiums received excluding Navigators and a lower refund of AMT credits. Cash used for investing activities decreased primarily due to the acquisition of Navigators Group for $1.9 billion in 2019, an increase in net proceeds from equity securities, and a decrease in net payments from mortgage loans, partially offset by a change from net proceeds to net payments from short- term investments, and an increase in net purchases of partnerships and fixed maturities. Cash used for financing activities increased primarily due to a decrease in proceeds from issuing debt and a larger net decrease in securities loaned or sold under agreements to repurchase, partially offset by a decrease in repayments of debt. Operating cash flows for the year ended December 31, 2020 have 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 on Statutory Capital and Liquidity Risk section in this MD&A. 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 June 19, 2020, A.M. Best raised its financial strength rating on Hartford Life and Accident Insurance Company ("HLA") to A+ from A. The upgrade is reflective of the support provided by The Hartford, as well as the group benefits business' growing contribution to consolidated revenue and earnings and the overall diversification it provides. Insurance Financial Strength Ratings as of February 18, 2021 A.M. Best Standard & Poor's Moody's A+ A+ A+ A+ A+ A A1 A2 Not Rated Hartford Fire Insurance Company Hartford Life and Accident Insurance Company Navigators Insurance Company Other Ratings: The Hartford Financial Services Group, Inc.: Senior debt a- BBB+ Baa1 These ratings are not a recommendation to buy, sell or hold any of The Hartford’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization. Each agency’s rating should be evaluated independently of any other agency’s rating. The system and 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 Part I, Item 1A. Risk Factors — “Downgrades in our financial strength or credit ratings may make our products less attractive, increase our cost of capital and inhibit our ability to refinance our debt.” 110             Part II - Item 7. 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, 2020 $ Statutory income Contributions from (dividends to) parent [3] Other items Net change to U.S. statutory capital 10,208 $ 1,598 (898) (113) 587 2,644 $ 310 (350) (3) (43) 12,852 1,908 (1,248) (116) 544 U.S. statutory capital at December 31, 2020 13,396 [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 10,795 $ 2,601 $ $ Company. [2]Excludes insurance operations in the U.K. and Continental Europe. [3]P&C insurance subsidiaries dividends to Parent of $898 includes $900 of net dividends from P&C subsidiaries, offset by $2 related to the interest on the HHI note. Stat to GAAP Differences Significant differences between U.S. GAAP stockholders’ equity and aggregate statutory capital prepared in accordance with U.S. STAT include the following: • U.S. STAT excludes equity of non-insurance and foreign insurance subsidiaries not held by U.S. insurance subsidiaries. • • • • Costs incurred by the Company to acquire insurance policies are deferred under U.S. GAAP while those costs are expensed immediately under U.S. STAT. Temporary differences between the book and tax basis of an asset or liability which are recorded as deferred tax assets are evaluated for recoverability under U.S. GAAP while these amounts are then subject to further admissibility tests under U.S. STAT. The assumptions used in the determination of Group Benefits reserves (i.e. for Group Benefits contracts) are prescribed under U.S. STAT, while the assumptions used under U.S. GAAP are generally the Company’s best estimates. The difference between the amortized cost and fair value of fixed maturity and other investments, net of tax, is recorded as an increase or decrease to the carrying value of the related asset and to equity under U.S. GAAP, while, under U.S. STAT, most investments are carried at amortized cost with only certain securities carried at fair value, such as equity securities and certain lower rated bonds required by the NAIC to be recorded at the lower of amortized cost or fair value. • U.S. STAT for life insurance companies like HLA establishes a formula reserve for realized and unrealized losses due to default and equity risks associated with certain invested assets (the Asset Valuation Reserve), while U.S. GAAP does not. Also, for those realized gains and losses caused by changes in interest rates, U.S. STAT for life insurance companies defers and amortizes the gains and losses, caused by changes in interest rates, into income over the original life to maturity of the asset sold (the Interest Maintenance Reserve) while U.S. GAAP does not. • Goodwill arising from the acquisition of a business is tested for recoverability on an annual basis (or more frequently, as necessary) for U.S. GAAP, while under U.S. STAT goodwill is amortized over a period not to exceed 10 years and the amount of goodwill admitted as an asset is limited. • The deferred gain on retroactive reinsurance for losses ceded to the Navigators and A&E ADC agreements is recognized within a special category of surplus under U.S. STAT but is recognized within other liabilities under U.S. GAAP. In addition, certain assets, including a portion of premiums receivable and fixed assets, are non-admitted (recorded at zero value and charged against surplus) under U.S. STAT. U.S. GAAP generally evaluates assets based on their recoverability. Risk-Based Capital The Company's U.S. insurance companies' states of domicile impose RBC requirements. The requirements provide a means of measuring the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations based on its size and risk profile. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. All of the Company's U.S. operating insurance subsidiaries had RBC ratios in excess of the minimum levels required by the applicable insurance regulations. Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which the Company operates generally establish minimum solvency requirements for insurance companies. All of the Company's international insurance subsidiaries expect to maintain capital levels in excess of the minimum levels required by the applicable regulatory authorities. Sensitivity In any particular period, statutory capital amounts and RBC ratios may increase or decrease depending upon a variety of factors. The amount of change in the statutory capital or RBC ratios can vary based on individual factors and may be compounded in extreme scenarios or if multiple factors occur at the same time. At times the impact of changes in certain market factors or a combination of multiple factors on RBC ratios can be counterintuitive. For further discussion on these factors, see 111 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MD&A - Enterprise Risk Management, Financial Risk on Statutory Capital. Statutory capital at the insurance subsidiaries has been maintained at capital levels commensurate with the Company's desired RBC ratios and ratings from rating agencies. The amount of statutory capital can increase or decrease depending on a number of factors affecting insurance results including, among other factors, the level of catastrophe claims incurred, the amount of reserve development, the effect of changes in interest rates on investment income and the discounting of loss reserves, and the effect of realized gains and losses on investments. Contingencies Legal Proceedings For a discussion regarding contingencies related to The Hartford’s legal proceedings, see the information contained under “Litigation” and “Run-off Asbestos and Environmental Claims,” in Note 15 - Commitments and Contingencies of the Notes to Consolidated Financial Statements and Part I, Item 3 Legal Proceedings, which are incorporated herein by reference. Legislative and Regulatory Developments COVID-19 Global Pandemic State and federal retroactive business interruption coverage and other insurance regulatory relief initiatives - State and federal lawmakers are continuing to consider legislation and regulation in response to COVID-19. There have been proposals to impose retroactive coverage of COVID-19 claims under existing business interruption coverage provisions. If such proposals were enacted, they could represent a material exposure for the Company. Further, some states have adopted, or are considering incorporating, a presumption that if certain workers become infected with COVID-19, such infection would constitute an occupational disease triggering workers’ compensation coverage. In addition, state insurance regulators, including California, New Jersey and New York, have encouraged (and in some cases required) insurers to offer immediate relief to policyholders including refunding and offering discounts for drivers, incorporating flexible payment solutions for families, individuals, and businesses, providing additional time to make payments, waiving insurance premium late fees, pausing cancellation of coverage for personal and commercial policies due to non-payment and policy expiration, and suspending personal automobile exclusions for restaurant employees who are transitioning to meal delivery services using their personal automobile policy as coverage. The Hartford has offered consumer financial relief including a 15 percent refund on policyholders’ April and May 2020 personal automobile insurance premiums, waived late payments fees for a period of time for business and personal insurance customers and temporarily suspended policy cancellations for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments. As the COVID-19 global pandemic continues, regulators may require us to or we may elect to provide additional consumer and/ or business financial relief. The duration and scope of such regulatory/Company actions are uncertain, and the impacts of such actions could adversely affect the Company’s insurance business. Federal pandemic risk insurance - Congress is considering possible action for future pandemic risk insurance coverage through a risk sharing mechanism between insurers and the federal government. Timing for any Congressional action with respect to these efforts is uncertain at this time. If such a program were to be enacted, it could represent a significant obligation for the company in terms of deductible and co-share obligations. Federal emergency leave legislation - On March 18, 2020, the Families First Coronavirus Response Act ("FFCRA") was signed into law by the President, and was effective from April 1, 2020 to December 31, 2020. This legislation included a number of funding provisions and worker protections including mandated emergency paid sick leave and paid family and medical leave programs. For private employers with fewer than 500 employees, and most public employers, new programs were put in place to guarantee individuals 10 days of paid sick leave, and up to 10 weeks of paid family and medical leave to deal directly with COVID-19. Eligible employers have access to a tax credit to reimburse for costs related to the emergency leave programs. On December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law and included a bipartisan COVID-19 relief bill. Although the mandatory paid leave provisions from the FFCRA expired on December 31, 2020, the new law extends FFCRA tax credits through March 31, 2021, for covered employers that voluntarily continue to offer paid leave under the FFCRA framework. The Hartford is providing support for the administration of the family and medical leave component of the FFCRA for our Group Benefits customers. Congress also approved a $2 trillion Coronavirus Aid, Relief and Economic Security ("CARES") Act. The bill, signed into law on March 27, 2020, focused on providing financial support for small businesses, individuals, emergency workers, airlines and other industries of national security. The CARES Act included several technical corrections to the emergency leave programs and created advance refunding credits, which allow the U.S. Treasury to develop regulations or guidance to permit advancement of the tax credit for both the emergency paid sick leave and paid family and medical leave. While any further Congressional action could trigger a significant increase in claims volume and compliance requirements for Group Benefits, the timing of additional legislation is unclear at this time. Federal tax legislation - In response to the COVID-19 Global Pandemic, Congress, various states and other global jurisdictions have passed various pieces of legislation which contain various changes to the tax laws in order to aid impacted businesses and individuals, as well as provide economic stimulus. The Company deferred the employer’s portion of the Social Security tax on wages from March 27, 2020 to year-end 2020. Such deferred amounts would be due and payable over a two- year period, 50% by December 31, 2021 and 50% by December 31, 2022. Refer to Note 13 of Notes to Consolidated Financial Statements for information about the impact of these new tax laws on the Company. The U.S. Treasury and IRS continue to develop guidance implementing these new tax law provisions, and Congress may consider additional technical corrections to these laws. Tax proposals and regulatory initiatives which have been or are being considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear. Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act") It is unclear whether the Administration, Congress or the courts will seek to 112 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations reverse, amend or alter the ongoing operation of the Affordable Care Act ("ACA"). If such actions were to occur, they may have an impact on various aspects of our business, including our insurance businesses. It is unclear what an amended ACA would entail, and to what extent there may be a transition period for the phase out of the ACA. The impact to The Hartford as an employer would be consistent with other large employers. The Hartford’s core business does not involve the issuance of health insurance, and we have not observed any material impacts on the Company’s workers’ compensation business or group benefits business from the enactment of the ACA. We will continue to monitor the impact of the ACA and any reforms on consumer, broker and medical provider behavior for leading indicators of changes in medical costs or loss payments primarily on the Company's workers' compensation and disability liabilities. Tax Reform At the end of 2017, the Tax Cuts and Jobs Act of 2017 ("TCJA") was enacted. The TCJA made significant reforms to the U.S. tax code. The major areas of interest to the Company included the reduction of the corporate tax rate from 35% to 21% and the repeal of the corporate alternative minimum tax (AMT) and the refunding of AMT credits. The U.S. Treasury and IRS continue to develop guidance implementing TCJA, and Congress may consider additional technical corrections to the law. In addition, President Biden has indicated he will propose to increase the corporate tax rate to as high as 28% and revisit other aspects of TCJA. Tax proposals and regulatory initiatives which have been or are being considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear. For additional information on risks to the Company related to TCJA, see the risk factor entitled "Changes in federal or state tax laws could adversely affect our business, financial condition, results of operations and liquidity" under "Risk Factors" in Part I. Guaranty Fund and Other Insurance- related Assessments For a discussion regarding Guaranty Fund and Other Insurance- related Assessments, see Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements. 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. 113 Part II - Item 9A. Controls and Procedures Item 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures The Hartford's management assessed its internal controls over financial reporting as of December 31, 2020 in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment under those criteria, The Hartford's management concluded that its internal control over financial reporting was effective as of December 31, 2020. Changes in internal control over financial reporting There were no changes in the Company's internal control over financial reporting that occurred during the Company's fourth fiscal quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most employees of the Company and of our vendors have had to work from home during the COVID-19 pandemic though we will continue to assess the impact on the design and operating effectiveness of our internal controls. Attestation report of the Company’s registered public accounting firm The Hartford's independent registered public accounting firm, Deloitte & Touche LLP, has issued their attestation report on the Company's internal control over financial reporting which is set forth below. The Company's principal executive officer and its principal financial officer, based on their evaluation of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) have concluded that the Company's disclosure controls and procedures are effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of December 31, 2020. Management’s annual report on internal control over financial reporting The management of The Hartford Financial Services Group, Inc. and its subsidiaries (“The Hartford”) is responsible for establishing and maintaining adequate internal control over financial reporting for The Hartford as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. A company's internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 114 Part II - Item 9A. Controls and Procedures Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of The Hartford Financial Services Group, Inc. Hartford, Connecticut Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of The Hartford Financial Services Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 19, 2021, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Hartford, Connecticut February 19, 2021 115 Part III - Item 10. Directors, Executive Officers and Corporate Governance of The Hartford Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE HARTFORD Certain of the information called for by Item 10 will be set forth in the definitive proxy statement for the 2021 annual meeting of stockholders (the “Proxy Statement”) to be filed by The Hartford with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report under the captions and subcaptions “Board and Governance Matters”, and “Director Nominees" and is incorporated herein by reference. The Company has adopted a Code of Ethics and Business Conduct, which is applicable to all employees of the Company, including the principal executive officer, the principal financial officer and the principal accounting officer. The Code of Ethics and Business Conduct is available on the investor relations section of the Company’s website at: http://ir.thehartford.com. Any waiver of, or material amendment to, the Code of Ethics and Business Conduct will be posted promptly to our web site in accordance with applicable NYSE and SEC rules. Executive Officers of The Hartford Information about the executive officers of The Hartford who are also nominees for election as directors will be set forth in The Hartford’s Proxy Statement. Set forth below is information about the other executive officers of the Company as of February 10, 2021: Name Age Position with The Hartford and Business Experience For the Past Five Years Jonathan R. Bennett 56 Executive Vice President and Head of Group Benefits (August 2019 - Present); Chief Financial Officer and Head of Strategy for Property and Casualty and Group Benefits (October, 2012-August 2019) William A. Bloom 57 Executive Vice President of Operations and Technology (August 2014 - present); President of Global Kathleen M. Bromage Client Services, EXL (July 2010-July 2014) 63 Chief Marketing and Communications Officer (June 2015-present) Beth A. Costello 53 Executive Vice President and Chief Financial Officer (July 2014-present) Douglas G. Elliot 60 President (July 2014-present) Scott R. Lewis 58 Senior Vice President and Controller (May 2013-present) Robert W. Paiano 59 Executive Vice President and Chief Risk Officer (June 2017-Present); Senior Vice President & Treasurer (July 2010-May 2017) David C. Robinson 55 Executive Vice President and General Counsel (June 2015-present) Lori A. Rodden 50 Executive Vice President Chief Human Resources Officer (October 2019-present); Senior Vice President and Lead Human Resources Business Partner for Property & Casualty, Group Benefits, Claims and Actuarial (April 2016 to October 2019) and Vice President and Lead Human Resources for Middle Market, Large Commercial, Sales & Distribution and underwriting (November 2014 to April 2016) Amy M. Stepnowski 52 Executive Vice President Chief Investment Officer (August 2020-Present); President of Hartford Investment Management Company (August 2020-Present); Managing Director and Head of Public Credit Research Hartford Investment Management Company (September 2008-August 2020) 116 Part IV. Item 15. Index to Consolidated Financial Statements and Notes THE HARTFORD FINANCIAL SERVICES GROUP, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND NOTES DESCRIPTION Report of Independent Registered Public Accounting Firm FINANCIAL STATEMENTS Consolidated Statements of Operations — For the Years Ended December 31, 2020, 2019 and 2018 Consolidated Statements of Comprehensive Income (Loss) — For the Years Ended December 31, 2020, 2019 and 2018 Consolidated Balance Sheets — As of December 31, 2020 and 2019 Consolidated Statements of Changes in Stockholders’ Equity — For the Years Ended December 31, 2020, 2019 and 2018 Consolidated Statements of Cash Flows — For the Years Ended December 31, 2020, 2019 and 2018 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation and Significant Accounting Policies Note 2 - Business Acquisitions Note 3 - Earnings (Loss) per Share Note 4 - Segment Information Note 5 - Fair Value Measurements Note 6 - Investments Note 7 - Derivatives Note 8 - Premiums Receivable Note 9 - Reinsurance Note 10 - Deferred Policy Acquisition Costs Note 11 - Goodwill & Other Intangible Assets Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses Note 13 - Reserve for Future Policy Benefits Note 14 - Debt Note 15 - Commitments and Contingencies Note 16 - Equity Note 17 - Income Taxes Note 18 - Accumulated Other Comprehensive Income (Loss), Net of Tax Note 19 - Employee Benefit Plans Note 20 - Stock Compensation Plans Note 21 - Leases Note 22 - Business Dispositions and Discontinued Operations Note 23 - Restructuring and Other Costs Note 24 - Quarterly Results (Unaudited) PAGE 118 120 121 122 123 124 125 134 136 137 140 149 157 162 163 166 166 168 192 193 196 199 201 202 204 211 214 215 217 218 117 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Hartford Financial Services Group, Inc. Hartford, Connecticut Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Hartford Financial Services Group, Inc. and its subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex audit judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Unpaid Losses and Loss Adjustment Expenses - Refer to Notes 1 and 12 to the financial statements Critical Audit Matter Description For property and casualty and group life and disability insurance products, the Company establishes reserves for unpaid losses and loss adjustment expenses to provide for the estimated costs of paying claims under insurance policies written by the Company. These reserves include estimates for both claims that have been reported and claims that have been incurred but not reported and include estimates of all losses and loss adjustment expenses associated with processing and settling these claims. This estimation process is based significantly on the assumption that past developments are an appropriate predictor of future events and involves a variety of actuarial techniques that analyze experience, trends and other relevant factors. Given the subjectivity of estimating the ultimate cost to settle the liabilities for reported and unreported claims due to uncertainties caused by various factors including frequency and severity of claims as well as changes in the legislative and regulatory environment, performing audit procedures to evaluate whether unpaid losses and loss adjustment expenses were appropriately recorded as of December 31, 2020, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the unpaid losses and loss adjustment expenses included the following, among others: • We tested the effectiveness of controls related to the unpaid losses and loss adjustment expenses, including controls over inputs, methods, and assumptions used in the Company's estimation processes. • We tested the underlying data that served as the basis for the Company’s analysis, including historical claims. • With the assistance of our actuarial specialists, we evaluated the methods and assumptions used by the Company to estimate the unpaid losses and loss adjustment expenses by: 118 • • Comparing the Company’s prior year assumptions of expected development of ultimate loss to actual losses incurred during the current year to identify potential management bias in the determination of the unpaid losses and loss adjustment expenses. Assessing the reasonableness of the Company’s analysis, and for selected reserving lines, developing independent estimates of the unpaid losses and loss adjustment expenses and comparing such estimates to the Company’s estimates. Investments in Fixed Maturities Classified as Available-for-Sale - Refer to Notes 5 and 6 to the financial statements Critical Audit Matter Description Investments in fixed maturities classified as available-for-sale are reported at fair value in the financial statements. The investments without readily determinable fair values were valued using significant unobservable inputs, such as credit spreads and interest rates beyond the observable curve, that involved considerable judgment by the Company. Given the Company used models and unobservable inputs to estimate the fair value of investments in fixed maturities classified as available- for-sale, performing audit procedures to evaluate these inputs required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the models and unobservable inputs used by the Company to estimate the fair value of investments in fixed maturities classified as available-for-sale included the following, among others: • We tested the effectiveness of controls over the valuation of investments in fixed maturities classified as available-for-sale, including controls over inputs, methods, and assumptions used in the Company’s estimation processes. • On a sample basis, we tested the accuracy and completeness of the investments owned as of December 31, 2020, and the relevant security attributes used in the determination of their fair values. • With the assistance of our fair value specialists, for a sample of investments, we tested the mathematical accuracy of the fair value calculation and developed independent estimates of the fair value and compared our estimates to the Company’s estimates. In addition to developing independent estimates, we obtained an understanding of the models and inputs used by the Company and assessed those models and inputs for reasonableness. Such assessment included comparing inputs to external sources or developing independent inputs. /s/ DELOITTE & TOUCHE LLP Hartford, Connecticut February 19, 2021 We have served as the Company’s auditor since 2002. 119 THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Operations (in millions, except for per share data) Revenues Earned premiums Fee income Net investment income Net realized capital gains (losses) Other revenues Total revenues Benefits, losses and expenses Benefits, losses and loss adjustment expenses Amortization of deferred policy acquisition costs ("DAC") Insurance operating costs and other expenses Loss on extinguishment of debt Loss on reinsurance transaction Interest expense Amortization of other intangible assets Restructuring and other costs Total benefits, losses and expenses Income from continuing operations before income taxes Income tax expense Income from continuing operations, net of tax Income from discontinued operations, net of tax Net income Preferred stock dividends Net income available to common stockholders Income from continuing operations, net of tax, available to common stockholders per common share Basic Diluted Net income available to common stockholders per common share Basic Diluted For the years ended December 31, 2020 2019 2018 $ 17,288 $ 16,923 $ 15,869 1,277 1,846 (14) 126 1,301 1,951 395 170 1,313 1,780 (112) 105 20,523 20,740 18,955 11,805 1,706 4,480 — — 236 72 104 11,472 1,622 4,580 90 91 259 66 — 11,165 1,384 4,281 6 — 298 68 — 18,403 18,180 17,202 2,120 383 1,737 — 2,560 475 2,085 — 1,737 $ 2,085 $ 21 21 1,753 268 1,485 322 1,807 6 1,716 $ 2,064 $ 1,801 4.79 $ 4.76 $ 4.79 $ 4.76 $ 5.72 $ 5.66 $ 5.72 $ 5.66 $ 4.13 4.06 5.03 4.95 $ $ $ $ $ $ See Notes to Consolidated Financial Statements. 120               THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Comprehensive Income (Loss) (in millions) Net income Other comprehensive income (loss): For the years ended December 31, 2020 2019 2018 $ 1,737 $ 2,085 $ 1,807 Change in net unrealized gain on fixed maturities 1,150 1,660 (2,180) Change in unrealized losses on fixed maturities for which an allowance for credit losses ("ACL") has been recorded Change in other-than-temporary impairment ("OTTI") losses recognized in other comprehensive income ("OCI") Change in net gain on cash flow hedging instruments Change in foreign currency translation adjustments Change in pension and other postretirement plan adjustments OCI, net of tax Comprehensive income (loss) 1 3 9 1 14 4 (45) 1,118 (48) 1,631 $ 2,855 $ 3,716 $ (1) (25) (8) (23) (2,237) (430) See Notes to Consolidated Financial Statements. 121         THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Balance Sheets (in millions, except for share and per share data) Assets Investments: As of December 31, 2020 2019 Fixed maturities, available-for-sale, at fair value (amortized cost of $41,561 and $40,078, and ACL of $23 and $—) $ 45,035 $ 42,148 Equity securities, at fair value Mortgage loans (net of ACL of $38 and $—) Limited partnerships and other alternative investments Other investments Short-term investments Total investments Cash Restricted Cash Premiums receivable and agents' balances (net of ACL of $152 and $145) Reinsurance recoverables (net of allowance for uncollectible reinsurance of $108 and $114) Deferred policy acquisition costs Deferred income taxes, net Goodwill Property and equipment, net Other intangible assets, net Other assets Assets held for sale Total assets Liabilities Unpaid losses and loss adjustment expenses Reserve for future policy benefits Other policyholder funds and benefits payable Unearned premiums Short-term debt Long-term debt Other liabilities Liabilities held for sale Total liabilities Commitments and Contingencies (Note 15) Stockholders’ Equity 1,438 4,493 2,082 201 3,283 1,657 4,215 1,758 331 2,921 56,532 53,030 151 88 4,268 6,011 789 46 1,911 1,122 950 2,066 177 185 77 4,384 5,527 785 299 1,913 1,181 1,070 2,366 — $ 74,111 $ 70,817 $ 37,855 $ 36,517 638 701 6,629 — 4,352 5,222 158 635 755 6,635 500 4,348 5,157 — 55,555 54,547 Preferred stock, $0.01 par value — 50,000,000 shares authorized, 13,800 shares issued at December 31, 2020 and December 31, 2019, aggregate liquidation preference of $345 334 334 Common stock, $0.01 par value — 1,500,000,000 shares authorized, 384,923,222 shares issued at December 31, 2020 and December 31, 2019 Additional paid-in capital Retained earnings Treasury stock, at cost — 26,434,682 and 25,352,977 shares Accumulated other comprehensive income, net of tax Total stockholders' equity Total liabilities and stockholders’ equity 4 4 4,322 4,312 13,918 12,685 (1,192) (1,117) 1,170 52 18,556 16,270 $ 74,111 $ 70,817 See Notes to Consolidated Financial Statements. 122                   THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Changes in Stockholders' Equity (in millions, except for share and per share data) Preferred Stock Preferred Stock, beginning of period Issuance of preferred stock Preferred Stock, end of period Common Stock Additional Paid-in Capital Additional Paid-in Capital, beginning of period Issuance of shares under incentive and stock compensation plans Stock-based compensation plans expense Issuance of shares for warrant exercise Additional Paid-in Capital, end of period Retained Earnings Retained Earnings, beginning of period Cumulative effect of accounting changes, net of tax Adjusted balance beginning of period Net income Dividends declared on preferred stock Dividends declared on common stock Retained Earnings, end of period Treasury Stock, at cost Treasury Stock, at cost, beginning of period Treasury stock acquired Issuance of shares under incentive and stock compensation plans Net shares acquired related to employee incentive and stock compensation plans Issuance of shares for warrant exercise Treasury Stock, at cost, end of period Accumulated Other Comprehensive Income (Loss), net of tax Accumulated Other Comprehensive Income (Loss), net of tax, beginning of period Cumulative effect of accounting changes, net of tax Adjusted balance beginning of period Total other comprehensive income (loss) Accumulated Other Comprehensive Income, net of tax, end of period Total Stockholders’ Equity Preferred Shares Outstanding Preferred Shares Outstanding, beginning of period Issuance of preferred shares Preferred Shares Outstanding, end of period Common Shares Outstanding Common Shares Outstanding, beginning of period (in thousands) Treasury stock acquired Issuance of shares under incentive and stock compensation plans Return of shares under incentive and stock compensation plans to treasury stock Issuance of shares for warrant exercise Common Shares Outstanding, end of period Cash dividends declared per common share Cash dividends declared per preferred share See Notes to Consolidated Financial Statements. 123 For the years ended December 31, 2020 2019 2018 $ 334 $ 334 $ — 334 4 — 334 4 — 334 334 4 4,312 4,378 4,379 (96) 106 — (100) 114 (80) (110) 123 (14) 4,322 4,312 4,378 12,685 11,055 9,642 (18) — 12,667 11,055 1,737 2,085 (21) (465) (21) (434) 5 9,647 1,807 (6) (393) 13,918 12,685 11,055 (1,117) (1,091) (1,194) (150) 112 (37) — (200) 135 (41) 80 — 132 (43) 14 (1,192) (1,117) (1,091) 52 — 52 1,118 1,170 (1,579) — (1,579) 1,631 52 663 (5) 658 (2,237) (1,579) $ 18,556 $ 16,270 $ 13,101 13,800 13,800 — — 13,800 13,800 — 13,800 13,800 359,570 359,151 356,835 (2,661) (3,412) — 2,298 2,906 2,856 (718) (796) — 1,721 (849) 309 358,489 359,570 359,151 $ 1.30 $ 1.20 $ 1.10 $ 1,500.00 $ 1,500.00 $ 412.50   THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Cash Flows (in millions) Operating Activities Net income Adjustments to reconcile net income (loss) to net cash provided by operating activities Net realized capital losses (gains) Amortization of deferred policy acquisition costs Additions to deferred policy acquisition costs Depreciation and amortization Loss on extinguishment of debt Loss (gain) on sale of business Other operating activities, net Change in assets and liabilities: Increase in reinsurance recoverables Net change in accrued and deferred income taxes Increase in insurance liabilities Net change in other assets and other liabilities Net cash provided by operating activities Investing Activities Proceeds from the sale/maturity/prepayment of: Fixed maturities, available-for-sale Equity securities at fair value Mortgage loans Partnerships Payments for the purchase of: Fixed maturities, available-for-sale Equity securities at fair value Mortgage loans Partnerships Net proceeds from (payments for) derivatives Net additions to property and equipment Net proceeds from (payments for) from short-term investments Other investing activities, net Proceeds from businesses sold, net of cash transferred Amounts paid for business acquired, net of cash acquired Net cash used for investing activities Financing Activities Deposits and other additions to investment and universal life-type contracts Withdrawals and other deductions from investment and universal life-type contracts Net transfers from separate accounts related to investment and universal life-type contracts Repayments at maturity or settlement of consumer notes Net decrease in securities loaned or sold under agreements to repurchase Repayment of debt Proceeds from the issuance of debt Preferred stock issued, net of issuance costs Net return of shares under incentive and stock compensation plans Treasury stock acquired Dividends paid on preferred stock Dividends paid on common stock Net cash used for financing activities Foreign exchange rate effect on cash Net increase (decrease) in cash and restricted cash, including cash classified within assets held for sale Less: Net increase (decrease) in cash classified as assets held for sale Net increase (decrease) in cash and restricted cash Cash and restricted cash — beginning of period Cash and restricted cash — end of period Supplemental Disclosure of Cash Flow Information Income tax received Interest paid See Notes to Consolidated Financial Statements. 124 For the years ended December 31, 2020 2019 2018 $ 1,737 $ 2,085 $ 1,807 (34) 1,706 (1,666) 562 — 48 85 (540) 459 1,426 88 3,871 19,534 1,485 948 167 (21,112) (962) (1,264) (491) 112 (114) (368) (1) — — (2,066) 60 (102) — — (587) (500) — — (21) (150) (21) (457) (1,778) 8 35 58 (23) 262 (395) 1,622 (1,635) 451 90 — 76 (81) 886 768 (378) 3,489 18,499 1,553 771 238 (19,881) (1,316) (1,275) (303) 32 (105) 1,491 49 — (1,901) (2,148) 123 (124) — — (323) (1,583) 1,376 — (6) (200) (21) (433) (1,191) (9) 141 — 141 121 $ $ $ 239 $ 262 $ 71 $ 232 $ 396 $ 261 $ 165 1,442 (1,404) 467 6 (202) 408 (323) (103) 493 87 2,843 24,700 1,230 483 433 (23,173) (1,500) (983) (481) (224) (122) (3,460) 20 1,115 — (1,962) 1,814 (9,210) 6,949 (2) (621) (826) 490 334 (16) — — (379) (1,467) (10) (596) (537) (59) 180 121 9 292                                             THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in millions, except for per share data, unless otherwise stated) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The Hartford Financial Services Group, Inc. is a holding company for insurance and financial services subsidiaries that provide property and casualty insurance, group life and disability products and mutual funds and exchange-traded products to individual and business customers in the United States as well as in the United Kingdom, continental Europe and other international locations (collectively, “The Hartford”, the “Company”, “we” or “our”). On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For further discussion of this transaction, see Note 22 - Business Dispositions and Discontinued Operations. On May 23, 2019, the Company completed the acquisition of The Navigators Group, Inc. ("Navigators Group"), a global specialty underwriter, for $70 a share, or $2.137 billion in cash, including transaction expenses. On May 31, 2018, Hartford Holdings, Inc., a wholly owned subsidiary of the Company, completed the sale of the issued and outstanding equity of Hartford Life, Inc. (“HLI”), a holding company, for its life and annuity operating subsidiaries. For further discussion of these transactions, see Note 2 - Business Acquisitions and Note 22 - Business Dispositions and Discontinued Operations. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which differ materially from the accounting practices prescribed by various insurance regulatory authorities. Consolidation The Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., and entities in which the Company directly or indirectly has a controlling financial interest. Entities in which the Company has significant influence over the operating and financing decisions but does not control are reported using the equity method. Intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated. Discontinued Operations The results of operations of a component of the Company are reported in discontinued operations when certain criteria are met as of the date of disposal, or earlier if classified as held-for-sale. When a component is identified for discontinued operations reporting, amounts for prior periods are retrospectively reclassified as discontinued operations. Components are identified as discontinued operations if they are a major part of an entity's operations and financial results such as a separate major 125 line of business or a separate major geographical area of operations. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include those used in determining property and casualty and group long-term disability insurance product reserves, net of reinsurance; evaluation of goodwill for impairment; valuation of investments and derivative instruments; and contingencies relating to corporate litigation and regulatory matters. The novel strain of coronavirus, specifically identified as the Coronavirus Disease 2019 (“COVID-19”), has created significant uncertainty in the global economy. There have been no comparable recent events that provide guidance as to the effect a global pandemic of this scale may have. As a result, the ultimate impact of COVID-19 and the extent to which COVID-19 continues to impact the Company’s business, results of operations and financial condition will depend on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective. Our estimates, judgments and assumptions related to COVID-19 could ultimately differ over time. Reclassifications Certain reclassifications have been made to prior year financial information to conform to the current year presentation. Adoption of New Accounting Standards Reclassification of Effect of Tax Rate Change from AOCI to Retained Earnings On January 1, 2018, the Company adopted the Financial Accounting Standards Board's ("FASB") new guidance for the effect on deferred tax assets and liabilities related to items recorded in accumulated other comprehensive income ("AOCI") resulting from the Tax Cuts and Jobs Act of 2017 ("Tax Reform") enacted on December 22, 2017. Tax Reform reduced the federal tax rate applied to the Company’s deferred tax balances from 35% to 21% on enactment. Under U.S. GAAP, the Company recorded the total effect of the change in enacted tax rates on Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) deferred tax balances as a charge to income tax expense within net income during the fourth quarter of 2017, including the change in deferred tax balances related to components of AOCI. The new accounting guidance permitted the Company to reclassify the “stranded” tax effects out of AOCI and into retained earnings that resulted from recording the tax effects of unrealized investment gains, unrecognized actuarial losses on pension and other postretirement benefit plans, and cumulative translation adjustments at a 35% tax rate because the 14 point reduction in tax rate was recognized in net income instead of other comprehensive income. On adoption, the Company recorded a reclassification of $88 from AOCI to retained earnings. As a result of the reclassification, in the first quarter of 2018, the Company reduced the estimated loss on sale recorded in income from discontinued operations by $193, net of tax, for the increase in AOCI related to the assets held for sale. The reduction in the loss on sale resulted in a corresponding increase in assets held for sale and AOCI as of January 1, 2018 and the AOCI associated with assets held for sale was removed from the balance sheet when the sale closed on May 31, 2018. Additionally, as of January 1, 2018, the Company reclassified $105 of stranded tax effects related to continuing operations which reduced AOCI and increased retained earnings. Financial Instruments- Recognition and Measurement On January 1, 2018, the Company adopted updated guidance issued by the FASB for the recognition and measurement of financial instruments through a cumulative effect adjustment to the opening balances of retained earnings and AOCI. The new guidance requires investments in equity securities to be measured at fair value with any changes in valuation reported in net income except for investments that are consolidated or are accounted for under the equity method of accounting. The new guidance also requires a deferred tax asset resulting from net unrealized losses on fixed maturities, available-for-sale that are recognized in AOCI to be evaluated for recoverability in combination with the Company’s other deferred tax assets. Under prior guidance, the Company reported equity securities, available-for-sale ("AFS"), at fair value with changes in fair value reported in other comprehensive income. As of January 1, 2018, the Company reclassified from AOCI to retained earnings net unrealized gains of $83, after tax, related to equity securities having a fair value of $1.0 billion. In addition, $10 of net unrealized gains net of shadow DAC related to discontinued operations were reclassified from AOCI to retained earnings of the life and annuity business held for sale, which increased the estimated loss on sale in 2018 by the same amount. Beginning in 2018, the Company reports equity securities at fair value with changes in fair value reported in net realized capital gains and losses. Revenue Recognition On January 1, 2018, the Company adopted the FASB’s updated guidance for recognizing revenue from contracts with customers, which excludes insurance contracts and financial instruments. Revenue subject to the guidance is recognized when, or as, goods or services are transferred to customers in an amount that reflects the consideration that an entity is expected to receive in exchange for those goods or services. For all but certain revenues associated with our Hartford Funds business, the updated guidance is consistent with previous guidance for the Company’s 126 transactions and did not have an effect on the Company’s financial position, cash flows or net income. The updated guidance also updated criteria for determining when the Company acts as a principal or an agent. Qualitative information about the nature, timing of recognition and cash flows for the Company’s revenues subject to the updated guidance is disclosed below under Significant Accounting Policies-Revenue Recognition and quantitative information is disclosed in Note 4 - Segment Information. Hedging Activities On January 1, 2019, the Company adopted the FASB's updated guidance for hedge accounting through a cumulative effect adjustment of less than $1 to reclassify cumulative ineffectiveness on cash flow hedges from retained earnings to AOCI. The updates allow hedge accounting for new types of interest rate hedges of financial instruments and simplify documentation requirements to qualify for hedge accounting. In addition, any gain or loss from hedge ineffectiveness is reported in the same income statement line with the effective hedge results and the hedged transaction. For cash flow hedges, the ineffectiveness is recognized in earnings only when the hedged transaction affects earnings; otherwise, the ineffectiveness gains or losses remain in AOCI. Under previous accounting, total hedge ineffectiveness was reported separately in realized capital gains and losses apart from the hedged transaction. The adoption did not affect the Company’s financial position or cash flows or have a material effect on net income. Leases On January 1, 2019, the Company adopted the FASB’s updated lease guidance. Under the updated guidance, lessees with operating leases are required to recognize a liability for the present value of future minimum lease payments with a corresponding asset for the right of use of the property. Prior to the new guidance, future minimum lease payments on operating leases were commitments that were not recognized as liabilities on the balance sheet. Leases are classified as financing or operating leases. Where the lease is economically similar to a purchase because The Hartford obtains control of the underlying asset, the lease is classified as a financing lease and the Company recognizes amortization of the right of use asset and interest expense on the liability. Where the lease provides The Hartford with only the right to control the use of the underlying asset over the lease term and the lease term is greater than one year, the lease is an operating lease and the lease cost is recognized as rental expense over the lease term on a straight-line basis. Leases with a term of one year or less are also expensed over the lease term but not recognized on the balance sheet. On adoption, The Hartford recorded a lease payment obligation of $160 for outstanding leases and a right of use asset of $150, which is net of $10 in lease incentives received, with no change to comparative periods. As permitted by the new guidance, as of the implementation date, the Company did not reassess whether expired or existing contracts are leases or contain leases, did not change the classification of expired or existing operating leases, and did not reassess initial direct costs for existing leases to determine if deferred costs should be written-off or recorded on adoption. The adoption did not impact net income or cash flows. Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Goodwill On January 1, 2020, the Company adopted the FASB's updated guidance on testing goodwill for impairment with no effect at adoption. The updated guidance requires impairment of goodwill if the carrying value of the reporting unit is greater than the estimated fair value, with the amount of the impairment not to exceed the carrying value of the reporting unit’s goodwill. Goodwill is reviewed for impairment at least annually and more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred. Under the updated guidance, changes in market-based factors are more likely to result in a goodwill impairment than under the prior accounting guidance, whether a reporting unit's fair value is estimated using an income approach or a market approach. For example, changes in the weighted average cost of capital that is used to discount expected cash flows under the income approach or changes in market-based factors such as peer company price to earnings multiples or price to book multiples under a market approach can significantly affect changes to the estimated fair value of each reporting unit and such changes could result in impairments that have a material effect on our results of operations and financial condition. Financial Instruments - Credit Losses On January 1, 2020, the Company adopted the FASB’s updated guidance for recognition and measurement of credit losses on financial instruments. The new guidance replaces the “incurred loss” approach with an “expected loss” model for recognizing credit losses for financial instruments carried at other than fair value. Under the new model, for financial instruments carried at other than fair value, such as mortgage loans, reinsurance recoverables and receivables, an allowance for credit losses ("ACL") is recognized which is an estimate of credit losses expected over the life of financial instruments. Under the prior accounting model an ACL was recognized using an incurred loss approach. The new guidance also requires that we estimate a liability for credit losses ("LCL") on off balance sheet credit exposures such as financial guarantees and mortgage loan commitments that the Company cannot unconditionally cancel. Credit losses on fixed maturities, AFS carried at fair value continue to be measured based on the present value of expected future cash flows compared to amortized cost; however, the losses are now recognized through an ACL and no longer as an adjustment to the amortized cost. Recoveries of credit losses on fixed maturities, AFS are now recognized as reversals of the ACL and no longer accreted as investment income through an adjustment to the investment yield. The ACL on fixed maturities, AFS cannot cause the net carrying value to be below fair value and, therefore, it is possible that future increases in fair value due to decreases in market interest rates could cause the reversal of the ACL and increase net income. The new guidance also requires purchased financial assets with a more-than-insignificant amount of credit deterioration since original issuance to be recorded based on contractual amounts due and an initial allowance recorded at the date of purchase. The Company adopted the guidance effective January 1, 2020, through a cumulative-effect adjustment that decreased retained earnings by $18, representing a net increase to the ACL and LCL, after tax. No ACL was recognized at adoption for fixed maturities, AFS; rather, these investments are evaluated for an ACL prospectively. The Company does not have any purchased financial assets with a more than insignificant amount of credit deterioration since original issuance. Impact of Adoption on Consolidated Balance Sheet Balance as of January 1, 2020 Cumulative Effect of Accounting Change Adjusted Opening Balance Opening Balance Mortgage loans $ 4,215 $ 4,215 ACL on mortgage loans Mortgage loans, net of ACL Premiums receivable and agents’ balances ACL on premiums receivable and agents' balances Premiums receivable and agents' balances, net of ACL Reinsurance recoverables ACL and allowance for disputed amounts on reinsurance recoverables Reinsurance recoverables, net of allowance for uncollectible reinsurance Deferred income tax asset, net — $ (19) (19) 4,215 4,529 (19) 4,196 4,529 (145) 23 (122) 4,384 5,641 23 4,407 5,641 (114) (2) (116) 5,527 (2) 5,525 299 5 304 Other liabilities (5,157) (25) (5,182) Retained Earnings $ 12,685 $ (18) $ 12,667 Summary of Adoption Impacts Net increase to ACL and LCL Net tax effects Net decrease to retained earnings $ $ (23) 5 (18) Reference Rate Reform On March 12, 2020, the Company adopted the FASB’s temporary guidance, which allows The Hartford to account for contract modifications made solely due to rate reform (such as replacing LIBOR with another reference rate) as continuations of existing contracts and to maintain hedge accounting when the hedging effectiveness between a financial instrument and its hedge is only affected by the change to a replacement rate. As a result, The Hartford will not recognize gains and losses during the transition period of LIBOR to an alternative reference rate that would otherwise have arisen from accounting assessments and remeasurements. The guidance expires for contract modifications made and hedge relationships entered into or evaluated after December 31, 2022. The Company is not required to measure the 127 Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) effect of adoption on its financial position, cash flows or net income because the guidance provides relief from accounting for the effects of the change to a replacement rate. Significant Accounting Policies The Company’s significant accounting policies are as follows: Mortgage Loan Modification In 2020, The Hartford adopted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) Section 4013, which allows financial institutions the option to suspend the requirement to disclose and account for loan modifications as troubled debt restructurings for loan modifications related to the COVID-19 pandemic occurring between March 1, 2020 and the earlier of 60 days after the end of the national emergency or January 1, 2022. The Company’s adoption of Section 4013 of the CARES Act had no impact on our results of operations, financial position or cash flows because The Hartford has not granted significant concessions to borrowers on its mortgage loans that would have been disclosed and accounted for as troubled debt restructurings. Future Adoption of New Accounting Standards Reserve for Future Policy Benefits The FASB issued new guidance on accounting for long-duration insurance contracts. The Company’s long-duration insurance contracts include paid-up life insurance and whole-life insurance policies resulting from conversion from group life policies and run-off structured settlement and terminal funding agreement liabilities with total future policy benefit reserves of $638 as of December 31, 2020. Under existing guidance, a reserve for future policy benefits is calculated as the present value of future benefits and related expenses less the present value of any future premiums using assumptions “locked in” at the time the policies were issued, including discount rate, lapse rate, mortality, and expense assumptions. Under existing guidance, assumptions are only updated if there is an expected premium deficiency. The new guidance will require that underlying cash flow assumptions (such as for lapse rate, mortality and expenses) be reviewed and updated at least annually in the same quarter each year. The new guidance also requires that the discount rate assumption be updated each quarter and be based on an upper-medium grade (low-credit-risk) fixed-income investment yield. The change in the reserve estimate as a result of updating cash flow assumptions will be recognized in net income. The change in the reserve estimate as a result of updating the discount rate assumption will be recognized in other comprehensive income. Because reserves will be based on updated assumptions and no longer locked in at contract inception, there will no longer be a test for premium deficiency. The new guidance will be effective January 1, 2023, and will be applied to balances in place as of the earliest period presented. Early adoption is permitted. The Company has not yet determined the method or timing for adoption or estimated the effect on the Company’s financial statements. Revenue Recognition Premium Revenue from Direct Insurance and Assumed Reinsurance Property and casualty premiums are earned on a pro rata basis over the policy period and include accruals for policies that have been written by agents but not yet reported to us, as well as ultimate premium revenue anticipated under auditable and retrospectively rated policies. We estimate the amount of premium not yet reported based on current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year's results. Unearned premiums represent the premiums applicable to the unexpired terms of policies in force, or period of risk. Group life, disability and accident premiums are generally due from policyholders and recognized as revenue on a pro rata basis over the period of the contracts. An estimated ACL is recorded on the basis of periodic evaluations of balances due from insureds and considering historical credit loss information, adjusted for current economic conditions and effective January 1, 2020, reasonable and supportable forecasts when appropriate . The Company records total credit loss expenses related to premiums receivable in insurance operating costs and other expenses. Write-offs of premiums receivable and agents' balances and any related ACL are recorded in the period in which the balance is deemed uncollectible. Refer to Note 8 - Premiums Receivable and Agents' Balances for further discussion regarding the allowance for doubtful accounts included in premiums receivable and agents’ balances. Revenue from Non-Insurance Contracts with Customers Installment fees are charged on property and casualty insurance contracts for billing the insurance customer in installments over the policy term. These fees are recognized in fee income as earned on collection. Insurance servicing revenues within Personal Lines consist of up- front commissions earned for collecting premiums and processing claims on insurance policies for which The Hartford does not assume underwriting risk, predominantly related to the National Flood Insurance Plan program. These insurance servicing revenues are recognized over the period of the flood program's policy terms. Group Benefits earns fee income from employers for the administration of underwriting, implementation and claims processing for employer self-funded plans and for leave management services. Fees are recognized as services are provided and collected monthly. Hartford Funds provides investment management, administrative and distribution services to mutual funds and exchange-traded products. The Company assesses investment advisory, distribution and other asset management fees primarily based on the average daily net asset values from mutual funds and exchange-traded products, which are recorded in the period in which the services are provided and are collected monthly. 128 Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fluctuations in domestic and international markets and related investment performance, volume and mix of sales and redemptions of mutual funds or exchange-traded products, and other changes to the composition of assets under management are all factors that ultimately have a direct effect on fee income earned. Hartford Funds other fees primarily include transfer agent fees, generally assessed as a charge per account, and are recognized as fee income in the period in which the services are provided with payments collected monthly. Corporate investment management and other fees are primarily for managing third party invested assets, including management of the invested assets of The Hartford’s former life and annuity business. These fees, calculated based on the average quarterly net asset values, are recorded in the period in which the services are provided and are collected quarterly. Fluctuations in markets and interest rates and other changes to the composition of assets under management are all factors that ultimately have a direct effect on fee income earned. Corporate transition service revenues consist of operational services provided to The Hartford’s former life and annuity business that are provided for a limited period following sale. The transition service revenues are recognized as other revenues in the period in which the services are provided with payments collected monthly. Dividends to Policyholders Policyholder dividends are paid to certain property and casualty policyholders. Policies that receive dividends are referred to as participating policies. Participating dividends to policyholders are accrued and reported in insurance operating costs and other expenses and other liabilities using an estimate of the amount to be paid based on underlying contractual obligations under policies and applicable state laws. Net written premiums for participating property and casualty insurance policies represented 7%, 9% and 10% of total net written premiums for the years ended December 31, 2020, 2019 and 2018, respectively. Participating dividends to property and casualty policyholders were $29, $30 and $23 for the years ended December 31, 2020, 2019 and 2018, respectively. There were no additional amounts of income allocated to participating policyholders. Investments Overview The Company’s investments in fixed maturities include bonds, structured securities, redeemable preferred stock and commercial paper. Most of these investments are classified as AFS and are carried at fair value. The after tax difference between fair value and cost or amortized cost is reflected in stockholders’ equity as a component of AOCI. Effective January 1, 2018, equity securities are measured at fair value with any changes in valuation reported in net income. For further information, see Financial Instruments - Recognition and Measurement discussion above. Mortgage loans are recorded at the outstanding principal balance adjusted for amortization of premiums or discounts and net of an ACL. Short-term investments are carried at amortized cost, which approximates fair value. Limited partnerships and other alternative investments are reported at their carrying value and are primarily accounted for under the equity method with the 129 Company’s share of earnings included in net investment income. Recognition of income related to limited partnerships and other alternative investments is delayed due to the availability of the related financial information, as private equity and other funds are generally on a three-month delay. Accordingly, income for the years ended December 31, 2020, 2019, and 2018 may not include the full impact of current year changes in valuation of the underlying assets and liabilities of the funds, which are generally obtained from the limited partnerships. Other investments primarily consist of investments of consolidated investment funds for which the Company has provided seed money and reports the underlying investments at fair value with changes in the fair value recognized in income consistent with accounting requirements for investment companies. Also included in other investments are derivative instruments which are carried at fair value, overseas deposits which are measured at fair value using the net asset value as a practical expedient and equity fund investments. Net Realized Capital Gains and Losses Net realized capital gains and losses from investment sales are reported as a component of revenues and are determined on a specific identification basis. Net realized capital gains and losses also result from fair value changes in equity securities and derivatives contracts that do not qualify, or are not designated, as a hedge for accounting purposes. Prior to January 1, 2020, impairments of fixed maturities and changes in mortgage loan valuation allowances were recognized as net realized capital losses as discussed in Note 6 -Investments. Effective January 1, 2020, the Company records net credit losses on fixed maturities, AFS and changes in the ACL on mortgage loans as a component of net realized capital gains and losses. For further information, see Financial Instruments - Credit Losses discussion above. Net Investment Income Interest income from fixed maturities and mortgage loans is recognized when earned on the constant effective yield method based on the estimated timing of cash flows. Most premiums and discounts on fixed maturities are amortized to the maturity date. Premiums on callable bonds may be amortized to call dates based on call prices. For securitized financial assets subject to prepayment risk, yields are recalculated and adjusted periodically to reflect historical and/or estimated future prepayments using the retrospective method. For certain other asset-backed securities, including securities that previously had an ACL and interest only securities, any yield adjustments are made using the prospective method. Prepayment fees and make-whole payments on fixed maturities and mortgage loans are recorded in net investment income when earned. For equity securities, dividends are recognized as investment income on the ex-dividend date. Limited partnerships and other alternative investments primarily use the equity method of accounting to recognize the Company’s share of earnings. Prior to January 1, 2020, for impaired fixed maturities, the Company accreted the new amortized cost to the estimated future cash flows over the expected remaining life of the investment by prospectively adjusting the effective yield, if necessary. Effective January 1, 2020, the Company no longer records credit losses as adjustments to the amortized cost of the fixed maturity but rather records an ACL. Future changes in the ACL resulting from improvements in expected future cash flows are not recorded as adjustments to yield through net investment income but are recorded through net realized capital gains (losses). For fixed maturities with an ACL, net investment income is recognized at the original effective rate and accretion of the Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ACL is recognized through net realized capital gains (losses). For further information, see Financial Instruments - Credit Losses discussion above. The Company’s non-income producing investments were not material for the years ended December 31, 2020, 2019 and 2018. Derivative Instruments Overview The Company utilizes a variety of over-the-counter ("OTC") derivatives, derivatives cleared through central clearing houses ("OTC-cleared") and exchange traded derivative instruments as part of its overall risk management strategy as well as to engage in income generation covered call transactions and replication transactions. The types of instruments may include swaps, caps, floors, forwards, futures and options to achieve the following Company-approved objectives: • • • • to hedge risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rates or volatility; to manage liquidity; to control transaction costs; to enter into income generation covered call transactions and synthetic replication transactions. Interest rate and credit default swaps involve the periodic exchange of cash flows with other parties, at specified intervals, calculated using agreed upon rates or other financial variables and notional principal amounts. Generally, little to no cash or principal payments are exchanged at the inception of the contract. Typically, at the time a swap is entered into, the cash flow streams exchanged by the counterparties are equal in value. The Company clears certain interest rate swap and credit default swap derivative transactions through central clearing houses. OTC-cleared derivatives require initial collateral at the inception of the trade in the form of cash or highly liquid securities, such as U.S. Treasuries and government agency investments. Central clearing houses also require additional cash as variation margin based on daily market value movements. For information on collateral, see the Derivative Collateral Arrangements section in Note 7 - Derivatives. In addition, OTC-cleared transactions include price alignment amounts either received or paid on the variation margin, which are reflected in realized capital gains and losses or, if characterized as interest, in net investment income. Forward contracts are customized commitments that specify a rate of interest or currency exchange rate to be paid or received on an obligation beginning on a future start date and are typically settled in cash. Financial futures are standardized commitments to either purchase or sell designated financial instruments, at a future date, for a specified price and may be settled in cash or through delivery of the underlying instrument. Futures contracts trade on organized exchanges. Margin requirements for futures are met by pledging securities or cash, and changes in the futures’ contract values are settled daily in cash. Option contracts grant the purchaser, for a premium payment, the right to either purchase from or sell to the issuer a financial instrument at a specified price, within a specified period or on a stated date. The contracts may reference commodities, which grant the purchaser the right to either purchase from or sell to the issuer commodities at a specified price, within a specified period or on a stated date. Option contracts are typically settled in cash. Foreign currency swaps exchange an initial principal amount in two currencies, agreeing to re-exchange the currencies at a future date, at an agreed upon exchange rate. There may also be a periodic exchange of payments at specified intervals calculated using the agreed upon rates and exchanged principal amounts. The Company’s derivative transactions conducted in insurance company subsidiaries are used in strategies permitted under the derivative use plans required by the State of Connecticut, the State of Illinois and the State of New York insurance departments. Accounting and Financial Statement Presentation of Derivative Instruments and Hedging Activities Derivative instruments are recognized on the Consolidated Balance Sheets at fair value and are reported in Other Investments and Other Liabilities. For balance sheet presentation purposes, the Company has elected to offset the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty or under a master netting agreement, which provides the Company with the legal right of offset. On the date the derivative contract is entered into, the Company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability (“fair value” hedge), (2) a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset or liability (“cash flow” hedge), (3) a hedge of a net investment in a foreign operation (“net investment” hedge) or (4) held for other investment and/or risk management purposes, which primarily involve managing asset or liability related risks and do not qualify for hedge accounting. The Company currently does not designate any derivatives as fair value or net investment hedges. Cash Flow Hedges - Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, including foreign-currency cash flow hedges, are recorded in AOCI and are reclassified into earnings when the variability of the cash flow of the hedged item impacts earnings. Gains and losses on derivative contracts that are reclassified from AOCI to current period earnings are included in the line item in the Consolidated Statements of Operations in which the cash flows of the hedged item are recorded. Periodic derivative net coupon settlements are recorded in the line item of the Consolidated Statements of Operations in which the cash flows of the hedged item are recorded. Cash flows from cash flow hedges are presented in the same category as the cash flows from the items being hedged in the Consolidated Statement of Cash Flows. Other Investment and/or Risk Management Activities - The Company’s other investment and/or risk management activities primarily relate to strategies used to reduce economic risk or replicate permitted investments and do not receive hedge accounting treatment. Changes in the fair value, including periodic derivative net coupon settlements, of derivative instruments held for other investment and/or risk 130 Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) management purposes are reported in current period earnings as net realized capital gains and losses. Hedge Documentation and Effectiveness Testing To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated changes in fair value or cash flows of the hedged item. At hedge inception, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction. The documentation process includes linking derivatives that are designated as fair value, cash flow, or net investment hedges to specific assets or liabilities on the balance sheet or to specific forecasted transactions and defining the effectiveness testing methods to be used. The Company also formally assesses both at the hedge’s inception and ongoing on a quarterly basis, whether the derivatives that are used in hedging transactions have been and are expected to continue to be highly effective in offsetting changes in fair values, cash flows or net investment in foreign operations of hedged items. Hedge effectiveness is assessed primarily using quantitative methods as well as using qualitative methods. Quantitative methods include regression or other statistical analysis of changes in fair value or cash flows associated with the hedge relationship. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Discontinuance of Hedge Accounting The Company discontinues hedge accounting prospectively when (1) it is determined that the qualifying criteria are no longer met; (2) the derivative is no longer designated as a hedging instrument; or (3) the derivative expires or is sold, terminated or exercised. When cash flow hedge accounting is discontinued because the Company becomes aware that it is not probable that the forecasted transaction will occur, the derivative continues to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in AOCI are recognized immediately in earnings. In other situations in which hedge accounting is discontinued, including those where the derivative is sold, terminated or exercised, amounts previously deferred in AOCI are reclassified into earnings when earnings are impacted by the hedged item. Embedded Derivatives The Company purchases investments that contain embedded derivative instruments. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, which is reported with the host instrument in the Consolidated Balance Sheets, is carried at fair value with changes in fair value reported in net realized capital gains and losses. Credit Risk of Derivative Instruments Credit risk is defined as the risk of financial loss due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with agreed upon terms. Credit exposures are measured using the market value of the 131 derivatives, resulting in amounts owed to the Company by its counterparties or potential payment obligations from the Company to its counterparties. The Company generally requires that OTC derivative contracts, other than certain forward contracts, be governed by International Swaps and Derivatives Association agreements which are structured by legal entity and by counterparty, and permit right of offset. Some agreements require daily collateral settlement based upon agreed upon thresholds. For purposes of daily derivative collateral maintenance, credit exposures are generally quantified based on the prior business day’s market value and collateral is pledged to and held by, or on behalf of, the Company to the extent the current value of the derivatives is greater than zero, subject to minimum transfer thresholds, if applicable. The Company also minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties primarily rated A or better, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management. OTC-cleared derivatives are governed by clearing house rules. Transactions cleared through a central clearing house reduce risk due to their ability to require daily variation margin and act as an independent valuation source. In addition, the Company monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. Cash and Restricted Cash Cash represents cash on hand and demand deposits with banks or other financial institutions. Restrictions on cash primarily relate to funds that are held to support regulatory and contractual obligations. Reinsurance The Company cedes insurance to affiliated and unaffiliated insurers in order to limit its maximum losses and to diversify its exposures and provide statutory surplus relief. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company also assumes reinsurance from other insurers and is a member of and participates in reinsurance pools and associations. Assumed reinsurance refers to the Company’s acceptance of certain insurance risks that other insurance companies or pools have underwritten. Reinsurance accounting is followed for ceded and assumed transactions that provide indemnification against loss or liability relating to insurance risk (i.e. risk transfer). To meet risk transfer requirements, a reinsurance agreement must include insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss to the reinsurer. If the ceded and assumed transactions do not meet risk transfer requirements, the Company accounts for these transactions as financing transactions. Premiums, benefits, losses and loss adjustment expenses reflect the net effects of ceded and assumed reinsurance transactions. Included in other assets are prepaid reinsurance premiums, which represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts. Reinsurance recoverables are balances due from reinsurance companies for paid and unpaid losses and loss adjustment expenses and are presented net of an allowance for uncollectible reinsurance. Changes in the allowance for uncollectible reinsurance are Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) reported in benefits, losses and loss adjustment expenses in the Company's Consolidated Statements of Operations. The Company periodically evaluates the recoverability of its reinsurance recoverable assets and establishes an allowance for uncollectible reinsurance. The allowance for uncollectible reinsurance reflects management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance or charge off reinsurer balances that are determined to be uncollectible. The Company records credit losses related to reinsurance recoverables in benefits losses and loss adjustment expenses. Write-offs of reinsurance recoverables and any related ACL are recorded in the period in which the balance is deemed uncollectible. Expected recoveries are included in the estimate of the ACL. Retroactive reinsurance agreements, including adverse development covers, are reinsurance agreements under which our reinsurer agrees to reimburse us as a result of past insurable events. For these agreements, the consideration paid in excess of the estimated ultimate losses recoverable under the agreement at inception is recognized as a loss on reinsurance transaction. The benefit of subsequent adverse development ceded up to the total consideration paid is recognized as ceded losses and loss adjustment expenses. The excess of the estimated amounts ultimately recoverable under the agreement over the consideration paid is recognized as a deferred gain liability and amortized into income over the period the ceded losses are recovered in cash from the reinsurer. The amount of the deferred gain liability is recalculated each period based on cumulative recoveries not yet collected relative to the latest estimate of ultimate losses recoverable. Ceded loss reserves under retroactive agreements were $1.1 billion and $747, and the deferred gain liability reported in other liabilities was $328 and $16, as of December 31, 2020 and 2019, respectively. In any given period, the change in deferred gain included in net income includes amortization of the deferred gain based on the percentage of ultimate ceded losses collected plus any change in the deferred gain liability due to changes in the estimated ultimate losses recoverable. The effect on income from change in the deferred gain was a charge to earnings of $312 and $16 for the years ended December 31, 2020 and 2019, respectively. There was no deferred gain in 2018. Deferred Policy Acquisition Costs DAC represents costs that are directly related to the acquisition of new and renewal insurance contracts and incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or in compensation to employees. Such costs primarily include commissions, premium taxes, costs of policy issuance and underwriting, and certain other expenses that are directly related to successfully issued contracts. For property and casualty insurance products and group life, disability and accident contracts, costs are deferred and amortized ratably over the period the related premiums are earned. Deferred acquisition costs are reviewed to determine if they are recoverable from future income, and if not, are charged to expense. Anticipated investment income is considered in the determination of the recoverability of DAC. Income Taxes The Company recognizes taxes payable or refundable for the current year and deferred taxes for the tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. A deferred tax provision is recorded for the tax effects of differences between the Company's current taxable income and its income before tax under generally accepted accounting principles in the Consolidated Statements of Operations. For deferred tax assets, the Company records a valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. Goodwill Goodwill represents the excess of the cost to acquire a business over the fair value of net assets acquired. Goodwill is not amortized but is reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred. Prior to January 1, 2020, the goodwill impairment test followed a two-step process. In the first step, the fair value of a reporting unit was compared to its carrying value. A reporting unit is defined as an operating segment or one level below an operating segment. The Company’s reporting units, for which goodwill has been allocated consist of Commercial Lines, Personal Lines, Group Benefits, and Hartford Funds. If the carrying value of a reporting unit exceeded its fair value, the second step of the impairment test was performed for purposes of measuring the impairment. In the second step, the fair value of the reporting unit was allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. If the carrying amount of the reporting unit’s goodwill exceeded the implied goodwill value, an impairment loss was recognized in an amount equal to that excess. Effective January 1, 2020, the goodwill impairment test is based on the first step only and, as such, goodwill is impaired up to the amount that the carrying value of the reporting unit exceeds the fair value. For further information, see Adoption of New Accounting Standards - Goodwill discussion above. Management’s determination of the fair value of each reporting unit incorporates multiple inputs into discounted cash flow calculations, including assumptions that market participants would make in valuing the reporting unit. Assumptions include levels of economic capital required to support the business, future business growth, earnings projections, the weighted average cost of capital used for purposes of discounting and, for the Hartford Funds segment, assets under management. Decreases in business growth, decreases in earnings projections and increases in the weighted average cost of capital will all cause a reporting unit’s fair value to decrease, increasing the possibility of impairments. Intangible Assets Acquired intangible assets on the Consolidated Balance Sheets include purchased customer relationship and agency or other distribution rights and licenses measured at fair value at acquisition. The Company amortizes finite-lived other intangible assets over their useful lives generally on a straight-line basis over the period of expected benefit, ranging from 1 to 15 years. Management revises amortization periods if it believes there has 132 Note 1 - Basis of Presentation and Significant Accounting Policies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) been a change in the length of time that an intangible asset will continue to have value. Indefinite-lived intangible assets are not subject to amortization. Intangible assets are assessed for impairment generally when events or circumstances indicate a potential impairment and at least annually for indefinite-lived intangibles. Finite-lived intangible assets are impaired if the carrying amount is not recoverable from undiscounted cash flows. Indefinite-lived intangible assets are impaired if the carrying amount exceeds fair value. Impaired intangible assets are written down to fair value. Property and Equipment Property and equipment, which includes capitalized software, is carried at cost net of accumulated depreciation. Depreciation is based on the estimated useful lives of the various classes of property and equipment and is recognized principally on the straight-line method. Accumulated depreciation was $2.1 billion and $1.9 billion as of December 31, 2020 and 2019, respectively. Depreciation expense was $313, $283, and $232 for the years ended December 31, 2020, 2019 and 2018, respectively. Unpaid Losses and Loss Adjustment Expenses For property and casualty and group life and disability insurance and assumed reinsurance products, the Company establishes reserves for unpaid losses and loss adjustment expenses to provide for the estimated costs of paying claims under insurance policies written by the Company. These reserves include estimates for both claims that have been reported and those that have been incurred but not reported ("IBNR"), and include estimates of all losses and loss adjustment expenses associated with processing and settling these claims. Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process. This estimation process is based significantly on the assumption that past developments are an appropriate predictor of future events, and involves a variety of actuarial techniques that analyze experience, trends and other relevant factors. The effects of inflation are implicitly considered in the reserving process. A number of complex factors influence the uncertainties involved with the reserving process including social and economic trends and changes in the concepts of legal liability and damage awards. Accordingly, final claim settlements may vary from the present estimates, particularly when those payments may not occur until well into the future. The Company regularly reviews the adequacy of its estimated losses and loss adjustment expense reserves by reserve line within the various reporting segments. Adjustments to previously established reserves are reflected in the operating results of the period in which the adjustment is determined to be necessary. Such adjustments could possibly be significant, reflecting any variety of new and adverse or favorable trends. Most of the Company’s property and casualty insurance products reserves are not discounted. However, the Company has discounted to present value certain reserves for indemnity payments that are due to claimants under workers’ compensation policies because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The discount rate is based on the risk free rate for the expected claim duration as determined in the year the claims were incurred. The Company also has discounted liabilities for structured settlement agreements that provide fixed periodic payments to claimants. These structured settlements include annuities purchased to fund unpaid losses for permanently disabled claimants. These structured settlement liabilities are discounted to present value using the rate implicit in the purchased annuities and the purchased annuities are accounted for within reinsurance recoverables. Group life and disability contracts with long-tail claim liabilities are discounted because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The discount rates are estimated based on investment yields expected to be earned on the cash flows net of investment expenses and expected credit losses. The Company establishes discount rates for these reserves in the year the claims are incurred (the incurral year) which is when the estimated settlement pattern is determined. The discount rate for life and disability reserves acquired from Aetna's U.S. group life and disability business were based on interest rates in effect at the acquisition date of November 1, 2017. For further information about how unpaid losses and loss adjustment expenses are established, see Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses. Foreign Currency Foreign currency translation gains and losses are reflected in stockholders’ equity as a component of AOCI. The Company’s foreign subsidiaries’ balance sheet accounts are translated at the exchange rates in effect at each year end and income statement accounts are translated at the average rates of exchange prevailing during the year. The national currencies of the international operations are generally their functional currencies; however, the U.S. dollar is the functional currency of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"), the Lloyd's Syndicate for which the Company is the sole corporate member, in the U.K. Gains and losses resulting from the remeasurement of foreign currency transactions are reflected in earnings in realized capital gains (losses) in the period in which they occur. 133 Note 2 - Business Acquisitions THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. BUSINESS ACQUISITIONS Navigators Group On May 23, 2019, The Hartford acquired 100% of the outstanding shares of Navigators Group for $70 a share, or $2.121 billion, comprised of cash of $2.098 billion and a liability for cash awards to replace share-based awards of $23. The acquisition of the specialty underwriter expands product offerings and geographic reach, and adds underwriting and industry talent to strengthen the Company’s value proposition to agents and customers. At acquisition, the Company recorded provisional estimates of the fair value of the assets acquired and liabilities assumed. In the second quarter of 2020, The Hartford finalized its provisional estimates and recorded additional assets of $9 and liabilities of $7 with a net reduction in goodwill of $2. The measurement period adjustments, determined as if the accounting had been completed as of the acquisition date, had no effect on the Consolidated Statements of Operations for the twelve months ended December 31, 2020. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date, the measurement period adjustments recorded, and the final purchase price allocation. Fair Value of Assets Acquired and Liabilities Assumed at the Acquisition Date Preliminary Values as of May 23, 2019 (as previously reported) Measurement Period Adjustments Adjusted Values as of May 23, 2019 Assets Cash and invested assets Premiums receivable Reinsurance recoverables Prepaid reinsurance premiums Other intangible assets Property and equipment Other assets Total Assets Acquired Liabilities Unpaid losses and loss adjustment expenses Unearned premiums Long-term debt Deferred income taxes, net Other liabilities Total Liabilities Assumed Net identifiable assets acquired Goodwill [1] Net Assets Acquired [1] Non-deductible for income tax purposes. $ 3,848 $ 492 1,100 238 580 83 99 6,440 2,823 1,219 284 48 568 4,942 1,498 623 $ 2,121 $ 3 $ 6 (3) — — — 3 9 — — — (1) 8 7 2 (2) — $ 3,851 498 1,097 238 580 83 102 6,449 2,823 1,219 284 47 576 4,949 1,500 621 2,121 134 Note 2 - Business Acquisitions THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Intangible Assets Recorded in Connection with the Acquisition Asset Amount Weighted Average Expected Life $ 180 Value of in-force contracts - Property and Casualty ("P&C") Distribution relationships Trade name Total finite life intangibles Capacity of Lloyd's Syndicate Licenses Total indefinite life intangibles 302 17 499 66 15 81 1 15 10 10 Total other intangible assets $ 580 The value of in-force contracts represents the estimated profits relating to the unexpired contracts in force net of related prepaid reinsurance at the acquisition date through expiry of the contracts. The value of distribution relationships was estimated using net cash flows expected to come from the renewals of in- force contracts and new business sold through existing distribution partners less costs to service the related policies. The value of the trade name was estimated using an assumed cost of a market-based royalty fee applied to net cash flows expected to come from business marketed as Navigators, a brand of The Hartford. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. Corporate members accept underwriting risks through the syndicates that they form. The Company accepts risks as the sole corporate member of Lloyd's Syndicate. The value of the capacity of Lloyd’s Syndicate was estimated using net cash flows attributable to Navigators Group's right to underwrite business up to an approved level of premium in the Lloyd’s market. The values for in-force contracts, the distribution relationships, trade name and the capacity of the Lloyd's Syndicate were estimated using a discounted cash flow method. Significant inputs to the valuation models include estimates of expected new business, premium retention rates, investment returns, claim costs, expenses and discount rates based on a weighted average cost of capital. The value of licenses to write insurance in over 50 U.S. jurisdictions was estimated based on recent transactions for shell companies. Property and equipment includes real estate owned and right of use assets under leases that were valued based on current values and market rental rates, software that was valued based on estimated replacement cost and furniture and equipment. These will be amortized over periods consistent with the Company’s policy. The fair value of unpaid losses and loss adjustment expenses net of related reinsurance recoverables was estimated based on the present value of expected future net unpaid loss and loss adjustment expense payments discounted using a risk-free interest rate as of the acquisition date plus a risk margin. The discount and risk margin amounts substantially offset. Debt assumed in the transaction was valued based on the principal and interest payments discounted at the current market 135 yield. This debt was paid off in August 2019. For further discussion of this transaction, see Note 14 - Debt. The $621 of goodwill recognized is largely attributable to the acquired employee workforce and underwriting talent, leverageable operating platform, improved investment yield and economies of scale. Goodwill is allocated to the Company's Commercial Lines reporting segment. Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased an aggregate excess of loss reinsurance agreement covering adverse reserve development (“Navigators ADC”) from National Indemnity Company ("NICO") on behalf of Navigators Insurance Company and certain of its affiliates (collectively, “Navigators Insurers”). Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018. In addition to recognizing a $91 before tax charge to earnings in 2019 for the Navigators ADC reinsurance premium, the Company recognized a charge against earnings of $97 before tax in the second quarter of 2019 as a result of a review of Navigators Insurers’ net acquired reserves upon acquisition of the business. Navigators Insurers had previously recognized $52 before tax of adverse reserve development in the first quarter of 2019, including $32 of adverse development subject to the Navigators ADC. As such, reserve development of $97 before tax recognized upon acquisition of the business included $68 remaining of the $100 Navigators ADC retention for 2018 and prior accident years and $29 of adverse reserve development related to the 2019 accident year which is not covered by the Navigators ADC. On 2018 and prior accident year reserves subject to the Navigators ADC, the Company recognized a total of $84 of adverse development in 2019, including the $68 of reserve development recorded upon acquisition of the business. The $84 of prior accident year reserve development was net of a $91 net reinsurance benefit recognized under the Navigators ADC. While the Company has ceded $209 of losses to the ADC through December 31, 2020, which has been recognized as a reinsurance recoverable, $118 of the ceded losses has been recognized as a deferred gain within other liabilities since the Navigators ADC has been accounted for as retroactive reinsurance and cumulative losses ceded of $209 exceed the ceded premium paid of $91. As the Company has ceded $209 of the $300 available limit, there is $91 of remaining limit available as of December 31, 2020. Since the acquisition date of May 23, 2019, the revenues and net losses of the business acquired have been included in the Company's Consolidated Statements of Operations in the Commercial Lines reporting segment with revenues of $1.0 billion and net losses of $167 during the period from the acquisition date to December 31, 2019, including the $91 before tax ($72 net of tax) of premium paid for the Navigators ADC, a charge of $97 before tax ($77 net of tax) for the increase in acquired reserves following the acquisition, a charge of $16 before tax ($13 net of tax) for the deferred gain on retroactive reinsurance and net investment income of $67 before tax ($54 net of tax). During 2020, the Company increased reserves subject to the Navigators Note 2 - Business Acquisitions THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ADC by an additional $102 before tax ($81 net of tax) which was recognized as an increase to deferred gain within incurred losses. See Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses, for additional information. The Company recognized $17 of acquisition related costs for the twelve months ended December 31, 2019. These costs are included in insurance operating costs and other expenses in the Consolidated Statement of Operations. The following table presents supplemental unaudited pro forma amounts of revenue and net income for the year ended December 31, 2019 and 2018 for the Company as though the business was acquired on January 1, 2018. Pro forma adjustments include the revenue and earnings of Navigators Group for each period as well as amortization of identifiable intangible assets acquired. Pro Forma Results for the Year Ended December 31 2019 Supplemental (unaudited) combined pro forma 2018 Supplemental (unaudited) combined pro forma $ $ Revenue Earnings 21,416 $ 2,080 20,398 $ 1,828 3. EARNINGS (LOSS) PER COMMON SHARE Computation of Basic and Diluted Earnings per Common Share (In millions, except for per share data) Earnings Income from continuing operations, net of tax Less: Preferred stock dividends Income from continuing operations, net of tax, available to common stockholders Income from discontinued operations, net of tax, available to common stockholders Net income available to common stockholders Shares Weighted average common shares outstanding, basic Dilutive effect of warrants [1] Dilutive effect of stock-based awards under compensation plans Weighted average common shares outstanding and dilutive potential common shares [2] Earnings per common share Basic Income from continuing operations, net of tax, available to common stockholders Income from discontinued operations, net of tax, available to common stockholders Net income available to common stockholders Diluted Income from continuing operations, net of tax, available to common stockholders Income from discontinued operations, net of tax, available to common stockholders Net income available to common stockholders [1]On June 26, 2019 the Capital Purchase Program warrants issued in 2009 expired. [2]For additional information, see Note 16 - Equity and Note 20 - Stock Compensation Plans. For the years ended December 31, 2020 2019 2018 $ 1,737 $ 2,085 $ 1,485 21 21 1,716 — 1,716 $ 2,064 — 2,064 $ 358.3 — 2.3 360.6 360.9 0.5 3.5 364.9 4.79 $ — 4.79 $ 4.76 $ — 4.76 $ 5.72 $ — 5.72 $ 5.66 $ — 5.66 $ 6 1,479 322 1,801 358.4 1.9 3.8 364.1 4.13 0.90 5.03 4.06 0.89 4.95 $ $ $ $ $ Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the year. Diluted earnings per common share includes the dilutive effect of assumed exercise or issuance of warrants and stock- based awards under compensation plans. In periods where a loss from continuing operations available to common stockholders or net loss available to common stockholders is recognized, inclusion of incremental dilutive shares would be antidilutive. Due to the antidilutive impact, such shares are excluded from the diluted earnings per share calculation of income (loss) from continuing operations, net of tax, available to common stockholders and net income (loss) available to common stockholders in such periods. Under the treasury stock method, for warrants and stock-based awards, shares are assumed to be issued and then reduced for the number of shares repurchasable with theoretical proceeds at the average market price for the period. Contingently issuable shares are included for the number of shares issuable assuming the end of the reporting period was the end of the contingency period, if dilutive. 136                                 Note 4 - Segment Information THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). In addition, Corporate includes a 9.7% ownership interest in the legal entity that acquired the life and annuity business sold in 2018. For further discussion of continued involvement in the life and annuity business sold, see Note 22 - Business Dispositions and Discontinued Operations. Financial Measures and Other Segment Information Certain transactions between segments occur during the year that primarily relate to tax settlements, insurance coverage, expense reimbursements, services provided, investment transfers and capital contributions. In addition, certain inter- segment transactions occur that relate to interest income on allocated surplus. Consolidated net investment income is unaffected by such transactions. 4. SEGMENT INFORMATION The Company 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. Over 95% of the Company’s revenues are generated in the United States (“U.S.”). The remaining revenues are generated in Europe and other international locations. We report our results of operations consistent with the manner in which our chief operating decision maker ("CODM") reviews the business to assess performance, make operating decisions and allocate resources. The Company’s reporting segments, as well as the Corporate category, are as follows: Commercial Lines Commercial Lines provides workers’ compensation, property, automobile, general liability, umbrella, professional liability, bond, marine, livestock and assumed reinsurance to businesses in the U.S. and internationally, along with a variety of customized insurance products and risk management services including professional liability, bond, surety, and specialty casualty coverages. Personal Lines Personal Lines provides standard automobile, homeowners and personal umbrella coverages to individuals across the U.S., including a special program designed exclusively for members of AARP. This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand. During the second quarter of 2020, the Company extended this agreement through December 31, 2032. Property & Casualty Other Operations Property & Casualty Other Operations includes certain property and casualty operations, managed by the Company, that have discontinued writing new business and includes substantially all of the Company’s asbestos and environmental exposures. Group Benefits Group Benefits provides employers, associations and financial institutions with group life, accident and disability coverage, along with other products and services, including voluntary benefits, and group retiree health. Hartford Funds Hartford Funds offers investment products for retail and retirement accounts and provides investment management and administrative services such as product design, implementation and oversight. This business also manages a portion of the mutual funds which support the variable annuity products within the life and annuity business sold in May 2018. Corporate The Company includes in the Corporate category discontinued operations related to the life and annuity business sold in May 2018, reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, certain purchase accounting adjustments related to goodwill and 137 Note 4 - Segment Information THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Revenues Net Income For the years ended December 31, 2020 2019 2018 Earned premiums and fee income: Commercial Lines Workers’ compensation $ 3,034 $ 3,314 $ 3,341 Liability Marine 1,401 1,064 251 147 653 — Package business 1,540 1,471 1,364 Property Professional liability Bond Assumed reinsurance Automobile 793 595 274 298 754 728 447 261 180 713 618 254 241 — 610 Commercial Lines Personal Lines Property & Casualty Other Operations Group Benefits Hartford Funds Corporate Net income For the years ended December 31, 2020 2019 2018 $ 856 $ 1,192 $ 1,212 718 318 (32) (168) 383 170 61 536 149 (222) (171) 15 340 148 124 $ 1,737 $ 2,085 $ 1,807 Preferred stock dividends 21 21 6 Net income available to common stockholders $ 1,716 $ 2,064 $ 1,801 Total Commercial Lines 8,940 8,325 7,081 Net Investment Income Personal Lines Automobile Homeowners 2,081 2,248 2,398 961 987 1,041 Total Personal Lines [1] 3,042 3,235 3,439 Property & Casualty Other Operations — 2 — Group Benefits Group disability Group life Other 2,832 2,828 2,746 2,434 2,521 2,611 270 254 241 Group Benefits Hartford Funds Corporate For the years ended December 31, 2020 2019 2018 Commercial Lines $ 1,160 $ 1,129 $ 997 Personal Lines Property & Casualty Other Operations 157 179 155 55 448 4 22 84 486 7 66 90 474 5 59 Total Group Benefits 5,536 5,603 5,598 Net investment income $ 1,846 $ 1,951 $ 1,780 Hartford Funds Mutual fund and ETP Talcott Resolution life and annuity separate accounts [2] Total Hartford Funds Corporate 903 907 932 86 989 58 92 100 999 1,032 60 32 Total earned premiums and fee income 18,565 18,224 17,182 Total net investment income 1,846 1,951 1,780 Net realized capital gains (losses) Other revenues Total revenues (14) 126 395 170 (112) 105 $ 20,523 $ 20,740 $ 18,955 [1]For 2020, 2019 and 2018, AARP members accounted for earned premiums of $2.8 billion, $2.9 billion and $3.0 billion, respectively. [2]Represents revenues earned on the life and annuity separate account AUM sold in May 2018 that is still managed by the Company's Hartford Funds segment. Amortization of DAC For the years ended December 31, 2020 2019 2018 Commercial Lines $ 1,397 $ 1,296 $ 1,048 Personal Lines Group Benefits Hartford Funds Corporate 244 259 275 50 14 1 54 12 1 45 16 — Total amortization of DAC $ 1,706 $ 1,622 $ 1,384 138                     Note 4 - Segment Information THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Amortization of Other Intangible Assets Assets Commercial Lines Personal Lines Property & Casualty Other Operations Group Benefits Hartford Funds Corporate Total assets As of December 31, 2020 2019 $ 45,482 $ 42,041 5,969 6,310 3,505 14,732 662 3,761 74,111 $ $ 3,560 14,595 634 3,677 70,817 For the years ended December 31, 2020 2019 2018 Commercial Lines $ 28 $ 18 $ Personal Lines Group Benefits Corporate 4 40 — 6 41 1 4 4 60 — Total amortization of other intangible assets $ 72 $ 66 $ 68 Income Tax Expense (Benefit) Commercial Lines Personal Lines Property & Casualty Other Operations Group Benefits Hartford Funds Corporate For the years ended December 31, 2020 2019 2018 $ 176 $ 270 $ 267 184 76 (19) (46) 88 44 12 126 37 (7) 84 38 (63) (46) (95) Total income tax expense $ 383 $ 475 $ 268 Revenue from Non-Insurance Contracts with Customers Commercial Lines Installment billing fees Personal Lines Installment billing fees Insurance servicing revenues Group Benefits Administrative services Hartford Funds Advisor, distribution and other management fees Other fees Corporate Investment management and other fees Transition service revenues Total non-insurance revenues with customers Revenue Line Item 2020 2019 2018 For the years ended December 31, Fee income $ 30 $ 35 $ Fee income Other revenues Fee income Fee income Fee income Fee income Other revenues 34 81 175 901 88 49 2 37 83 180 911 88 50 20 34 40 84 175 947 85 32 21 $ 1,360 $ 1,404 $ 1,418 139   Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. FAIR VALUE MEASUREMENTS The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs. Level 3 The fair value hierarchy levels are as follows: Level 1 Level 2 Fair values based primarily on unadjusted quoted prices for identical assets or liabilities, in active markets that the Company has the ability to access at the measurement date. Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities. Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers. The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3. Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2020 Assets accounted for at fair value on a recurring basis Fixed maturities, AFS Asset backed securities ("ABS") Collateralized loan obligations ("CLOs") Commercial mortgage-backed securities ("CMBS") Corporate Foreign government/government agencies Municipal Residential mortgage-backed securities ("RMBS") U.S. Treasuries Total fixed maturities Equity securities, at fair value Derivative assets Credit derivatives Foreign exchange derivatives Interest rate derivatives Total derivative assets [1] Short-term investments Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total $ 1,564 $ — $ 1,564 $ 2,780 4,484 20,273 919 9,503 4,107 1,405 45,035 1,438 21 1 1 23 — — — — — — 529 529 872 — — — — 3,283 2,663 2,420 4,407 19,392 913 9,503 3,726 876 42,801 496 21 1 1 23 590 — 360 77 881 6 — 381 — 1,705 70 — — — — 30 Total assets accounted for at fair value on a recurring basis $ 49,779 $ 4,064 $ 43,910 $ 1,805 Liabilities accounted for at fair value on a recurring basis Derivative liabilities Foreign exchange derivatives Interest rate derivatives Total derivative liabilities [2] $ Total liabilities accounted for at fair value on a recurring basis $ 140 (14) $ (70) (84) (84) $ — $ — — — $ (14) $ (70) (84) (84) $ — — — —                                 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2019 Assets accounted for at fair value on a recurring basis Fixed maturities, AFS ABS CLOs CMBS Corporate Foreign government/government agencies Municipal RMBS U.S. Treasuries Total fixed maturities Equity securities, at fair value Derivative assets Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total $ 1,476 $ — $ 1,461 $ 2,183 4,338 17,396 1,123 9,498 4,869 1,265 42,148 1,657 — — — — — — 330 330 1,401 2,088 4,329 16,664 1,120 9,498 4,309 935 40,404 183 15 95 9 732 3 — 560 — 1,414 73 — — — 1,028 2,759 $ 11 1 12 2,921 46,738 $ Credit derivatives Interest rate derivatives Total derivative assets [1] Short-term investments Total assets accounted for at fair value on a recurring basis Liabilities accounted for at fair value on a recurring basis Derivative liabilities — Credit derivatives (15) Equity derivatives — Foreign exchange derivatives — Interest rate derivatives (15) Total derivative liabilities [2] (22) Contingent consideration [3] (37) Total liabilities accounted for at fair value on a recurring basis [1]Includes derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed 11 1 12 1,878 42,477 $ (15) (2) (60) (78) (22) (100) $ (1) $ — (2) (60) (63) — (63) $ — $ — — — — — — $ — — — 15 1,502 (1) $ $ $ $ by agreements and applicable law. See footnote 2 to this table for derivative liabilities. [2]Includes derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law. [3]For additional information, see the Contingent Consideration section below. In connection with the acquisition of Navigators Group, the Company has overseas deposits in Other Invested Assets of $54 and $38 as of December 31, 2020 and December 31, 2019, respectively, which are measured at fair value using the net asset value as a practical expedient. Fixed Maturities, Equity Securities, Short-term Investments, and Derivatives Valuation Techniques The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order: • Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1. • Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party pricing services are classified as Level 2 because the inputs 141                                 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) • • used in pricing the securities are observable. However, some securities that are less liquid or trade less actively are classified as Level 3. Additionally, certain long-dated securities, such as municipal securities and bank loans, include benchmark interest rate or credit spread assumptions that are not observable in the marketplace and are thus classified as Level 3. Internal matrix pricing, which is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third- party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads using market based data for public securities adjusted for credit spread differentials between public and private securities, which are obtained from a survey of multiple private placement brokers. The market-based reference credit spread considers the issuer’s financial strength and term to maturity, using an independent public security index, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the significant inputs are observable or can be corroborated with observable data. Independent broker quotes, which are typically non-binding, use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3. The fair value of derivative instruments is determined primarily using a discounted cash flow model or option model technique and incorporates counterparty credit risk. In some cases, quoted market prices for exchange-traded and OTC-cleared derivatives may be used and in other cases independent broker quotes may be used. The pricing valuation models primarily use inputs that are observable in the market or can be corroborated by observable market data. The valuation of certain derivatives may include significant inputs that are unobservable, such as volatility levels, and reflect the Company’s view of what other market participants would use when pricing such instruments. Valuation Controls The process for determining the fair value of investments is monitored by the Valuation Committee, which is a cross- functional group of senior management within the Company. The purpose of the Valuation Committee is to provide oversight of the pricing policy, procedures and controls, including approval of valuation methodologies and pricing sources. The Valuation Committee reviews market data trends, pricing statistics and trading statistics to ensure that prices are reasonable and consistent with our fair value framework. Controls and procedures used to assess third-party pricing services are reviewed by the Valuation Committee, including the results of annual due-diligence reviews. Controls include, but are not limited to, reviewing daily and monthly price changes, stale prices, and missing prices and comparing new trade prices to third-party pricing services, weekly price changes to published bond prices of a corporate bond index, and daily OTC derivative market valuations to counterparty valuations. The Company has a dedicated pricing unit that works with trading and investment professionals to challenge the price received by a third party pricing source if the Company believes that the valuation received does not accurately reflect the fair value. New valuation models and changes to current models require approval by the Valuation Committee. In addition, the Company’s enterprise-wide Operational Risk Management function provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models. Valuation Inputs Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries, money market funds, exchange-traded equity securities, open- ended mutual funds, certain short-term investments, and exchange traded futures and option contracts. 142 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Derivatives Level 2 Primary Observable Inputs Level 3 Primary Unobservable Inputs Fixed Maturity Investments Structured securities (includes ABS, CLOs, CMBS and RMBS) • Benchmark yields and spreads • Monthly payment information • Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions • Credit default swap indices Other inputs for ABS, CLOs, and RMBS: • Estimate of future principal prepayments, derived from the characteristics of the underlying structure • Prepayment speeds previously experienced at the interest rate levels projected for the collateral Corporates • Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for less liquid securities or those that trade less actively, including subprime RMBS: • Estimated cash flows • Credit spreads, which include illiquidity premium • Constant prepayment rates • Constant default rates • Loss severity • Benchmark yields and spreads • Reported trades, bids, offers of the same or similar securities • Issuer spreads and credit default swap curves • Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for investment grade privately placed securities that utilize internal matrix pricing : • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature Other inputs for below investment grade privately placed securities and private bank loans: • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature U.S Treasuries, Municipals, and Foreign government/government agencies • Benchmark yields and spreads • Issuer credit default swap curves • Political events in emerging market economies • Municipal Securities Rulemaking Board reported trades and material event notices • Issuer financial statements Equity Securities • Quoted prices in markets that are not active Short-term Investments • Benchmark yields and spreads • Reported trades, bids, offers • Issuer spreads and credit default swap curves • Material event notices and new issue money market rates • Credit spreads beyond observable curve • Interest rates beyond observable curve • For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable • Independent broker quotes Derivatives Credit derivatives • Swap yield curve • Credit default swap curves Equity derivatives • Equity index levels • Swap yield curve Foreign exchange derivatives • Swap yield curve • Currency spot and forward rates • Cross currency basis curves Interest rate derivatives • Swap yield curve Not applicable • Independent broker quotes • Equity volatility Not applicable • Independent broker quotes • Interest rate volatility 143 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Significant Unobservable Inputs for Level 3 - Securities Assets accounted for at fair value on a recurring basis Fair Value Predominant Valuation Technique Significant Unobservable Input Minimum Maximum As of December 31, 2020 Impact of Increase in  Input on Fair Value [2] Weighted Average [1] CLOs [3] CMBS [3] Corporate [4] RMBS [3] CLOs [3] CMBS [3] Corporate [4] RMBS [3] $ 340 Discounted cash flows Spread 304 bps 305 bps 304 bps Decrease $ 20 Discounted cash flows Spread (encompasses prepayment, default risk and loss severity) 255 bps 975 bps 688 bps Decrease $ 749 Discounted cash flows $ 364 Discounted cash flows Spread 110 bps 692 bps 293 bps Decrease Spread [6] 7 bps 937 bps 119 bps Decrease Constant prepayment rate [6] Constant default rate [6] Loss severity [6] As of December 31, 2019 Spread $ 95 Discounted cash flows $ 1 Discounted cash flows Spread (encompasses prepayment, default risk and loss severity) $ 633 Discounted cash flows $ 560 Discounted cash flows Spread Spread [6] Constant prepayment rate [6] Constant default rate [6] Loss severity [6] —% 2% —% 10% 6% 100% 5% 3% 84% 246 bps 246 bps 246 bps 9 bps 1,832 bps 161 bps 93 bps 788 bps 236 bps 5 bps —% 1% —% 233 bps 11% 6% 100% 79 bps 6% 3% 70% Decrease [5] Decrease Decrease Decrease Decrease Decrease Decrease Decrease [5] Decrease Decrease [1]The weighted average is determined based on the fair value of the securities. [2]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. [3]Excludes securities for which the Company bases fair value on broker quotations. [4]Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value. [5]Decrease for above market rate coupons and increase for below market rate coupons. [6]Generally, a change in the assumption used for the constant default rate would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for constant prepayment rate and would have resulted in wider spreads. Significant Unobservable Inputs for Level 3 - Derivatives [1] Fair Value Predominant Valuation Technique Significant Unobservable Input Minimum Maximum As of December 31, 2019 Weighted Average [2] Impact of Increase in Input on Fair Value [3] Equity options $ (15) Option model Equity volatility 13 % 28 % 17 % Increase [1]As of December 31, 2020, the fair values of the Company's level 3 derivatives were less than $1 and are excluded from the table. [2]The weighted average is determined based on the fair value of the derivatives. [3]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions. The tables above exclude certain securities for which fair values are predominately based on independent broker quotes. While the Company does not have access to the significant unobservable inputs that independent brokers may use in their pricing process, the Company believes brokers likely use inputs similar to those used by the Company and third-party pricing 144 services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, prepayment rates, constant default rates and credit spreads. Therefore, similar to non-broker priced securities, increases in these inputs would generally cause fair values to decrease. For    Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) the year ended December 31, 2020, no significant adjustments were made by the Company to broker prices received. Contingent Consideration The acquisition of Lattice Strategies LLC ("Lattice") on July 29, 2016 required the Company to make payments to former owners of Lattice of up to $60 contingent upon growth in exchange- traded products ("ETP") assets under management ("AUM") over a period of four years beginning on the date of acquisition. The contingent consideration was measured at fair value on a quarterly basis by projecting future eligible ETP AUM over the contingency period to estimate the amount of expected payout. The future expected payout had been discounted back to the valuation date using a risk-adjusted discount rate of 10.0%. The risk-adjusted discount rate is an internally generated and significant unobservable input to fair value. In January 2020, we made a third payment of $10 after Lattice AUM reached $3.0 billion. Given the dramatic market declines and outflow in March, 2020, Lattice AUM declined to $2.3 billion as of March 30, 2020 and the Company reduced the remaining contingent consideration liability to zero, recognizing an $11.9 before tax reduction in expense in first quarter 2020. The earn out period ended on July 29, 2020 with no additional consideration payable. Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs The Company uses derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified within the same fair value hierarchy level as the associated asset or liability. Therefore, the realized and unrealized gains and losses on derivatives reported in the Level 3 rollforward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements. 145 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Year Ended December 31, 2020 Total realized/ unrealized gains (losses) Fair value as of January 1, 2020 Included in net income [1] Included in OCI [2] Purchases Settlements Sales Transfers into Level 3 [3] Transfers out of Level 3 [3] Fair value as of December 31, 2020 Assets Fixed Maturities, AFS ABS CLOs CMBS Corporate Foreign Govt./Govt. Agencies Municipal RMBS Total Fixed Maturities, AFS Equity Securities, at fair value Short-term investments Total Assets Liabilities Derivatives, net [4] Equity Total Derivatives, net [4] Contingent Consideration $ 15 $ — $ (1) $ 43 $ — $ — $ — $ (57) $ 95 9 732 3 — 560 1,414 73 15 1,502 (15) (15) (22) — — (31) — (3) — (34) (10) — (44) 36 36 12 1 3 31 — 2 (11) 25 — — 25 — — — 389 79 272 6 — 66 855 6 30 891 — — — (43) (5) — — — 13 (82) (22) (143) (36) 486 (430) — — (182) (373) — (15) — (6) (7) — 7 — (3) — (45) 381 (49) 506 (639) 1,705 — — 1 — — — 70 30 (388) (49) 507 (639) 1,805 (21) (21) 10 — — — — — — — — — — 360 77 881 6 — — — — — Total Liabilities $ (37) $ 48 $ — $ — $ (11) $ — $ — $ — $ 146 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Year Ended December 31, 2019 Total realized/ unrealized gains (losses) Fair value as of January 1, 2019 Included in net income [1] Included in OCI [2] Purchases Settlements Sales Transfers into Level 3 [3] Transfers out of Level 3 [3] Fair value as of December 31, 2019 Assets Fixed Maturities, AFS ABS CLOs CMBS Corporate Foreign Govt./Govt. Agencies RMBS Total Fixed Maturities, AFS Equity Securities, at fair value Derivatives, net [4] Interest rate Total Derivatives, net [4] Short-term investments Total Assets Liabilities Derivatives, net [4] Equity Total Derivatives, net [4] Contingent Considerations $ 10 $ — $ — $ 20 $ (1) $ — $ — $ (14) $ 100 12 520 3 920 1,565 77 1 1 — 1,643 3 3 (35) (32) $ — — (4) — 1 (3) — (1) (1) — (4) (18) (18) (7) — 1 16 — (8) 9 — — — — 9 — — — 329 34 354 — 134 871 9 — — 15 895 — — — (127) (4) (59) — (214) (405) — — — — (6) — (88) — (35) (129) (13) — — — (405) (142) — — 20 — — — — — 61 — — 61 — — — — 61 — — — (201) (34) (68) — (238) (555) — — — — — — — 15 95 9 732 3 560 1,414 73 — — 15 (15) (15) (22) (37) (555) 1,502 Total Liabilities $ (25) $ — $ — $ 20 $ — $ — $ — $ [1]Amounts in these columns are generally reported in net realized capital gains (losses). All amounts are before income taxes. [2]All amounts are before income taxes. [3]Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs. Transfers into and out of Level 3 for the year ended December 31, 2020, were primarily related to private securities that were priced using internal matrix pricing in the prior period, but changed to broker pricing in the current period and inversely, private securities that were priced using broker pricing in the prior period, but changed to internal matrix pricing in the current period. [4]Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Consolidated Balance Sheets in other investments and other liabilities. 147 Note 5 - Fair Value Measurements THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Changes in Unrealized Gains (Losses) for Financial Instruments Classified as Level 3 Still Held at Year End December 31, 2020 2019 Changes in Unrealized Gain/(Loss) included in Net Income [1] [2] Changes in Unrealized Gain/(Loss) included in OCI [3] Changes in Unrealized Gain/(Loss) included in Net Income [1] [2] Changes in Unrealized Gain/(Loss) included in OCI [3] $ Assets Fixed Maturities, AFS CLOs CMBS Corporate Foreign Govt./Govt. Agencies RMBS Total Fixed Maturities, AFS Equity Securities, at fair value Derivatives, net Equity Interest rate Total Derivatives, net Total Assets Liabilities Contingent Consideration — $ — (21) — — (21) (9) — — — (30) 12 1 $ 4 24 — (10) 19 — — — — 19 — — $ — (2) — — (2) 1 (18) (1) (19) (20) (7) — 1 15 1 (7) 10 — — — — 10 — $ Total Liabilities [1]All amounts in these rows are reported in net realized capital gains (losses). All amounts are before income taxes. [2]Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein. [3]Changes in unrealized gain (loss) on fixed maturities, AFS are reported in changes in net unrealized gain on securities in the Consolidated Statements of Comprehensive Income. 12 $ (7) $ — $ — Changes in interest rate derivatives are reported in changes in net gain on cash flow hedging instruments in the Consolidated Statements of Comprehensive Income. Financial Instruments Not Carried at Fair Value Financial Assets and Liabilities Not Carried at Fair Value Assets Mortgage loans Liabilities December 31, 2020 December 31, 2019 Fair Value Hierarchy Level Carrying Amount [1] Fair Value Fair Value Hierarchy Level Carrying Amount [1] Fair Value Level 3 $ 4,493 $ 4,792 Level 3 $ 4,215 $ 4,350 Other policyholder funds and benefits payable Senior notes [2] Junior subordinated debentures [2] Level 3 $ 701 $ Level 2 $ 3,262 $ Level 2 $ 1,090 $ 703 4,363 1,107 Level 3 $ 763 $ Level 2 $ 3,759 $ Level 2 $ 1,089 $ 765 4,456 1,153 [1] As of December 31, 2020, carrying amount of mortgage loans is net of ACL of $38. [2] Included in long-term debt in the Consolidated Balance Sheets, except for current maturities, which are included in short-term debt. 148   Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. INVESTMENTS (Before tax) Fixed maturities [1] Equity securities Mortgage loans Limited partnerships and other alternative investments Other investments [2] Investment expenses Net Investment Income For the years ended December 31, 2020 2019 2018 $ 1,442 $ 1,559 $ 1,459 39 172 222 42 (71) 46 165 232 32 (83) 32 141 205 20 (77) Total net investment income [1]Includes net investment income on short-term investments. [2]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. 1,846 $ 1,951 $ $ 1,780 (Before tax) Gross gains on sales Gross losses on sales Equity securities [1] Net credit losses on fixed maturities, AFS [2] Change in ACL on mortgage loans [3] Intent-to-sell impairments Net OTTI losses recognized in earnings Valuation allowances on mortgage loans Other, net [4] Net Realized Capital Gains (Losses) For the years ended December 31, 2020 2019 2018 $ 255 $ (50) (214) (28) (19) (5) 47 234 $ (56) 254 — (3) 1 (35) 114 (172) (48) — (1) — (5) Net realized capital gains (losses) [1] The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2020, were $53 for the 395 $ (14) $ (112) $ year-ended December 31, 2020. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2019, were $164 for the year-ended December 31, 2019. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of December 31, 2018, were $(80) for the year-ended December 31, 2018. [2]Due to the adoption of accounting guidance for credit losses on January 1, 2020, realized capital losses previously reported as OTTI are now presented as credit losses which are net of any recoveries. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. [3] Represents the change in ACL recorded during the period following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. [4]Includes gains (losses) on non-qualifying derivatives for 2020, 2019, and 2018 of $104, $(24), and $(12), respectively, gains (losses) from transactional foreign currency revaluation of $(1), $(9) and $1, respectively, and a loss of $48 from the sale of the Continental Europe Operations for the year ended December 31, 2020. Sales of AFS Securities For the years ended December 31, 2020 2019 2018 Fixed maturities, AFS Sale proceeds $ 15,059 $ 14,421 $ 21,327 Gross gains Gross losses $ $ 254 $ 233 $ 90 (50) $ (56) $ (169) Sales of AFS securities in 2020 were primarily a result of tactical changes to the portfolio driven by changing market conditions and to a lesser extent duration and liquidity management. Accrued Interest Receivable on Fixed Maturities, AFS and Mortgage Loans As of December 31, 2020 and December 31, 2019, the Company reported accrued interest receivable related to fixed maturities, AFS of $327 and $334, respectively, and accrued interest receivable related to mortgage loans of $14 and $14, respectively. These amounts are recorded in other assets on the Consolidated Balance Sheets and are not included in the carrying value of the fixed maturities or mortgage loans. The Company does not include the current accrued interest receivable balance when estimating the ACL. The Company has a policy to write-off accrued interest receivable balances that are more than 90 days past due. Write-offs of accrued interest receivable are recorded as a credit loss component of net realized capital gains and losses. 149 Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Interest income on fixed maturities and mortgage loans is accrued unless it is past due over 90 days or management deems the interest uncollectible. Recognition and Presentation of Intent-to-Sell Impairments and ACL on Fixed Maturities, AFS The Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of fixed maturities, AFS in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value on the impairment date and the amortized cost basis of the fixed maturity before recognizing the impairment. When fixed maturities are in an unrealized loss position and the Company does not record an intent-to-sell impairment, the Company will record an ACL for the portion of the unrealized loss due to a credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount and is recorded in OCI. The ACL is the excess of the amortized cost over the greater of the Company's best estimate of the present value of expected future cash flows or the security's fair value. Cash flows are discounted at the effective yield that is used to record interest income. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized capital gains and losses. The ACL is written off against the amortized cost in the period in which all or a portion of the related fixed maturity is determined to be uncollectible. Developing the Company’s best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company's considerations include, but are not limited to, (a) changes in the financial condition of the issuer and/or the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security. For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, instrument-specific developments including changes in credit ratings, industry earnings multiples and the issuer’s ability to restructure, access capital markets, and execute asset sales. For structured securities, assumptions include, but are not limited to, various performance indicators such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, loan-to-value ratios ("LTVs"), average cumulative collateral loss rates that vary by vintage year, prepayment speeds, and property value declines. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value. Prior to January 1, 2020, the Company recorded an OTTI loss on fixed maturities for which the Company did not expect to recover the entire amortized cost basis. For these securities, the excess of the amortized cost basis over its fair value was separated into the portion representing a credit OTTI, which was recorded in net realized capital losses, and the remaining non-credit amount, which was recorded in OCI. The Company’s best estimate of discounted expected future cash flows became the new cost basis and accreted prospectively into net investment income over the estimated remaining life of the security. ACL on Fixed Maturities, AFS by Type (Before tax) Balance, beginning of year Credit losses on fixed maturities where an allowance was not previously recorded Reduction due to sales Net increases (decreases) on fixed maturities where an allowance was previously recorded Balance as of end of period Year ended 2020 Corporate Municipal Total $ — $ — $ 36 (4) (9) 3 (3) — $ 23 $ — $ — 39 (7) (9) 23 150 Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Cumulative Credit Impairments on Fixed Maturities, AFS (Before tax) Balance as of beginning of period $ Additions for credit impairments recognized on [1]: Fixed maturities not previously impaired Fixed maturities previously impaired Reductions for credit impairments previously recognized on: Fixed maturities that matured or were sold during the period Balance as of end of period [1]These additions are included in the net OTTI losses recognized in earnings in the Consolidated Statements of Operations. $ Fixed Maturities, AFS Fixed Maturities, AFS, by Type For the years ended December 31, 2019 2018 (19) $ (3) — 3 (19) $ (25) — (1) 7 (19) December 31, 2020 Gross Unrealized Gains Gross Unrealized Losses ACL [1] December 31, 2019 Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Non- Credit OTTI [2] Amortized Cost $ 1,525 $ — $ 39 $ — $ 1,564 $ 1,461 $ 18 $ (3) $ 1,476 $ ABS CLOs CMBS 2,780 4,219 — — 7 286 (7) 2,780 (21) 4,484 2,186 4,210 Corporate 18,401 (23) 1,926 (31) 20,273 16,435 Foreign govt./govt. agencies Municipal RMBS U.S. Treasuries 842 8,564 3,966 1,264 — — — — 77 940 144 141 — 919 (1) 9,503 (3) 4,107 — 1,405 1,057 8,763 4,775 1,191 5 141 986 66 737 97 75 (8) 2,183 (13) 4,338 (25) 17,396 — 1,123 (2) 9,498 (3) 4,869 (1) 1,265 — — (4) — — — — — Total fixed maturities, AFS [1]Represents the ACL recorded following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation (63) $ 45,035 $ 40,078 $ (55) $ 42,148 $ $ 41,561 $ 2,125 $ 3,560 $ (23) $ (4) and Significant Accounting Policies. [2]Represents the amount of cumulative non-credit impairment losses recognized in OCI on fixed maturities that also had credit impairments. These losses are included in gross unrealized losses as of December 31, 2019. Fixed Maturities, AFS, by Contractual Maturity Year One year or less Over one year through five years Over five years through ten years Over ten years Subtotal Mortgage-backed and asset-backed securities Total fixed maturities, AFS Estimated maturities may differ from contractual maturities due to call or prepayment provisions. Due to the potential for variability in payment speeds (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity. December 31, 2020 December 31, 2019 Amortized Cost Fair Value Amortized Cost Fair Value $ 1,411 $ 1,432 $ 1,082 $ 7,832 7,622 12,206 29,071 12,490 8,286 8,354 14,028 32,100 12,935 7,200 7,395 11,769 27,446 12,632 $ 41,561 $ 45,035 $ 40,078 $ 1,090 7,401 7,803 12,988 29,282 12,866 42,148 Concentration of Credit Risk The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk. The Company had no investment exposure to any credit concentration risk of a single issuer greater than 10% of 151   Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) the Company's stockholders' equity, other than the U.S. government and certain U.S. government agencies as of December 31, 2020 or December 31, 2019. As of December 31, 2020, other than U.S. government and certain U.S. government agencies, the Company’s three largest exposures by issuer were Apple Inc., the IBM Corporation, and the New York State Dormitory Authority each of which comprised less than 1% of total invested assets. As of December 31, 2019, other than U.S. government and certain U.S. government agencies, the Company’s three largest exposures by issuer were the Government of the United Kingdom, the New York State Unrealized Losses on Fixed Maturities, AFS Dormitory Authority, and Wells Fargo & Company each of which comprised less than 1% of total invested assets. The Company’s three largest exposures by sector as of December 31, 2020 were the municipal sector, the financial services sector, and the CMBS sector which comprised approximately 17%, 9% and 8%, respectively, of total invested assets. The Company’s three largest exposures by sector as of December 31, 2019 were the municipal, RMBS, and CMBS sectors which comprised approximately 18%, 9% and 8%, respectively, of total invested assets. Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2020 Less Than 12 Months 12 Months or More Unrealized Losses Fair Value Unrealized Losses Fair Value ABS CLOs CMBS Corporate Foreign govt./govt. agencies Municipal RMBS U.S. Treasuries Total fixed maturities, AFS in an unrealized loss position Fair Value $ 44 $ 758 410 466 24 34 461 39 — $ (2) (17) (13) — (1) (3) — — $ 715 19 212 — — 21 — — $ (5) (4) (18) — — — — Total 44 $ 1,473 429 678 24 34 482 39 Unrealized Losses — (7) (21) (31) — (1) (3) — (63) $ 2,236 $ (36) $ 967 $ (27) $ 3,203 $ Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2019 Less Than 12 Months 12 Months or More Total ABS CLOs CMBS Corporate Foreign govt./govt. agencies Municipal RMBS U.S. Treasuries Total fixed maturities, AFS in an unrealized loss position Fair Value Unrealized Losses Fair Value Unrealized Losses $ 398 $ 679 538 789 101 222 614 88 (3) $ (2) (7) (9) — (2) (3) — 9 $ 923 20 328 29 — 68 34 — $ (6) (6) (16) — — — (1) Fair Value 407 $ 1,602 558 1,117 130 222 682 122 $ 3,429 $ (26) $ 1,411 $ (29) $ 4,840 $ Unrealized Losses (3) (8) (13) (25) — (2) (3) (1) (55) As of December 31, 2020, fixed maturities, AFS in an unrealized loss position consisted of 547 instruments, primarily in the corporate sectors, most notably travel, leisure, gaming, energy and financial services issuers, and CMBS which were depressed largely due to widening of credit spreads since the purchase date. As of December 31, 2020, 95% of these fixed maturities were depressed less than 20% of cost or amortized cost. The increase in gross unrealized losses during 2020 was primarily attributable to wider credit spreads within higher yielding corporates and CMBS. Most of the fixed maturities depressed for twelve months or more relate to the corporate sector. Corporate fixed maturities were primarily depressed because current market spreads are wider than at the respective purchase dates, with certain securities also depressed because of their variable-rate coupons and long-dated maturities. The Company neither has an intention to sell nor does it expect to be required to sell the fixed maturities outlined in the preceding discussion. The decision to record credit losses on fixed maturities, AFS in the form of an ACL requires us to make qualitative and quantitative estimates of expected future cash flows. Given the uncertainty about the ultimate impact of the COVID-19 pandemic on issuers of these securities, actual cash flows could ultimately deviate significantly from our expectations resulting in realized losses in future periods. 152 Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Mortgage Loans ACL on Mortgage Loans The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized capital gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level under multiple economic scenarios. The scenarios use macroeconomic data provided by an internationally recognized economics firm that generates forecasts of varying economic factors such as GDP growth, unemployment and interest rates. The economic scenarios are projected over 10 years. The first two to four years of the 10-year period assume a specific modeled economic scenario (including moderate upside, moderate recession and severe recession scenarios) and then revert to historical long- term assumptions over the remaining period. Using these economic scenarios, the forecasting model projects property- specific operating income and capitalization rates used to estimate the value of a future operating income stream. The operating income and the property valuations derived from capitalization rates are compared to loan payment and principal amounts to create debt service coverage ratios ("DSCRs") and loan-to-value ratios ("LTVs") over the forecast period. The model overlays historical data about mortgage loan performance based on DSCRs and LTVs and projects the probability of default, amount of loss given a default and resulting expected loss through maturity for each loan under each economic scenario. Economic scenarios are probability-weighted based on a statistical analysis of the forecasted economic factors and qualitative analysis. The Company records the change in the ACL on mortgage loans based on the weighted-average expected credit losses across the selected economic scenarios. In response to significant economic stress experienced as a result of the COVID-19 pandemic, during 2020 the Company increased the weight of both a moderate and severe recession in our estimate of the ACL. The Company continues to monitor economic uncertainty including rising COVID-19 infections leading to short-term lockdowns and the corresponding impact that this might have on the mortgage loan portfolio. We expect the impact on our mortgage loan portfolio will be impacted by borrower behavior in response to the economic stress. Borrowers with lower LTVs have an incentive to continue to make payments of principal and/or interest in order to preserve the equity they have in the underlying commercial real estate properties. As property values decline, borrowers have less incentive to continue to make payments. When a borrower is experiencing financial difficulty, including when foreclosure is probable, the Company measures an ACL on individual mortgage loans. The ACL is established for any shortfall between the amortized cost of the loan and the fair value of the collateral less costs to sell. Estimates of collectibility from an individual borrower require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, cash flow projections may change based upon new information about the borrower's ability to pay and/or the value of underlying collateral such as changes in projected property value estimates. As of December 31, 2020, the Company did not have any mortgage loans for which an ACL was established on an individual basis. Prior to January 1, 2020, for mortgage loans that were deemed impaired, a valuation allowance was established for the difference between the carrying amount and estimated fair value, which was generally the Company's share of the fair value of the collateral. A valuation allowance also may have been recorded for an individual loan or for a group of loans that had an LTV ratio of 90% or greater, a low DSCR or other lower credit quality characteristics. Changes in valuation allowances were recognized as net realized capital losses. There were no mortgage loans held-for-sale as of December 31, 2020 or December 31, 2019. As of December 31, 2020, the Company had no mortgage loans that have had extensions or restructurings other than what is allowable under the original terms of the contract. ACL on Mortgage Loans For the years ended December 31, 2020 2019 2018 ACL as of beginning of period $ — $ 1 $ 1 Cumulative effect of accounting changes [1] Adjusted beginning ACL Current period provision (release) 19 19 19 1 (1) ACL as of December 31, $ 38 $ — $ [1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. 1 — 1 The increase in the allowance for the year-ended December 31, 2020, is the result of the COVID-19 pandemic and its impacts on the economic forecasts, as discussed above, as well as lower estimated property values and operating income as compared to the prior year. The weighted-average LTV ratio of the Company’s mortgage loan portfolio was 55% as of December 31, 2020, while the weighted- average LTV ratio at origination of these loans was 60%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan with property values based on appraisals updated no less than annually. Factors considered in estimating property values include, among other things, actual and expected property cash flows, geographic market data and the ratio of the property's net operating income to its value. DSCR compares a property’s net operating income to the borrower’s principal and interest payments and are updated no less than annually through reviews of underlying properties. 153 Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Mortgage Loans LTV & DSCR by Origination Year as of December 31, 2020 2020 2019 2018 2017 2016 2015 & Prior Total Amortized Cost Avg. DSCR Amortized Cost Avg. DSCR Amortized Cost Avg. DSCR Amortized Cost Avg. DSCR Amortized Cost Avg. DSCR Amortized Cost Avg. DSCR Amortized Cost [1] Avg. DSCR $ 28 1.62x $ 243 1.58x $ 212 1.33x $ 45 2.02x $ 51 1.92x $ 115 1.74x $ 694 1.59x 659 2.56x 676 2.85x 410 2.25x 446 1.89x 235 2.99x 1,411 3.01x 3,837 2.69x Loan-to- value 65% - 80% Less than 65% Total mortgage loans [1] Amortized cost of mortgage loans excludes ACL of $38. 687 2.52x $ $ 919 2.51x $ 622 1.94x $ 491 1.90x $ 286 2.80x $ 1,526 2.92x $ 4,531 2.52x Mortgage Loans LTV & DSCR Loan-to-value 65% - 80% Less than 65% Total mortgage loans December 31, 2019 Amortized Cost Avg. DSCR $ $ 376 3,839 4,215 1.53x 2.56x 2.46x Mortgage Loans by Region December 31, 2020 December 31, 2019 Amortized Cost [1] Percent of Total Amortized Cost Percent of Total East North Central $ Middle Atlantic Mountain New England Pacific South Atlantic West North Central West South Central Other [2] Total mortgage loans 290 291 254 397 6.4 % $ 6.4 % 5.6 % 8.8 % 1,001 22.1 % 1,038 22.9 % 44 433 783 1.0 % 9.5 % 17.3 % 270 319 109 344 906 944 46 439 838 6.4 % 7.5 % 2.6 % 8.2 % 21.5 % 22.4 % 1.1 % 10.4 % 19.9 % $ 4,531 100.0 % $ 4,215 100.0 % [1] Amortized cost of mortgage loans excludes ACL of $38. [2]Primarily represents loans collateralized by multiple properties in various regions. Mortgage Loans by Property Type December 31, 2020 December 31, 2019 Amortized Cost [1] Percent of Total Amortized Cost Percent of Total Commercial Industrial Multifamily Office Retail Single Family Other $ 1,339 1,498 774 788 92 40 29.5 % $ 1,167 1,313 33.1 % 723 17.1 % 735 17.4 % 137 2.0 % 140 0.9 % Total mortgage loans [1] Amortized cost of mortgage loans excludes ACL of $38. $ 4,531 100.0 % $ 4,215 27.7 % 31.2 % 17.2 % 17.4 % 3.2 % 3.3 % 100.0 % 154 Past-Due Mortgage Loans Mortgage loans are considered past due if a payment of principal or interest is not received according to the contractual terms of the loan agreement, which typically includes a grace period. As of December 31, 2020 and December 31, 2019, the Company held no mortgage loans considered past due. Mortgage Servicing The Company originates, sells and services commercial mortgage loans on behalf of third parties and recognizes servicing fee income over the period that services are performed. As of December 31, 2020, under this program, the Company serviced mortgage loans with a total outstanding principal of $6.9 billion, of which $3.7 billion was serviced on behalf of third parties and $3.2 billion was retained and reported in total investments on the Company's Consolidated Balance Sheets. As of December 31, 2019, the Company serviced mortgage loans with a total outstanding principal balance of $6.4 billion, of which $3.5 billion was serviced on behalf of third parties and $2.9 billion was retained and reported in total investments on the Company's Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or fair value and were $0 as of December 31, 2020 and December 31, 2019, because servicing fees were market- level fees at origination and remain adequate to compensate the Company for servicing the loans. Purchased Financial Assets with Credit Deterioration Purchased financial assets with credit deterioration ("PCD") are purchased financial assets with a “more-than-insignificant” amount of credit deterioration since origination. PCD assets are assessed only at initial acquisition date and for any investments identified, the Company records an allowance at acquisition with a corresponding increase to the amortized cost basis. As of December 31, 2020, the Company held no PCD fixed maturities, AFS or mortgage loans. Variable Interest Entities The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities but also as an investment manager. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments   Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Consolidated Financial Statements. Consolidated VIEs As of December 31, 2020 and 2019, the Company did not hold any securities for which it is the primary beneficiary. Non-Consolidated VIEs The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of December 31, 2020 and 2019 is limited to the total carrying value of $1.3 billion and $1.1 billion, respectively, which are included in limited partnerships and other alternative investments in the Company's Consolidated Balance Sheets. As of December 31, 2020 and 2019, the Company has outstanding commitments totaling $768 and $851, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management. In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company is not the manager. These investments are included in ABS, CLOs, CMBS and RMBS and are reported in fixed maturities, available- for-sale. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment. Securities Lending, Repurchase Agreements, Other Collateral Transactions and Restricted Investments The Company may at times enter into securities financing transactions as a way to earn additional income or manage liquidity, primarily through securities lending and repurchase agreements. Securities Lending and Repurchase Agreements December 31, 2020 December 31, 2019 Fair Value Fair Value Securities Lending Transactions: Gross amount of securities on loan Gross amount of associated liability for collateral received [1] $ $ — $ 606 — $ 621 Repurchase agreements: Gross amount of recognized receivables for reverse repurchase agreements [1]Cash collateral received is reinvested in fixed maturities, AFS and short term investments which are included in the Consolidated Balance Sheets. Amount includes additional securities collateral received of $0 and $34 which are excluded from the Company's Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively. 30 $ $ 15 Securities Lending Under a securities lending program, the Company lends certain fixed maturities within the corporate, foreign government/ government agencies, and municipal sectors as well as equity securities to qualifying third-party borrowers in return for collateral in the form of cash or securities. For domestic and non- domestic loaned securities, respectively, borrowers provide collateral of 102% and 105% of the fair value of the securities lent at the time of the loan. Borrowers will return the securities to the Company for cash or securities collateral at maturity dates generally of 90 days or less. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, except in the event of default by the counterparty, and is not reflected on the Company’s Consolidated Balance Sheets. Additional collateral is obtained if the fair value of the collateral falls below 100% of the fair value of the loaned securities. The agreements are continuous and do not have stated maturity dates and provide the counterparty the right to sell or re-pledge the securities loaned. If cash, rather than securities, is received as collateral, the cash is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Consolidated Balance Sheets. Income associated with securities lending transactions is reported as a component of net investment income in the Company’s Consolidated Statements of Operations. As of December 31, 2020, the Company does not have any securities on loan as part of a securities lending program. Repurchase Agreements From time to time, the Company enters into repurchase agreements to manage liquidity or to earn incremental income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. The maturity of these transactions is generally ninety days or less. Repurchase agreements include master netting provisions that provide both parties the right to offset claims and apply securities held by them with respect to their obligations in the event of a default. Although the Company has the contractual right to offset claims, the Company's current positions do not meet the specific conditions for net presentation. 155 Note 6 - Investments THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) method of accounting. The remainder of investments in limited partnerships and other alternative investments consists of investments in insurer-owned life insurance accounted for at cash surrender value. The Company's investment in Hopmeadow Holdings LP is reported in other assets on the Company's Consolidated Balance Sheets and is accounted for under the equity method of accounting. For further discussion on Hopmeadow Holdings LP, see Note 22 - Business Dispositions and Discontinued Operations. The Company recognized total equity method income of $244, $267, and $214 for the years ended December 31, 2020, 2019 and 2018, respectively. Equity method income is reported in net investment income, except amounts related to strategic investments classified in other assets which are reported in other revenues. For investments accounted for under the equity method, the Company’s maximum exposure to loss as of December 31, 2020 is limited to the total carrying value of $2.0 billion. In addition, the Company has outstanding commitments totaling $804 to fund limited partnership investments as of December 31, 2020. The Company’s investments accounted for under the equity method are generally of a passive nature in that the Company does not take an active role in the management. In 2020, aggregate investment income from investments accounted for under the equity method exceeded 10% of the Company’s pre-tax consolidated net income (loss). Accordingly, the Company is disclosing aggregated, summarized financial data for the Company’s investments accounted for under the equity method. This aggregated, summarized financial data does not represent the Company’s proportionate share of investees' assets or earnings. Aggregate total assets of the investees totaled $339.6 billion and $329.4 billion as of December 31, 2020 and 2019, respectively. Aggregate total liabilities of the investees totaled $181.5 billion and $191.2 billion as of December 31, 2020 and 2019, respectively. Aggregate net investment income of the investees totaled $954, $618, and $773 for the periods ended December 31, 2020, 2019 and 2018, respectively. Aggregate net income excluding net investment income of the investees totaled $7.4 billion, $13.4 billion and $12.3 billion for the periods ended December 31, 2020, 2019 and 2018, respectively. As of, and for the period ended, December 31, 2020, the aggregated summarized financial data reflects the latest available financial information. Under repurchase agreements, the Company transfers collateral of U.S. government and government agency securities and receives cash. For repurchase agreements, the Company obtains cash in an amount equal to at least 95% of the fair value of the securities transferred. The agreements require additional collateral to be transferred under specified conditions and provide the counterparty the right to sell or re-pledge the securities transferred. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Consolidated Balance Sheets. The Company accounts for the repurchase agreements as collateralized borrowings. The securities transferred under repurchase agreements are included in fixed maturities, AFS with the obligation to repurchase those securities recorded in other liabilities on the Company's Consolidated Balance Sheets. From time to time, the Company enters into reverse repurchase agreements where the Company purchases securities and simultaneously agrees to resell the same or substantially the same securities. The maturity of these transactions is generally within one year. The agreements require additional collateral to be transferred to the Company under specified conditions and the Company has the right to sell or re-pledge the securities received. The Company accounts for reverse repurchase agreements as collateralized financing. The receivable for reverse repurchase agreements is included within short-term investments in the Company's Consolidated Balance Sheets. Other Collateral Transactions As of December 31, 2020 and 2019, the Company pledged collateral of $34 and $37, respectively, of U.S. government securities and municipal securities or cash primarily related to certain bank loan participations committed to through a limited partnership agreement. These amounts also include collateral related to letters of credit. For disclosure of collateral in support of derivative transactions, refer to the Derivative Collateral Arrangements section in Note 7 - Derivatives. Other Restricted Investments The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. As of December 31, 2020 and 2019, the fair value of securities on deposit was $2.6 billion and $2.3 billion, respectively. In addition, as of December 31, 2020, the Company held fixed maturities and short-term investments of $661 and $26, respectively, in trust for the benefit of syndicate policyholders, held fixed maturities of $175 in a Lloyd's trust account to provide a portion of the required capital, and maintained other investments of $54 primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries. As of December 31, 2019, the Company held fixed maturities and short-term investments of $447 and $189, respectively, in trust and other investments of $38 primarily consisting of overseas deposits in various countries with Lloyd's. Equity Method Investments The majority of the Company's investments in limited partnerships and other alternative investments, including hedge funds, real estate funds, and private equity funds (collectively, “limited partnerships”), are accounted for under the equity 156 Note 7 - Derivatives THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. DERIVATIVES The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions or income generation covered call transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. Strategies that Qualify for Hedge Accounting Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or debt instruments issued. Cash Flow Hedges Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on variable-rate fixed maturity securities to fixed rates. The Company has also entered into interest rate swaps to convert the variable interest payments on 3 month LIBOR + 2.125% junior subordinated debt to fixed interest payments. For further information, see the Junior Subordinated Debentures section within Note 14 - Debt. Foreign currency swaps are used to convert foreign currency- denominated cash flows related to certain investment receipts to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates. The Company also previously entered into forward starting swap agreements to hedge the interest rate exposure related to the future purchase of fixed-rate securities, primarily to hedge interest rate risk inherent in the assumptions used to price certain group benefits liabilities. Non-qualifying Strategies Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities and equities do not qualify for hedge accounting. The non-qualifying strategies include: Credit Contracts Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge 157 against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty or the Company should the referenced security issuers experience a credit event, as defined in the contract. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward. Interest Rate Swaps, Swaptions and Futures The Company uses interest rate swaps, swaptions and futures to manage interest rate duration between assets and liabilities. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap going forward. As of December 31, 2020 and 2019, the notional amount of interest rate swaps in offsetting relationships was $7.6 billion. Foreign Currency Swaps and Forwards The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency- denominated fixed maturity investments to U.S. dollars. The Company may at times enter into foreign currency forwards to hedge non-U.S. dollar denominated cash or equity securities. Equity Index Options The Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. The Company also enters into covered call options on equity securities to generate additional return. Derivative Balance Sheet Classification For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk. Note 7 - Derivatives THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Derivative Balance Sheet Presentation Net Derivatives Asset Derivatives Liability Derivatives Notional Amount Fair Value Fair Value Fair Value Dec 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019 Dec 31, 2020 Dec 31, 2019 $ 2,340 $ 2,040 $ — $ — $ — $ 1 $ — $ 286 270 2,626 2,310 (13) (13) (1) (1) 3 3 Hedge Designation/ Derivative Type Cash flow hedges Interest rate swaps Foreign currency swaps Total cash flow hedges Non-qualifying strategies Interest rate contracts 3 4 3 — — 13 5 15 36 (16) (16) (1) (4) (5) (73) (62) — — — (5) (1) (3) — (5) — (30) (78) (101) — $ (2) — (1) Interest rate swaps and futures 8,335 9,338 (69) (59) 4 Foreign exchange contracts Foreign currency swaps and forwards 269 464 — (1) — Credit contracts Credit derivatives that purchase credit protection Credit derivatives that assume credit risk [1] Credit derivatives in offsetting positions 6 675 218 124 500 29 — 21 — Equity contracts Equity index swaps and options Total non-qualifying strategies — 941 — 9,503 11,396 (48) (3) 13 — (15) (65) — 21 5 — 30 Total cash flow hedges and non-qualifying strategies $ 12,129 $ 13,706 $ (61) $ (66) $ 33 $ 40 $ (94) $ (106) Balance Sheet Location Fixed maturities, available-for-sale $ 269 $ 244 $ — $ — $ — $ — $ Other investments Other liabilities 9,585 1,277 23 12 25 13 2,275 12,185 (84) (61) $ (78) (66) $ 8 33 $ 27 40 $ (92) (94) $ (105) (106) Total derivatives [1]The derivative instruments related to this strategy are held for other investment purposes. $ 12,129 $ 13,706 $ Offsetting of Derivative Assets/Liabilities The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP. 158     Note 7 - Derivatives THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Offsetting Derivative Assets and Liabilities (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Net Amounts Presented in the Statement of Financial Position Collateral Disallowed for Offset in the Statement of Financial Position Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Statement of Financial Position Derivative Assets [1] (Liabilities) [2] Accrued Interest and Cash Collateral (Received) [3] Pledged [2] Financial Collateral (Received) Pledged [4] Net Amount As of December 31, 2020 Other investments Other liabilities As of December 31, 2019 Other investments Other liabilities $ $ $ $ 33 $ (94) $ 40 $ (106) $ 31 $ (6) $ 37 $ (23) $ 23 $ (84) $ 12 $ (78) $ (21) $ (4) $ (9) $ (5) $ 1 $ (83) $ 1 $ (73) $ 1 (5) 2 (10) [1]Included in other investments in the Company's Consolidated Balance Sheets. [2]Included in other liabilities in the Company's Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty. [3]Included in other investments in the Company's Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty. [4]Excludes collateral associated with exchange-traded derivative instruments. Cash Flow Hedges For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. Interest rate swaps Foreign currency swaps Total Gain (Loss) Recognized in OCI Year Ended December 31, 2020 2019 2018 $ $ 38 $ (8) 30 $ 18 $ 8 26 $ 5 7 12 Gain (Loss) Reclassified from AOCI into Income Year Ended December 31, 2020 2019 2018 Net Realized Capital Gain/(Loss) Net Investment Income Interest Expense Net Realized Capital Gain/(Loss) Net Investment Income Interest Expense Net Realized Capital Gain/(Loss) Net Investment Income Interest Expense Interest rate swaps Foreign currency swaps Total Total amounts presented on the Consolidated Statement of Operations $ $ $ — $ (1) (1) $ 29 $ (7) $ 5 — 34 $ (7) $ 2 $ — 2 $ 4 $ 3 7 $ 1 $ — 1 $ 6 $ — 6 $ 30 $ — 30 $ — — — (14) $ 1,846 $ 236 $ 395 $ 1,951 $ 259 $ (112) $ 1,780 $ 298 As of December 31, 2020, the before tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $35. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities and long-term debt that will occur over the next twelve months. At that time, the Company will recognize the deferred net gains (losses) as an adjustment to net investment income and interest expense over the term of the investment cash flows. During the years ended December 31, 2020, 2019, and 2018, the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring. 159 Note 7 - Derivatives THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Non-Qualifying Strategies For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses). Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses) Interest rate contracts Interest rate swaps, swaptions and futures Credit contracts Credit derivatives that purchase credit protection Credit derivatives that assume credit risk Equity contracts Equity options Foreign exchange contracts Foreign currency swaps and forwards For the Year Ended December 31, 2020 2019 2018 $ 21 $ (35) $ (3) 2 2 76 3 (5) 32 (17) 1 — (14) 2 3 Total [1] [1]Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. $ 104 $ (24) $ (12) Credit Risk Assumed through Credit Derivatives The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that are permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings. 160 Note 7 - Derivatives THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Credit Risk Assumed Derivatives by Type Underlying Referenced Credit Obligation(s) [1] Notional Amount [2] Fair Value Weighted Average Years to Maturity Average Credit Rating Offsetting Notional Amount [3] Offsetting Fair Value [3] Type As of December 31, 2020 Single name credit default swaps Investment grade risk exposure $ 175 $ 9 5 years Corporate Credit A- $ — $ Basket credit default swaps [4] Investment grade risk exposure Investment grade risk exposure Below investment grade risk exposure 500 100 9 Total [5] $ 784 $ Single name credit default swaps 12 5 years Corporate Credit BBB+ 1 8 years CMBS Credit AAA Less than 1 year (4) 18 As of December 31, 2019 CMBS Credit CCC+ — 100 9 $ 109 $ Investment grade risk exposure $ 100 $ 3 5 years Corporate Credit A- $ — $ Basket credit default swaps [4] Investment grade risk exposure 400 10 5 years Corporate Credit BBB+ Investment grade risk exposure Below investment grade risk exposure 1 14 Less than 1 year Less than 1 year — (5) CMBS Credit A CMBS Credit CCC- — 1 14 Total [5] [1]The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating 515 $ 15 $ $ 8 $ agency, then an internally developed rating is used. [2]Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements and applicable law which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses. [3]The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap. [4]Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index. [5]Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. Derivative Collateral Arrangements The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of December 31, 2020 and 2019, the Company pledged cash collateral associated with derivative instruments having a fair value of $0 and less than $1, respectively. The collateral receivable has been recorded in other assets or other liabilities on the Company's Consolidated Balance Sheets as determined by the Company's election to offset on the balance sheet. As of December 31, 2020 and 2019, the Company also pledged securities collateral associated with derivative instruments with a fair value of $90 and $78, respectively, which have been included in fixed maturities on the Consolidated Balance Sheets. The counterparties generally have the right to sell or re-pledge these securities. In addition, as of December 31, 2020 and 2019 , the Company has pledged initial margin of securities related to OTC-cleared and 161 exchange traded derivatives with a fair value of $83 and $88, respectively, which are included within fixed maturities on the Company's Consolidated Balance Sheets. As of December 31, 2020 and 2019, the Company accepted cash collateral associated with derivative instruments of $24 and $16, respectively, which was invested and recorded in the Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of December 31, 2020 and 2019 with a fair value of $1 and $1, respectively, which the Company has the ability to sell or repledge. As of December 31, 2020 and 2019, the Company had no repledged securities and no securities held as collateral have been sold. In addition, as of December 31, 2020 and 2019, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets. — — (1) 4 3 — — — 5 5 Note 8 - Premiums Receivable and Agents' Balances THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. PREMIUMS RECEIVABLE AND AGENTS' BALANCES is adjusted based on actual losses incurred. Although the premium adjustment feature of a retrospectively-rated policy substantially reduces insurance risk for the Company, it presents credit risk to the Company. The Company’s results of operations could be adversely affected if a significant portion of such policyholders failed to reimburse the Company for the deductible amount or the amount of additional premium owed under retrospectively-rated policies. The Company manages these credit risks through credit analysis, collateral requirements, and oversight. The ACL for receivables for loss within a deductible and retrospectively-rated policy premiums is estimated as the amount of the receivable exposed to loss multiplied by estimated factors for probability of default and the amount of loss given a default. The probability of default is assigned based on each policyholder's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The exposure amount is estimated net of collateral and other credit enhancement, considering the nature of the collateral, potential future changes in collateral values, and historical loss information for the type of collateral obtained. The probability of default factors are historical corporate defaults for receivables with similar durations estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors through multiple economic cycles. The Company's evaluation of the required ACL for receivables for loss within a deductible and retrospectively-rated policy premiums considers the current economic environment as well as the probability-weighted macroeconomic scenarios similar to the approach used for estimating the ACL for mortgage loans. See Note 6 - Investments. In response to significant economic stress experienced as a result of the COVID-19 pandemic during 2020, the Company increased the weight of both a moderate and severe recession scenario in our estimate of the ACL for losses within a deductible and retrospectively-rated policy premiums. However, overall, the ACL on receivables for losses within a deductible and retrospectively- rated policy premiums has decreased for the year, primarily due to a decline in the related receivable balance. Premiums Receivable and Agents' Balances Premiums receivable, excluding receivables for losses within a deductible and retrospectively- rated policy premiums Receivables for loss within a deductible and retrospectively-rated policy premiums, by credit quality: AAA AA A BBB BB Below BB Total receivables for losses within a deductible and retrospectively-rated policy premiums Total Premiums Receivable and Agents' Balances, Gross ACL As of December 31, 2020 $ 3,851 — 142 62 185 115 65 569 4,420 (152) Total Premiums Receivable and Agents' Balances, Net of ACL $ 4,268 ACL on Premiums Receivable and Agents' Balances Premium receivable and agents' balances, excluding receivables for losses within a deductible and retrospectively-rated policy premiums, are primarily comprised of premiums due from policyholders, which are typically collectible within one year or less. The Company had an immaterial amount of receivables with a due date of more than one year that are past-due. Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods. For these balances, the ACL is estimated based on an aging of receivables and recent historical credit loss and collection experience, adjusted for current economic conditions and reasonable and supportable forecasts, when appropriate. In response to significant economic stress experienced as a result of the COVID-19 pandemic during 2020, the Company increased the expected loss factors used to estimate the ACL based on collections experience during past moderate and severe recessions as well as experience during periods when we provided policyholders additional time to make premiums payments. A portion of the Company's Commercial Lines business is written with large deductibles or under retrospectively-rated plans. Under some commercial insurance contracts with a large deductible, the Company is obligated to pay the claimant the full amount of the claim and the Company is subsequently reimbursed by the policyholder for the deductible amount. As such, the Company is subject to credit risk until reimbursement is made. Retrospectively-rated policies are utilized primarily for workers' compensation coverage, whereby the ultimate premium 162 Note 8 - Premiums Receivable and Agents' Balances THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Rollforward of ACL on Premiums Receivable and Agents' Balances for the Year Ended December 31, 2020 Premiums Receivable and Agents' Balances, Excluding Receivables for Loss within a Deductible and Retrospectively- Rated Policy Premiums Receivables for Loss within a Deductible and Retrospectively- Rated Policy Premiums Total Beginning ACL $ Cumulative effect of accounting change [1] Adjusted beginning ACL Current period provision (release) Current period gross write-offs Current period gross recoveries 85 $ (2) 83 78 (49) 5 60 $ (21) 39 (4) — — 145 (23) 122 74 (49) 5 Ending ACL 152 117 $ [1]Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. The adjusted beginning ACL was based on the Company's historical loss information adjusted for current conditions and the forecasted economic environment at the time the guidance was adopted. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. 35 $ $ 9. REINSURANCE The Company cedes insurance risk to reinsurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers. The Company has two adverse development cover (“ADC”) reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all asbestos and environmental ("A&E") reserve development for 2016 and prior accident years ("A&E ADC") and the other covers substantially all reserve development of Navigators Insurance Company and certain of its affiliates for 2018 and prior accident years (the Navigators ADC). For more information on ADC agreements, see Note 1 -Basis of Presentation and Significant Accounting Policies, and Note 12 -Reserve for Unpaid Losses and Loss Adjustment Expenses. Property and Casualty ceded losses, which reduce losses and loss adjustment expenses incurred, were $1,156, $826 and $661 for the years ended December 31, 2020, 2019 and 2018, respectively. Group Benefits ceded losses, which reduce losses and loss adjustment expenses incurred, were $63, $73 and $116 for the years ended December 31, 2020, 2019 and 2018, respectively. Reinsurance Recoverables Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. The Company’s estimate of losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance recoverables based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses. 163 Note 9 - Reinsurance THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reinsurance Recoverables by Credit Quality Indicator as of December 31, 2020 Property and Casualty Group Benefits Corporate Total AM Best Financial Strength Rating $ 1,598 $ 1,788 — $ 230 — $ 305 A++ A+ A A- B++ Below B++ Total Rated by AM Best Mandatory (Assigned) and Voluntary Risk Pools Captives Other not rated companies Gross Reinsurance Recoverables Allowance for uncollectible reinsurance Net Reinsurance Recoverables $ Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods, generally 30, 60 or 90 days. There were no write-offs for the period ended December 31, 2020. To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management and operational quality of each potential reinsurer. In placing reinsurance, the Company considers the nature of the risk reinsured, including the expected liability payout duration, and establishes limits tiered by reinsurer credit rating. Where its contracts permit, the Company secures future claim obligations with various forms of collateral or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers. Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period. The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. The ACL is estimated as the amount of reinsurance recoverables exposed to loss multiplied by estimated factors for the probability of default and the amount of loss given a default. The probability of default is assigned based on each reinsurer's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed on a quarterly basis and any significant changes are reflected in an updated estimate. The probability of default factors are historical insurer and reinsurer defaults for liabilities 164 638 37 666 21 4,748 259 305 254 5,566 (105) 5,461 $ — 9 — 1 240 — — 5 245 (1) 244 $ — — 3 — 308 — — — 308 (2) 306 $ 1,598 2,323 638 46 669 22 5,296 259 305 259 6,119 (108) 6,011 with similar durations to the reinsured liabilities as estimated through multiple economic cycles. Credit ratings are forward- looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors of corporations through multiple economic cycles or, in the case of purchased annuities funding structured settlements accounted for as reinsurance, historical recovery rates for annuity contract holders. As shown in the table above, a portion of the total gross reinsurance recoverable balance relates to the Company’s participation in various mandatory (assigned) and voluntary risk pools. Reinsurance recoverables due from pools are backed by the financial position of all insurance companies participating in the pools and the credit backing the reinsurance recoverable is not limited to the financial strength of each pool. The mandatory pools generally are funded through policy assessments or surcharges and if any participant in the pool defaults, remaining liabilities are apportioned among the other members. The Company's evaluation of the required ACL for reinsurance recoverables considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 6 - Investments. Insurance companies, including reinsurers, are regulated and hold risk-based capital to mitigate the risk of loss due to economic factors and other risks. Non-U.S. reinsurers are either subject to a capital regime substantively equivalent to domestic insurers or we hold collateral to support collection of reinsurance recoverables. As a result, there is limited history of losses from insurer defaults. In response to significant economic stress experienced as a result of the COVID-19 pandemic during 2020, the Company increased the weight of both a moderate and severe recession in our estimate of the ACL for reinsurance recoverables. The Company expects the impact of the COVID-19 pandemic to reinsurers to be somewhat mitigated by their regulated capital and liquidity positions. Note 9 - Reinsurance THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Allowance for Uncollectible Reinsurance For the year ended December 31, 2020 Property and Casualty Group Benefits $ Corporate Total Beginning allowance for uncollectible reinsurance Beginning allowance for disputed amounts Beginning ACL Cumulative effect of accounting change [1] Adjusted beginning ACL Current period provision (release) Current period gross recoveries Ending ACL Ending allowance for disputed amounts Ending allowance for uncollectible reinsurance [1] Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies 114 $ 66 48 — 48 3 1 52 53 105 $ — $ — — 1 1 — — 1 — 1 $ — $ — — 1 1 1 — 2 — 2 $ $ 114 66 48 2 50 4 1 55 53 108 Insurance Revenues Property and Casualty Insurance Revenue Premiums Written Direct Assumed Ceded Net Premiums Earned Direct Assumed Ceded Net For the years ended December 31, 2019 2018 2020 $ $ $ $ 12,537 $ 577 (1,209) 11,905 $ 12,551 $ 540 (1,173) 11,918 $ 12,190 $ 371 (978) 11,583 $ 12,010 $ 416 (936) 11,490 $ 10,784 217 (593) 10,408 10,824 221 (599) 10,446 Group Benefits Revenue Gross earned premiums, fees and other considerations Reinsurance assumed Reinsurance ceded Net earned premiums, fees and other considerations For the years ended December 31, 2020 2019 2018 $ $ 5,245 $ 387 (96) 5,536 $ 4,122 $ 1,572 (91) 5,603 $ 3,615 2,044 (61) 5,598 For its group benefits products, the Company reinsures certain of its risks to other reinsurers under yearly renewable term and coinsurance arrangements and variations thereto. Yearly renewable term and coinsurance arrangements result in passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable for a corresponding proportionate amount of all benefit payments. 165             Note 10 - Deferred Policy Acquisition Costs THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. DEFERRED POLICY ACQUISITION COSTS Changes in DAC Balance, beginning of period Deferred costs Amortization — DAC Add back amortization of value of business acquired [1] DAC transferred to assets held for sale For the years ended December 31, 2020 2019 2018 $ 785 $ 670 $ 1,666 (1,706) 47 (3) 1,635 (1,622) 102 — 650 1,404 (1,384) — — Balance, end of period [1] While the value of in-force contracts acquired from the Navigators Group acquisition is included in other intangible assets, the amortization of that asset is recorded as DAC 789 $ 785 $ $ 670 amortization. 11. GOODWILL & OTHER INTANGIBLE ASSETS Goodwill Carrying Value as of December 31, 2020 Balance at December 31, 2018 Goodwill related to acquisitions [2] Balance at December 31, 2019 Measurement period adjustments [2] Commercial Lines Personal Lines Hartford Funds Group Benefits Corporate [1] Total $ $ 38 $ 623 661 $ (2) 119 $ 180 $ 723 $ 230 $ — — — — 119 $ 180 $ 723 $ 230 $ — — — — 1,290 623 1,913 (2) Balance at December 31, 2020 [1]The Corporate category includes goodwill that was acquired at a holding company level and not pushed down to a subsidiary within a reportable segment. Carrying value of 659 $ 180 $ 119 $ 723 $ 230 $ $ 1,911 goodwill within Corporate as of December 31, 2020, 2019, and 2018 includes $138 and $92 for the Group Benefits and Hartford Funds reporting units, respectively. [2] For further discussion on goodwill related to the acquisition of Navigators Group, refer to Note 2 - Business Acquisitions . The annual goodwill assessment for The Hartford's reporting units was completed as of October 31, 2020, 2019, and 2018, which resulted in no write-downs of goodwill in the respective years then ended. In 2020, all reporting units passed their annual impairment test with a significant margin. 166 Note 11 - Goodwill & Other Intangible Assets THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Other Intangible Assets As of December 31, 2020 As of December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortized Intangible Assets: Value of in-force contracts [1] $ 203 $ Customer relationships Marketing agreement with Aetna Distribution Agreement [2] Distribution and Agency relationships & Other [3] Total Finite Life Intangibles Total Indefinite Life Intangible Assets [4] 636 16 79 340 1,274 95 (172) $ (134) (3) (65) (45) (419) — 31 $ 203 $ (125) $ 502 13 14 295 855 95 636 16 79 340 1,274 95 (92) (2) (61) (19) (299) — 78 544 14 18 321 975 95 1,070 Total Other Intangible Assets [1]On May 23, 2019, the Company acquired Navigators Group and recorded a value of in-force-contracts intangible asset of $180 which will be amortized over 3 years. For further 1,369 $ 1,369 $ 950 $ (419) $ (299) $ $ discussion on the value of in-force-contracts related to the acquisition of Navigators Group, refer to Note 2 - Business Acquisitions . [2]On May 28, 2020, the Company amended its distribution agreement to, among other changes in terms, extend the agreement. As a result of this extension in term, The Hartford reassessed the useful life of the distribution agreement to amortize over a remaining life of approximately 6.5 years. [3]On May 23, 2019, the Company acquired Navigators Group and recorded other intangible assets of $302 for distribution relationships and $17 for the trade name. The distribution relationships and trade name will be amortized over 15 years and 10 years, respectively. For further discussion on the value of distribution relationships and trade name related to the acquisition of Navigators Group, refer to Note 2 - Business Acquisitions . [4]On May 23, 2019, the Company acquired Navigators Group and recorded an indefinite life intangible asset of $66 related to the capacity to write business through its Lloyd's Syndicate and recorded an indefinite life intangible of $15 for licenses . For further discussion on the indefinite life intangible assets related to the acquisition of Navigators Group, refer to Note 2 - Business Acquisitions . Expected Pre-tax Amortization Expense [1] for Acquired Intangibles as of December 31, 2020 2021 2022 2023 2024 Value of In-force Contracts Other Intangible Assets $ $ $ $ 21 $ 10 $ — $ — $ 71 70 70 70 2025 [1]In the Consolidated Statements of Operations, the amortization of value of in- — $ $ 70 force contracts is reported in amortization of deferred policy acquisition costs and the amortization of other intangible assets is reported in amortization of other intangible assets. 167 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES Property and Casualty Insurance Products Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses For the years ended December 31, 2020 2019 2018 Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 28,261 $ 24,584 $ Reinsurance and other recoverables Beginning liabilities for unpaid losses and loss adjustment expenses, net Navigators Group acquisition Provision for unpaid losses and loss adjustment expenses Current accident year Prior accident year development [1] Total provision for unpaid losses and loss adjustment expenses Change in deferred gain on retroactive reinsurance included in other liabilities [1] Payments Current accident year Prior accident years Total payments Net reserves transferred to liabilities held for sale Foreign currency adjustment Ending liabilities for unpaid losses and loss adjustment expenses, net Reinsurance and other recoverables 5,275 22,986 — 7,794 (136) 7,658 (312) (2,214) (4,190) (6,404) (45) 14 23,897 5,725 4,232 20,352 2,001 7,463 (65) 7,398 (16) (2,374) (4,374) (6,748) — (1) 22,986 5,275 23,775 3,957 19,818 — 7,107 (167) 6,940 — (2,452) (3,954) (6,406) — — 20,352 4,232 Ending liabilities for unpaid losses and loss adjustment expenses, gross [1]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADC which, under retroactive reinsurance accounting, is 29,622 $ 28,261 $ 24,584 $ deferred and is recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the two adverse development cover reinsurance agreements, refer to Adverse Development Covers discussion below. Property and Casualty Insurance Products Reserves, Net of Reinsurance, that are Discounted Liability for unpaid losses and loss adjustment expenses, at undiscounted amounts $ 1,334 $ 1,331 $ 1,331 For the years ended December 31, 2020 2019 2018 Amount of discount Carrying value of liability for unpaid losses and loss adjustment expenses Discount accretion included in losses and loss adjustment expenses $ $ 367 967 36 $ $ 388 943 33 $ $ 388 943 40 2.68 % 2.91 % 2.98 % Weighted average discount rate Range of discount rates Reserves are discounted at rates in effect at the time claims were incurred, ranging from 0.83% for accident year 2020 to 14.03% for accident year 1981. The reserves recorded for the Company’s property and casualty insurance products at December 31, 2020 represent the Company’s best estimate of its ultimate liability for losses and loss adjustment expenses related to losses covered by policies written by the Company. However, because of the significant uncertainties surrounding reserves it is possible that management’s estimate of the ultimate liabilities for these claims 0.83 %- 14.03 % 1.76 % - 14.03 % 1.77 % - 14.15 % may change and that the required adjustment to recorded reserves could exceed the currently recorded reserves by an amount that could be material to the Company’s results of operations or cash flows. Losses and loss adjustment expenses are also impacted by trends including frequency and severity as well as changes in the legislative and regulatory environment. In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty in the ultimate settlement of the liabilities gross of reinsurance include inadequate loss development 168                 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent emerging legal doctrines. In the case of the reserves for environmental exposures before reinsurance, factors contributing to the high degree of uncertainty in gross reserves include expanding theories of liabilities and damages, the risks inherent in major litigation, inconsistent decisions concerning the existence and scope of coverage for environmental claims, and uncertainty as to the monetary amount being sought by the claimant from the insured. (Favorable) Unfavorable Prior Accident Year Development Workers’ compensation Workers’ compensation discount accretion General liability Marine Package business Commercial property Professional liability Bond Assumed reinsurance For the years ended December 31, 2020 2019 2018 $ (110) $ (120) $ (164) 35 33 40 237 61 52 3 8 — (58) (47) (26) (4) (11) (12) (14) 29 (12) (19) (3) 2 (6) 3 — Automobile liability - Commercial Lines 27 27 (15) Automobile liability - Personal Lines (61) (38) (18) Homeowners Net asbestos reserves Net environmental reserves Catastrophes Uncollectible reinsurance 7 3 (25) (2) — — — — — (529) (42) (49) (8) (30) 22 Other reserve re-estimates, net 54 46 38 Prior accident year development, including full benefit for the ADC cession (448) (81) (167) Change in deferred gain on retroactive reinsurance included in other liabilities [1] 312 16 — $ (136) $ (65) $ (167) Total prior accident year development [1] The change in deferred gain for the year ended December 31, 2020 included $210 of adverse development on A&E reserves in excess of ceded premium paid and included $102 of adverse development on Navigators 2018 and prior accident year reserves, within professional liability, marine, general liability, prior accident year catastrophes, and assumed reinsurance. 2020 re-estimates of prior accident year reserves Workers’ compensation reserves were reduced on national account business within middle & large commercial, driven by lower than previously estimated claim severity for the 2015 and prior accident years, including on captives business, and were reduced in small commercial due to lower than expected claim severity for the 2013 to 2018 accident years. General liability reserves were increased primarily due to a $254 increase in reserves for sexual molestation and sexual 169 abuse claims related to cases brought against religious and other organizations that were insureds of the Company, partly offset by a decrease in reserves for other mass torts and extra contractual liability claims. The sexual molestation and sexual abuse exposures may involve potentially long latency periods and may implicate coverage in multiple policy periods, which can raise complex coverage issues with significant effects on the ultimate scope of coverage. This increase in reserves reflects an increase in claim incidence largely due to reviver statutes, which is legislation passed in a number of states that provides an opportunity for claimants to file claims for a period of time despite the fact that the original statute of limitations had expired. The reserve increase in 2020 was principally from claims asserted against the Boy Scouts of America (“Boy Scouts”). The reserve increase for Boy Scouts was partially driven by the impact of claim filings on and around the November 16, 2020 deadline to file claims in the Boy Scouts’ Chapter 11 bankruptcy. Various subsidiaries of the Company issued primary, umbrella and excess general liability policies to the Boy Scouts for various policies periods between 1971 and 1983, including seven years of primary coverage from 1971 through 1977. However, it is the Company’s position that the 1976 and 1977 primary policy years were fully released and all the Company’s obligations extinguished by virtue of a prior settlement agreement with Boy Scouts. Further, the Company disputes the extent of its obligations to Boy Scouts and the validity of certain claims filed against Boy Scouts in the bankruptcy. As such, there are significant uncertainties regarding the ultimate number and severity of the claims against Boy Scouts, the potential for additional reviver activity, and the inherent risks associated with legal determinations to be made by the bankruptcy court and in coverage litigation. In addition, general liability reserve increases on construction account business were largely offset by decreases in ULAE reserves. Reserves were increased for guaranteed cost construction business for accident years 2014 to 2019 as incurred losses are developing higher than previously expected for premises and operations claims and product liability claims, partly due to a change in industry mix and a heavier concentration of losses in California than initially assumed, as well as increased reserves for middle market and complex liability claims for accident year 2018 largely due to higher than expected severity. Also contributing were increases in reserves on primary layer construction account business within global specialty, mainly related to accident years 2015 to 2017, which is included as a component of the change in deferred gain under retroactive reinsurance in the above table. Marine reserves were increased principally due to an increase in domestic marine liability, mostly in accident years 2017 and 2018 due to a higher number of large losses. The increase in marine reserves is included as a component of the change in deferred gain under retroactive reinsurance in the above table. Package business reserves decreased for accident years 2014 to 2017 largely due to lower estimates of allocated loss adjustment expenses. Commercial property reserves were decreased for accident year 2019 due to favorable developments on marine and middle market property claims. Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Professional liability reserves were decreased primarily due to lower estimated severity on non-security class action D&O claims and fewer than expected E&O claims with financial institutions for the 2011 to 2018 accident years, partially offset by an increase in D&O reserves for the 2019 accident year driven by higher frequency of class action lawsuits and an increase in large Syndicate D&O losses for the 2016 and 2017 accident years. These Syndicate reserve increases within global specialty are included as a component of the change in deferred gain under retroactive reinsurance in the above table. Bond reserves were reduced within contract surety driven by both favorable loss development on the 2015 to 2017 accident years and higher than expected loss recoveries on older accident years Assumed reinsurance reserves were increased for accident year 2018 mostly due to higher accident and health reserve estimates for medical professionals on assumed casualty business. These reserve increases are included as a component of the change in deferred gain under retroactive reinsurance in the above table. Automobile liability reserves were decreased in Personal Lines principally due to lower than previously expected AARP Direct automobile liability claim severity for the 2017 to 2019 accident years. Automobile liability reserves were increased in Commercial Lines primarily due to higher than expected large losses within middle & large commercial, predominantly within the 2015 to 2019 accident years. Catastrophes reserves were reduced, primarily due to a reduction in estimated reserves for 2017 and 2018 California wildfires and a reduction in estimated catastrophes for wind and hail events in the 2017 to 2019 accident years, partially offset by an increase in reserves for 2019 typhoons Hagibis and Faxai in Asia. The reduction in reserves for the 2017 and 2018 wildfires was largely due to recognizing a $289 subrogation benefit in the second quarter of 2020 from PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) as well as a reduction in gross estimated losses on those wildfires. In December, 2019, the judge overseeing the bankruptcy of PG&E approved an $11 billion settlement of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. That settlement was contingent upon, among other things, the judge entering an order confirming PG&E’s chapter 11 bankruptcy plan (“PG&E Plan”) incorporating the settlement agreement. On June 20, 2020, the bankruptcy court judge approved the PG&E Plan and PG&E subsequently transferred the $11 billion settlement amount to a trust designed to allocate and distribute the settlement among subrogation holders, including certain of the Company’s insurance subsidiaries. In the second quarter of 2020, the Company recorded an estimated $289 subrogation benefit though the ultimate amount it collects will depend on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. Uncollectible reinsurance reserves were reduced due to higher than expected recoveries from reinsurers in older accident years. Asbestos and environmental reserves were reviewed in fourth quarter 2020 resulting in a $218 increase in reserves before ADC reinsurance, including $127 for asbestos and $91 for environmental. Of the $218 increase in A&E reserves, the Company ceded $220 to the A&E ADC resulting in a net reserve release of $2. Of the $220 of adverse development ceded to the A&E ADC, the Company recognized a $210 deferred gain on retroactive reinsurance, representing the amount of losses ceded to the ADC in excess of ceded premium paid. For additional information related to the adverse development cover with NICO, see the Adverse Development Covers section below and Note 15 - Commitments and Contingencies. Other reserve re-estimates, net, primarily represents an increase in unallocated loss adjustment expense ('ULAE") reserves in Property & Casualty Other Operations that was largely driven by an increase in gross asbestos and environmental reserves. 2019 re-estimates of prior accident year reserves Workers’ compensation reserves were reduced, principally in small commercial driven by lower than previously estimated claim severity for the 2014 through 2017 accident years and, to a lesser extent, in national accounts due to lower estimated claim severity, primarily for accident years 2013 and prior. General liability reserves were increased, primarily due to reserve increases in small commercial for accident years 2017 and 2018 due to higher frequency of high-severity bodily injury claims, reserve increases in middle & large commercial for accident years 2015 to 2018 due to higher estimated severity, as well as increased estimated severity on the acquired Navigators Group book of business related to U.S. construction, premises liability, products liability and excess casualty, mostly related to accident years 2014 to 2017. In addition, an increase in reserves for mass torts for 2009 and prior accident years was offset by a decrease in reserves for extra contractual liability claims for more recent accident years, including the 2018 accident year. Marine reserves were increased, principally related to pollution exposure from the 1980s and 1990s related to the Navigators Group book of business. Package business reserves were decreased, primarily due to favorable emergence on property claims related to accident years 2016 through 2018 and due to favorable development of loss adjustment expenses on general liability claims for 2017 and prior accident years. Commercial property reserves were decreased, principally due to favorable emergence of reported losses, including on the acquired Navigators Group book of business, related to offshore energy in accident years 2017 to 2018 and construction engineering across accident years 2015 to 2018. Professional liability reserves were increased, primarily due to increased securities litigation and large loss activity, including wrongful termination and discrimination claims, related to accident years 2017 and 2018 and increased estimated frequency and severity of directors’ and officers’ reserves on the Navigators Group book of business, principally 170 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Commercial property reserves were reduced, driven by an increase in estimated reinsurance recoverables on middle market property losses from the 2017 accident year. Professional liability reserves were reduced, principally for accident years 2014 and prior, for directors and officers liability claims principally due to a number of older claims closing with limited or no payment. Automobile liability reserves were reduced, primarily driven by reduced estimates of loss adjustment expenses in small commercial for recent accident years and favorable development in personal automobile liability for accident years 2014 to 2017, principally due to lower severity, including with uninsured and underinsured motorist claims. Homeowners reserves were reduced, primarily in accident years 2013 to 2017, driven by lower than expected severity across multiple perils. Asbestos and environmental reserves were unchanged as $238 of adverse development arising from the fourth quarter 2018 comprehensive annual review was offset by a $238 recoverable from NICO. For additional information related to the adverse development cover with NICO, see the Adverse Development Covers section below and Note 15 - Commitments and Contingencies. Catastrophe reserves were reduced, primarily as a result of lower estimated net losses from 2017 catastrophes, principally related to hurricanes Harvey and Irma. Before reinsurance, estimated losses for 2017 catastrophe events decreased by $133, resulting in a decrease in reinsurance recoverables of $90 as the Company no longer expects to recover under the 2017 Property Aggregate reinsurance treaty as aggregate ultimate losses for 2017 catastrophe events are now projected to be less than $850. Uncollectible reinsurance reserves were increased due to lower anticipated recoveries related to older accident years. Other reserve re-estimates, net, primarily represents an increase in ULAE reserves in Property & Casualty Other Operations that was principally driven by an increase in expected claim handling costs associated with asbestos and environmental and mass tort claims. for the 2014 to 2018 accident years. Partially offsetting the increase was a decrease in average severity on public company directors’ and officers’ claim reserves and errors and omissions claim reserves for accident years 2014 and prior. Automobile liability reserves were decreased in Personal Lines and increased in Commercial Lines. The decrease in Personal Lines was due to the emergence of lower estimated severity in automobile liability for accident year 2017. The increase in Commercial Lines was due to higher estimated severity on national accounts, principally in accident years 2017 and 2018, and higher estimated severity for accident year 2018 in small commercial and middle market, partially offset by lower estimated severity for 2017 and prior accident years in small commercial and middle market. Catastrophes reserves were reduced, primarily as a result of lower estimated net losses from 2017 hurricanes Harvey and Irma and the 2017 California wildfires. While gross loss reserve estimates for the 2018 California wildfires were also reduced, this was largely offset by a reduction in reinsurance recoverables resulting in very little change to estimated net losses from those wildfires. Uncollectible reinsurance reserves were reduced due to higher than expected recoveries from reinsurers in older accident years. Other reserve re-estimates, net, primarily represents an increase in unallocated loss adjustment expense ('ULAE") reserves in Property & Casualty Other Operations that was driven by an increase in gross asbestos and environmental reserves, as well as higher than anticipated ULAE costs in recent years, prompting an increase in the projected ULAE run rate. 2018 re-estimates of prior accident year reserves Workers’ compensation reserves were reduced in small commercial and middle market, primarily for accident years 2014 and 2015, as claim severity has emerged favorably compared to previous reserve estimates. Also contributing was a reduction in estimated reserves for ULAE. General liability reserves were increased, primarily due to an increase in reserves for higher hazard general liability exposures in middle market for accident years 2009 to 2017, partially offset by a decrease in reserves for other lines within middle market, including premises and operations, umbrella and products liability, principally for accident years 2015 and prior. Contributing to the increase in reserves for higher hazard general liability exposures was an increase in average claim severity, including from large losses and, in more recent accident years, an increase in claim frequency. Contributing to the reduction in reserves for other middle market lines were more favorable outcomes due to initiatives to reduce legal expenses. In addition, reserve increases for claims with lead paint exposure were offset by reserve decreases for other mass torts and extra-contractual liability claims. Package business reserves were reduced, primarily due to lower reserve estimates for both liability and property for accident years 2010 and prior, including a recovery of loss adjustment expenses for the 2005 accident year. 171 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Adverse Development Covers The Company has an adverse development cover reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., to reinsure loss development after 2016 on substantially all of the Company’s asbestos and environmental reserves (the “A&E ADC”). Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion including reserves for A&E exposure for accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E") and reserves for A&E exposure for accident years 1986 and subsequent from policies underwritten prior to 2016 that are reported in ongoing Commercial Lines and Personal Lines. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit. Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid have been recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid result in a deferred gain. As of December 31, 2020, the Company has incurred $860 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $640 of available limit remaining under the A&E ADC. As a result, the Company has recorded a $210 deferred gain within other liabilities, representing the difference between the reinsurance recoverable of $860 and ceded premium paid of $650. The deferred gain is recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims will result in charges against earnings, which may be significant. Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased the Navigators ADC, an aggregate excess of loss reinsurance agreement covering adverse reserve development, from NICO on behalf of Navigators Insurers. Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018. As of December 31, 2020, the Company has recorded a reinsurance recoverable under the Navigators ADC of $209 as estimated cumulative loss development on the 2018 and prior accident year reserves of $309 exceed the $100 deductible. While the reinsurance recoverable is $209, the Company has also recorded a $118 cumulative deferred gain within other liabilities since, under retroactive reinsurance accounting, ceded losses in excess of the $91 of ceded premium paid must be recognized as a deferred gain. Of the $118 of cumulative ceded losses in excess of ceded premium paid, $102 was recognized as a deferred gain in 2020 and $16 was recognized as a deferred gain in 2019. As the Company has ceded $209 of the $300 available limit, there is $91 of remaining limit available as of December 31, 2020. 172 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reconciliation of Loss Development to Liability for Unpaid Losses and Loss Adjustment Expenses As of December 31, 2020 Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Cumulative Incurred for Accident Years Displayed in Triangles Cumulative Paid for Accident Years Displayed in Triangles Unpaid for Accident Years not Displayed in Triangles Unpaid Unallocated Loss Adjustment Expenses, Net of Reinsurance Discount Subtotal Unpaid Losses and Loss Adjustment Expenses, Net of Reinsurance Liability for Unpaid Losses and Loss Adjustment Expenses Reinsurance and Other Recoverables Reserve Line Workers' compensation $ 18,864 $ (10,633) $ 2,671 $ 336 $ (352) $ 10,886 $ 1,970 $ 12,856 713 137 General liability Marine Package business Commercial property Commercial automobile liability Commercial automobile physical damage Professional liability Bond Assumed Reinsurance 6,201 1,379 6,940 3,365 (2,946) (1,128) (5,248) (2,936) 3,804 (2,775) 176 2,164 635 1,198 (167) (1,080) (310) (986) Personal automobile liability 11,463 (10,153) Personal automobile physical damage Homeowners Other ongoing business Asbestos and environmental [1] Other operations [1] 1,279 6,770 (1,262) (6,435) 18 66 28 16 4 65 28 3 29 5 6 208 938 349 10 94 18 21 — 35 28 3 60 3 31 — — — — — — — — — — — — (2) — 164 (15) — — 4,105 279 1,852 475 1,066 13 1,184 381 218 1,399 25 372 191 938 513 740 216 17 221 4,845 495 1,869 696 78 1,144 (1) 689 13 41 28 — 3 294 1,429 (13) 12 1,873 394 259 1,427 25 375 485 2,367 500 29,622 Total P&C [1]Asbestos and environmental and other operations include asbestos, environmental and other latent exposures not foreseen when coverages were written, including, but not limited to, potential liability for pharmaceutical products, silica, talcum powder, head injuries, lead paint, construction defects, sexual molestation and sexual abuse and other long-tail liabilities. These reserve lines do not have significant paid or incurred loss development for the most recent ten accident years and therefore do not have loss development displayed in triangles. (46,059) $ 23,897 $ 64,238 $ 5,147 $ 5,725 $ (367) $ 938 $ $ The reserve lines in the above table and the loss triangles that follow represent the significant lines of business for which the Company regularly reviews the appropriateness of reserve levels. These reserve lines differ from the reserve lines reported on a statutory basis, as prescribed by the National Association of Insurance Commissioners ("NAIC"). The cumulative incurred losses displayed in the above table include the full reinsurance benefit of ceding $209 of losses to the Navigators ADC even though $118 of that benefit has been recorded as a deferred gain within other liabilities and recognized as a charge to earnings within incurred loss and loss adjustment expenses included in the consolidated statement of operations. The $209 of Navigators Insurers losses ceded to the Navigators ADC included in the following triangles $53 for general liability, $53 for professional liability, $24 for assumed reinsurance, $12 for commercial automobile, $38 for marine and $5 for commercial property and included $24 for older accident years and lines of business that are not in the following triangles. The following loss triangles present historical loss development for incurred and paid claims by accident year, including loss development on Navigators Insurers reserves prior to and after the May 23, 2019 acquisition date. Because the loss triangles include pre-acquisition date changes in ultimate incurred loss estimates for Navigators Insurers’ reserves, changes in reserve development evident in the incurred loss triangles may differ from prior accident year development recorded by the Company as shown in the (Favorable) Unfavorable Prior Accident Year Development table above as that only includes changes in Navigators Insurers’ reserves post acquisition. In addition, the incurred loss triangles include reserve development on both catastrophe and non-catastrophe claims whereas the (Favorable) Unfavorable Prior Accident Year Development table above shows the total amount of catastrophe reserve development across all lines of business on a single line. Triangles are limited to the number of years for which claims incurred typically remain outstanding, not exceeding ten years. Short-tail lines, which represent claims generally expected to be paid within a few years, have three years of claim development displayed. For marine, commercial property, professional liability and assumed reinsurance lines, the Company has provided nine years of claims development as data for earlier periods was not available for the Lloyds syndicate. IBNR reserves shown in loss triangles include reserve for incurred but not reported claims as well as reserves for expected development on reported claims. Incurred and cumulative paid losses in currencies other than the 173 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) U.S. dollar have been converted into U.S. dollars using the exchange rates as of December 31, 2020. Workers' Compensation Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 2,013 $ 2,099 $ 2,204 $ 2,206 $ 2,221 $ 2,224 $ 2,232 $ 2,242 $ 2,239 $ 2,235 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 2,185 2,207 2,207 2,181 2,168 2,169 2,154 2,146 2,135 2,020 1,981 1,920 1,883 1,861 1,861 1,850 1,831 1,869 1,838 1,789 1,761 1,713 1,692 1,679 1,873 1,835 1,801 1,724 1,714 1,699 1,772 1,772 1,780 1,767 1,748 1,862 1,869 1,840 1,822 1,916 1,917 1,915 1,937 1,935 1,865 $ 18,864 291 325 378 437 477 574 753 854 1,033 1,412 177,961 171,494 151,422 126,217 113,966 112,058 111,510 117,999 117,698 84,062 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 371 $ 841 $ 1,156 $ 1,368 $ 1,518 $ 1,622 $ 1,690 $ 1,746 $ 1,786 $ 1,811 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 359 809 1,106 1,313 1,436 1,529 1,587 1,644 1,678 304 675 275 917 1,071 1,175 1,260 1,304 1,339 598 261 811 576 255 960 1,041 1,099 1,137 778 579 261 909 1,004 1,068 779 575 283 908 1,003 778 624 291 900 837 637 223 $ 10,633 174 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) General Liability Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 431 $ 420 $ 408 $ 405 $ 404 $ 416 $ 417 $ 426 $ 420 $ 416 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 423 402 455 399 442 506 392 456 475 556 410 484 481 560 613 408 488 494 554 583 626 421 502 513 594 607 614 692 413 505 522 633 633 613 669 821 407 508 515 647 632 616 697 826 937 $ 6,201 40 50 62 78 110 176 258 395 638 850 22,394 16,597 13,867 14,722 15,382 16,479 15,943 16,881 15,191 9,265 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 15 $ 61 $ 123 $ 200 $ 255 $ 303 $ 330 $ 348 $ 362 $ 368 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 13 55 13 101 53 15 170 141 42 10 233 233 130 55 12 280 320 214 156 52 15 305 372 304 278 131 67 21 323 398 358 409 283 156 83 29 332 422 402 477 368 255 177 100 45 $ 2,946 175 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Marine Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves [1] Claims Reported 2012 $ 195 $ 220 $ 180 $ 169 $ 163 $ 164 $ 168 $ 164 $ 164 $ 2013 2014 2015 2016 2017 2018 2019 2020 Total 149 152 163 134 160 158 136 158 146 140 140 165 146 143 160 135 164 148 138 187 144 138 169 133 148 175 161 144 140 167 138 150 174 154 142 150 $ 1,379 2 (3) (3) (5) (7) (12) (12) 20 76 6,782 6,623 7,122 10,114 13,112 15,498 13,808 7,989 3,451 [1]IBNR reserves are negative for some accident years as all losses ceded to the Navigators ADC are ceded as IBNR even though the gross losses being ceded include both reported losses and IBNR components. In addition, the collection of subrogation lags payment of the losses. Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 $ 51 $ 101 $ 125 $ 139 $ 148 $ 152 $ 155 $ 159 $ 158 2013 2014 2015 2016 2017 2018 2019 2020 Total 42 82 41 100 81 40 112 116 85 35 119 131 116 80 48 121 151 126 106 111 37 126 156 134 122 142 104 36 133 159 139 132 154 138 83 32 $ 1,128 176 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Package Business Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 810 $ 792 $ 790 $ 800 $ 808 $ 814 $ 813 $ 812 $ 807 $ 807 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 736 725 579 728 565 566 731 573 578 582 736 585 601 588 655 735 586 602 585 638 695 739 592 603 583 632 702 719 732 586 603 588 625 692 724 813 732 587 593 581 611 657 688 769 915 $ 6,940 24 30 29 44 56 78 114 169 256 412 61,097 59,871 43,620 43,207 42,121 43,922 46,366 44,273 41,800 56,548 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 377 $ 555 $ 621 $ 684 $ 727 $ 748 $ 762 $ 772 $ 774 $ 776 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 286 486 225 560 339 226 616 414 345 212 652 467 416 332 225 673 504 468 383 353 235 687 522 507 445 410 372 237 694 541 525 486 465 447 402 254 697 549 535 505 500 496 451 413 326 $ 5,248 177 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Commercial Property Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2012 $ 369 $ 333 $ 334 $ 335 $ 337 $ 335 $ 334 $ 333 $ 332 $ 2013 2014 2015 2016 2017 2018 2019 2020 Total 268 252 293 254 281 299 252 282 301 406 249 280 302 420 577 248 279 301 399 516 450 247 280 305 406 455 437 476 247 280 304 408 438 424 437 495 $ 3,365 — — — 1 1 6 26 21 162 26,860 21,610 21,025 21,020 23,758 24,332 21,630 20,791 18,628 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 $ 182 $ 296 $ 317 $ 326 $ 331 $ 331 $ 331 $ 330 $ 330 2013 2014 2015 2016 2017 2018 2019 2020 Total 161 223 170 238 250 179 243 270 257 215 242 279 285 342 229 244 279 296 378 379 188 245 279 302 396 412 344 214 245 280 303 401 428 379 349 221 $ 2,936 178 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Commercial Automobile Liability Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 272 $ 310 $ 356 $ 356 $ 366 $ 365 $ 363 $ 362 $ 363 $ 363 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 311 377 311 391 318 309 402 334 317 308 395 341 331 358 385 389 340 337 372 393 372 387 339 341 356 390 383 349 388 335 334 356 391 379 396 417 388 334 333 359 392 383 405 431 416 $ 3,804 6 6 8 8 12 25 37 86 194 321 39,302 36,052 32,239 29,609 28,541 29,145 26,279 24,402 24,604 14,930 Cumulative Paid Losses & Allocated Loss Adjustment Expense, Net of Reinsurance For the years ended December 31 (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 63 $ 133 $ 211 $ 274 $ 316 $ 339 $ 348 $ 353 $ 354 $ 355 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 65 143 62 234 130 59 307 202 131 62 346 259 197 142 65 359 295 252 207 147 60 372 311 299 267 232 134 62 376 321 309 314 303 211 153 63 378 323 318 335 339 285 239 153 50 $ 2,775 179 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Commercial Automobile Physical Damage Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2018 2019 2020 IBNR Reserves Claims Reported 2018 $ 62 $ 62 $ 61 $ 2019 2020 Total 63 64 51 $ 176 1 1 2 20,561 19,828 13,796 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2018 2019 2020 2018 $ 54 $ 60 $ 2019 2020 Total 56 60 62 45 $ 167 180 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Professional Liability Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Claims Made Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2012 $ 242 $ 238 $ 238 $ 218 $ 221 $ 221 $ 219 $ 225 $ 217 $ 2013 2014 2015 2016 2017 2018 2019 2020 Total 207 195 187 187 183 164 174 181 174 183 174 178 179 176 205 173 179 190 203 203 248 171 182 214 197 232 281 298 171 183 207 196 226 277 317 370 $ 2,164 11 22 26 40 53 63 101 196 325 7,036 5,972 6,717 7,215 8,345 9,362 9,913 9,297 6,236 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Claims Made Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 $ 17 $ 67 $ 100 $ 139 $ 155 $ 168 $ 172 $ 175 $ 175 2013 2014 2015 2016 2017 2018 2019 2020 Total 10 44 8 67 38 9 88 74 40 8 116 108 85 51 11 131 131 107 88 48 15 137 135 125 112 88 73 21 143 146 141 125 123 130 78 19 $ 1,080 181 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Bond Accident Year Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 74 $ 78 $ 78 $ 76 $ 71 $ 71 $ 71 $ 71 $ 72 $ 71 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 71 70 64 61 58 71 55 55 67 67 49 48 66 67 61 49 49 67 63 61 63 45 39 59 60 61 90 68 48 35 59 54 56 101 68 72 48 34 60 48 52 94 72 73 83 $ 635 9 13 14 13 17 29 34 37 60 77 2,135 1,728 1,463 1,386 1,394 1,335 1,682 1,573 1,514 1,505 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 12 $ 40 $ 52 $ 57 $ 58 $ 60 $ 60 $ 60 $ 61 $ 62 35 20 46 32 22 53 23 13 4 $ 310 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 12 25 3 26 9 18 24 17 31 9 26 19 40 20 2 26 19 43 24 12 5 34 19 43 31 15 46 6 35 20 45 34 20 55 16 3 182 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Assumed Reinsurance Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2012 $ 107 $ 99 $ 93 $ 88 $ 115 $ 120 $ 119 $ 120 $ 120 $ 2013 2014 2015 2016 2017 2018 2019 2020 Total 115 119 119 103 142 102 105 122 92 89 102 118 94 91 129 102 115 94 98 153 129 103 116 95 100 162 128 181 104 116 96 102 157 130 190 183 $ 1,198 — — — — (1) — (14) 38 110 1,441 1,647 1,760 1,497 1,626 1,966 1,960 2,025 833 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 $ 38 $ 77 $ 83 $ 85 $ 112 $ 118 $ 118 $ 119 $ 119 2013 2014 2015 2016 2017 2018 2019 2020 Total 53 83 66 91 119 42 98 106 65 36 100 109 77 66 44 101 112 83 84 116 25 103 113 91 90 135 112 62 103 114 94 95 145 134 132 50 $ 986 183 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Personal Automobile Liability Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 1,181 $ 1,170 $ 1,180 $ 1,173 $ 1,166 $ 1,154 $ 1,154 $ 1,153 $ 1,153 $ 1,153 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 1,141 1,149 1,146 1,142 1,133 1,130 1,130 1,130 1,129 1,131 1,145 1,144 1,153 1,152 1,153 1,157 1,156 1,146 1,153 1,198 1,200 1,199 1,202 1,201 1,195 1,340 1,338 1,330 1,331 1,328 1,407 1,402 1,393 1,397 1,395 1,277 1,275 1,228 1,214 1,108 1,104 1,072 1,018 1,010 805 $ 11,463 4 5 7 8 15 28 50 105 220 400 221,891 210,757 205,480 209,013 216,871 215,797 187,408 155,821 138,430 90,933 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 447 $ 826 $ 1,006 $ 1,088 $ 1,126 $ 1,140 $ 1,145 $ 1,146 $ 1,146 $ 1,148 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 441 818 442 986 1,067 1,104 1,114 1,120 1,122 1,123 816 1,002 1,091 1,121 1,135 1,142 1,144 430 843 1,032 1,125 1,165 1,182 1,186 475 935 1,142 1,243 1,292 1,304 505 968 1,188 1,308 1,345 441 836 1,033 1,123 359 710 323 888 654 238 $ 10,153 184 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Personal Automobile Physical Damage Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2018 2019 2020 IBNR Reserves Claims Reported 2018 $ 509 $ 498 $ 488 $ 2019 2020 Total 445 442 349 $ 1,279 1 — 305,389 276,688 (6) 199,623 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2018 2019 2020 2018 $ 474 $ 491 $ 2019 2020 Total 427 488 441 333 $ 1,262 185 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Homeowners Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 955 $ 920 $ 919 $ 916 $ 914 $ 911 $ 908 $ 907 $ 907 $ 907 $ 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 774 741 673 741 638 710 741 637 707 690 739 634 702 703 669 738 632 700 690 673 866 738 630 698 684 663 889 903 738 629 698 684 658 884 910 501 737 630 698 684 658 783 673 475 525 $ 6,770 — — 1 — 1 2 6 179,405 142,855 113,546 121,914 119,981 119,742 124,581 (11) 102,603 27 89 83,915 82,246 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 709 $ 871 $ 891 $ 899 $ 903 $ 905 $ 908 $ 907 $ 908 $ 907 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 547 696 467 719 590 526 727 611 663 487 731 622 684 645 481 734 626 691 665 621 538 735 627 695 674 640 747 484 736 628 697 680 649 795 712 318 736 628 697 681 653 757 616 425 335 $ 6,435 Property and casualty reserves, including IBNR reserves The Company estimates ultimate losses and allocated loss adjustment expenses by accident year. IBNR represents the excess of estimated ultimate loss reserves over case reserves. The process to estimate ultimate losses and loss adjustment expenses is an integral part of the Company's reserve setting. Reserves for allocated and unallocated loss adjustment expenses are generally established separate from the reserves for losses. Reserves for losses are set by line of business within the reporting segments. Case reserves are established by a claims handler on each individual claim and are adjusted as new information becomes known during the course of handling the claim. Lines of business for which reported losses emerge over a long period of time are referred to as long-tail lines of business. Lines of business for which reported losses emerge more quickly are referred to as short-tail lines of business. The Company’s shortest tail lines of business are homeowners, commercial property and automobile physical damage. The longest tail lines of business include workers’ compensation, general liability and professional liability. For short-tail lines of business, emergence of paid loss and case reserves is credible and likely indicative of ultimate losses. For long-tail lines of business, emergence of paid losses and case reserves is less credible in the early periods after a given accident year and, accordingly, may not be indicative of ultimate losses. The Company’s reserving actuaries regularly review reserves for both current and prior accident years using the most current claim data. A variety of actuarial methods and judgments are used for most lines of business to arrive at selections of estimated 186 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ultimate losses and loss adjustment expenses. The reserve selections incorporate input, as appropriate, from claims personnel, pricing actuaries and operating management about reported loss cost trends and other factors that could affect the reserve estimates. For both short-tail and long-tail lines of business, an expected loss ratio is used to record initial reserves. This expected loss ratio is determined by starting with the average loss ratio of recent prior accident years and adjusting that ratio for the effect of expected changes to earned pricing, loss frequency and severity, mix of business, ceded reinsurance and other factors. For short-tail lines, IBNR for the current accident year is initially recorded as the product of the expected loss ratio for the period, earned premium for the period and the proportion of losses expected to be reported in future calendar periods for the current accident period. For long-tailed lines, IBNR reserves for the current accident year are initially recorded as the product of the expected loss ratio for the period and the earned premium for the period, less reported losses for the period. For certain short-tailed lines of business, IBNR amounts in the above loss development triangles are negative due to anticipated salvage and subrogation recoveries on paid losses. As losses for a given accident year emerge or develop in subsequent periods, reserving actuaries use other methods to estimate ultimate unpaid losses in addition to the expected loss ratio method. These primarily include paid and reported loss development methods, frequency/severity techniques and the Bornhuetter-Ferguson method (a combination of the expected loss ratio and paid development or reported development method). Within any one line of business, the methods that are given more weight vary based primarily on the maturity of the accident year, the mix of business and the particular internal and external influences impacting the claims experience or the methods. The output of the reserve reviews are reserve estimates that are referred to as actuarial indications. Paid development and reported development techniques are used for most lines of business though more weight is given to the reported development method for some of the long-tailed lines like general liability. In addition, for long-tailed lines of business, the Company relies on the expected loss ratio method for immature accident years. Frequency/severity techniques are used predominantly for professional liability and are also used for automobile liability. The Berquist-Sherman technique is also used for automobile liability, marine and assumed reinsurance. For most lines, reserves for allocated loss adjustment expenses ("ALAE", or those expenses related to specific claims) are analyzed using paid development techniques and an analysis of the relationship between ALAE and loss payments. For most of the lines acquired through the Navigators Group book of business, loss and ALAE are reviewed on a combined basis. Reserves for ULAE are determined using the expected cost per claim year and the anticipated claim closure pattern as well as the ratio of paid ULAE to paid losses. In the final step of the reserve review process, senior reserving actuaries and senior management apply their judgment to determine the appropriate level of reserves considering the actuarial indications and other factors not contemplated in the actuarial indications. Those factors include, but are not limited to, the assessed reliability of key loss trends and assumptions used in the current actuarial indications, the maturity of the accident year, pertinent trends observed over the recent past, the level of volatility within a particular line of business, and the improvement or deterioration of actuarial indications. The Company also considers the magnitude of the difference between the actuarial indication and the recorded reserves. Cumulative number of reported claims For most property and casualty lines, claim counts represent the number of claim features on a reported claim where a claim feature is each separate coverage for each claimant affected by the claim event. For example, one car accident that results in two bodily injury claims and one automobile damage liability claim would be counted as three claims within the personal automobile liability triangle. Similarly, a fire that impacts one commercial building may result in multiple claim features due to the potential for claims related to business interruption, structural damage, and loss of the physical contents of the building. Claim features that result in no paid losses are included in the reported claim counts. For some property and casualty lines, such as marine and assumed reinsurance, a claim count represents each reported claim regardless of the number of features. For assumed bordereau business and business written on binders, one claim count is posted for each bordereau received, which could account for multiple claims. 187 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Reserve Line 1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year 9th Year Workers' compensation 15.2% 19.1% 12.4% 8.3% 5.7% 4.2% General liability Marine Package business Commercial property 2.9% 8.2% 14.6% 18.4% 16.2% 10.9% 26.1% 32.4% 18.4% 37.5% 21.7% 10.0% 53.6% 30.9% 7.6% 8.4% 8.6% 3.2% 7.0% 6.0% 0.9% Commercial automobile liability 16.2% 20.8% 20.9% 17.7% 11.4% Commercial automobile physical damage 88.2% 10.1% (0.5%) Professional liability 5.4% 19.0% 18.2% 14.5% 10.4% Bond Assumed Reinsurance Personal automobile liability 12.7% 24.3% 11.7% 36.3% 38.7% 8.8% 35.5% 33.2% 15.8% 4.9% 4.9% 7.6% 2.4% 8.0% 3.1% Personal automobile physical damage 96.5% 3.2% (0.7%) 10th Year 1.1% 1.5% 1.7% 2.8% (0.5%) 2.3% 4.5% 3.9% 1.2% 0.3% 0.3% (0.1%) (0.1%) 1.1% 0.5% 0.2% 2.0% 1.2% 0.3% 0.1% —% 0.1% 2.1% (0.1%) 0.1% 0.1% 2.6% 6.6% 2.2% 2.1% 0.2% 2.7% 3.9% 5.3% 1.0% 0.5% 2.8% 2.9% 0.3% 4.9% 6.3% 0.1% 2.5% 1.1% Homeowners 71.8% 22.7% 1.2% 0.4% 0.6% 0.3% 0.1% 0.1% —% —% Group Life, Disability and Accident Products Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses Beginning liabilities for unpaid losses and loss adjustment expenses, gross $ 8,256 $ 8,445 $ 8,512 For the years ended December 31, 2020 2019 2018 Reinsurance recoverables [1] Beginning liabilities for unpaid losses and loss adjustment expenses, net Aetna U.S. group life and disability business acquisition [2] Provision for unpaid losses and loss adjustment expenses Current incurral year Prior year's discount accretion Prior incurral year development [3] Total provision for unpaid losses and loss adjustment expenses [4] Payments Current incurral year Prior incurral years Total payments Ending liabilities for unpaid losses and loss adjustment expenses, net Reinsurance recoverables 247 8,009 — 4,511 209 (445) 4,275 (2,288) (2,000) (4,288) 7,996 237 239 8,206 — 4,385 219 (410) 4,194 (2,277) (2,114) (4,391) 8,009 247 209 8,303 42 4,470 227 (324) 4,373 (2,377) (2,135) (4,512) 8,206 239 Ending liabilities for unpaid losses and loss adjustment expenses, gross [1] Includes a cumulative effect adjustment of $(1) representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See 8,233 $ 8,256 $ $ 8,445 Note 1 - Basis of Presentation and Significant Accounting Policies. [2]Amount recognized in 2018 represents an adjustment to Aetna U.S. group life and disability business reserves, net of reinsurance as of the acquisition date, upon finalization of the opening balance sheet. [3]Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis. [4]Includes unallocated loss adjustment expenses of $178, $178 and $194 for the years ended December 31, 2020, 2019 and 2018, respectively, that are recorded in insurance operating costs and other expenses in the Consolidated Statements of Operations. 188 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Group Life, Disability and Accident Products Reserves, Net of Reinsurance, that are Discounted Liability for unpaid losses and loss adjustment expenses, at undiscounted amounts Amount of discount Carrying value of liability for unpaid losses and loss adjustment expenses Weighted average discount rate Range of discount rate For the years ended December 31, 2020 2019 2018 $ $ 8,380 $ 8,636 $ (1,353) (1,401) 7,027 $ 7,235 $ 8,957 (1,505) 7,452 3.4 % 3.4 % 3.4 % 2.1 % - 8.0 % 2.1 % - 8.0 % 2.1 % - 8.0 % Reserves are discounted at rates in effect at the time claims were incurred, ranging from 2.1% for life and disability reserves acquired from Aetna based on interest rates in effect at the acquisition date of November 1, 2017, to 8.0% for the Company’s pre-acquisition reserves for incurral year 1990, and vary by product. Prior year's discount accretion has been calculated as the average reserve balance for the year times the weighted average discount rate. 2020 re-estimates of prior incurral year reserves Group disability- Prior period reserve estimates decreased by approximately $365 largely driven by group long- term disability lower claim incidence and higher recoveries on prior incurral year claims, and a refund on the New York Paid Family Leave program. Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $65 largely driven by lower-than- previously expected claim incidence in group life premium waiver. Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $15 driven by lower-than-expected emergence of prior year claims, especially for voluntary critical Illness and voluntary accident products. 2019 re-estimates of prior incurral year reserves Group disability- Prior period reserve estimates decreased by approximately $340 largely driven by group long- term disability claim incidence lower than prior assumptions and strong recoveries on prior incurral year claims, including the impact of updating long-term disability ("LTD") recovery probabilities to be based on more recent experience. New York Paid Family Leave also experienced favorable claim emergence including an experience refund. Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $60 largely driven by lower-than- previously expected claim incidence in group life premium waiver. 2018 re-estimates of prior incurral year reserves Group disability- Prior period reserve estimates decreased by approximately $230 largely driven by group long- term disability claim recoveries higher than prior reserve assumptions and, primarily for the 2017 incurral year, claim incidence lower than prior assumptions. Short-term disability also experienced favorable claim recoveries. Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $90 largely driven by lower-than- previously expected claim incidence inclusive of group life, group life premium waiver, and group accidental death & dismemberment, principally for the 2017 incurral year. 189 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reconciliation of Loss Development to Liability for Unpaid Losses and Loss Adjustment Expenses as of December 31, 2020 Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Cumulative Incurred for Incurral Years Displayed in Triangles Cumulative Paid for Incurral Years Displayed in Triangles Unpaid for Incurral Years not Displayed in Triangles Unpaid Unallocated Loss Adjustment Expenses, Net of Reinsurance Discount Subtotal Unpaid Losses and Loss Adjustment Expenses, Net of Reinsurance Liability for Unpaid Losses and Loss Adjustment Expenses Reinsurance and Other Recoverables Reserve Line Group long-term disability $ 14,411 $ (8,420) $ 1,554 $ 182 $ (1,233) $ 6,494 $ 227 $ 6,721 Group life and accident, excluding premium waiver Group short-term disability Group life premium waiver Group supplemental health 5,888 (5,283) 163 117 688 31 4 4 10 — (17) — (103) — 755 121 595 31 3 — 2 5 758 121 597 36 Total Group Benefits $ 20,299 $ (13,703) $ 2,553 $ 200 $ (1,353) $ 7,996 $ 237 $ 8,233 The following loss triangles present historical loss development for incurred and paid claims by the year the insured claim occurred, referred to as the incurral year. Triangles are limited to the number of years for which claims incurred typically remain Group Long-Term Disability outstanding, not exceeding ten years. Short-tail lines, which represent claims generally expected to be paid within a few years, have three years of claim development displayed. Undiscounted Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Incurral Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IBNR Reserves Claims Reported 2011 $ 1,917 $ 1,761 $ 1,660 $ 1,659 $ 1,669 $ 1,660 $ 1,649 $ 1,638 $ 1,631 $ 1,615 $ — 37,347 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 1,829 1,605 1,660 1,539 1,479 1,636 1,532 1,429 1,473 1,595 1,530 1,429 1,430 1,442 1,651 1,515 1,416 1,431 1,422 1,481 1,597 1,504 1,413 1,431 1,420 1,468 1,413 1,647 1,486 1,399 1,408 1,401 1,437 1,358 1,387 1,650 1,479 1,385 1,395 1,385 1,417 1,316 1,309 1,424 1,686 $ 14,411 — 35,626 — 30,611 — 31,756 — 32,527 1 33,244 2 30,883 6 28,364 38 27,136 885 15,861 190 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Incurral Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 118 $ 508 $ 743 $ 886 $ 996 $ 1,087 $ 1,167 $ 1,231 $ 1,286 $ 1,324 108 483 102 708 443 103 835 664 448 108 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Group Life and Accident, excluding Premium Waiver Undiscounted Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Incurral Year 2018 2019 2020 IBNR Reserves Claims Reported 2018 $ 1,952 $ 1,940 $ 1,950 $ 10 52,500 2019 2020 Total 1,902 1,866 2,072 $ 5,888 19 57,109 401 46,597 Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance For the years ended December 31, (Unaudited) Incurral Year 2018 2019 2020 2018 $ 1,532 $ 1,916 $ 1,929 2019 2020 Total 1,471 1,830 1,524 $ 5,283 933 791 675 460 112 1,014 1,080 881 801 687 479 109 954 884 806 705 452 105 1,138 1,016 960 891 819 658 447 101 1,185 1,067 1,025 962 907 757 639 454 100 $ 8,420 Group life, disability and accident reserves, including IBNR The majority of Group Benefits’ reserves are for LTD claimants who are known to be disabled and are currently receiving benefits. A Disabled Life Reserve ("DLR") is calculated for each LTD claim. The DLR for each claim is the expected present value of all estimated future benefit payments and includes estimates of claim recovery, investment yield, and offsets from other income, including offsets from Social Security benefits and workers’ compensation. Estimated future benefit payments represent the monthly income benefit that is paid until recovery, death or expiration of benefits. Claim recoveries are estimated based on claim characteristics such as age and diagnosis and represent an estimate of benefits that will terminate, generally as a result of the claimant returning to work or being deemed able to return to work. The DLR also includes a liability for payments to claimants who have not yet been approved for LTD either because they have not yet satisfied the waiting (or elimination) period or because the approval or denial decision has not yet been made. In these cases, the present value of future benefits is reduced for the likelihood of claim denial based on Company experience. For claims recently closed due to recovery, a portion of the DLR is retained for the possibility that the claim reopens upon further evidence of disability. In addition, a reserve for estimated unpaid claim expenses is included in the DLR. For incurral years with IBNR claims, estimates of ultimate losses are made by applying completion factors to the dollar amount of claims reported or expected depending on the market segment. IBNR represents estimated ultimate losses less both DLR and cumulative paid amounts for all reported claims. Completion factors are derived using standard actuarial techniques using triangles that display historical claim count emergence by incurral month. These estimates are reviewed for reasonableness and are adjusted for current trends and other factors expected to cause a change in claim emergence. The IBNR includes an estimate of unpaid claim expenses, including a provision for the cost of initial set-up of the claim once reported. 191 Note 12 - Reserves For Unpaid Losses and Loss Adjustment Expenses THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For all products, including LTD, there is a period generally ranging from two to twelve months, depending on the product and market segment, where emerged claim information for an incurral year is not yet credible enough to be a basis for an IBNR projection. In these cases, the ultimate losses and allocated loss adjustment expenses are estimated using earned premium multiplied by an expected loss ratio. The Company also records reserves for future death benefits under group term life policies that provide for premiums to be waived in the event the insured is unable to work due to disability and has satisfied an elimination period, which is typically nine months (premium waiver reserves). The death benefit reserve for these group life premium waiver claims is estimated for a known disabled claimant equal to the present value of expected future cash outflows (typically a lump sum face amount payable at death plus claim expenses) with separate estimates for claimant recovery (when no death benefit is payable) and for death before recovery or benefit expiry (when death benefit is payable). The IBNR for premium waiver death benefits is estimated with standard actuarial development methods. In addition, the Company also records reserves for group term life, accidental death & dismemberment, short term disability, and other group products that have short claim payout periods. For these products, reserves are determined using paid or reported actuarial development methods. The resulting claim triangles produce a completion pattern and estimate of ultimate loss. IBNR for these lines of business equals the estimated ultimate losses and loss adjustment expenses less the amount of paid or reported claims depending on whether the paid or reported development method was used. Estimates are reviewed for reasonableness and are adjusted for current trends or other factors that affect the development pattern. Cumulative number of reported claims For group life, disability and accident coverages, claim counts include claims that are approved, pending approval and terminated and exclude denied claims. Due to the nature of the claims, one claimant represents one event. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance 1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year 9th Year 10th Year (Unaudited) Group long-term disability 7.4 % 25.2 % 15.6 % 8.5 % 6.4 % 5.4 % 4.6 % 3.9 % 3.3 % 2.3 % Group life and accident, excluding premium waiver 77.0 % 19.5 % 0.7 % 13. RESERVE FOR FUTURE POLICY BENEFITS Changes in Reserves for Future Policy Benefits [1] Liability balance, as of January 1, 2020 Incurred Paid Change in unrealized investment gains and losses Liability balance, as of December 31, 2020 Reinsurance recoverable asset, as of January 1, 2020 Incurred Paid Reinsurance recoverable asset, as of December 31, 2020 Liability balance, as of January 1, 2019 Incurred Paid Change in unrealized investment gains and losses Liability balance, as of December 31, 2019 Reinsurance recoverable asset, as of January 1, 2019 Incurred Paid $ $ $ $ $ $ $ Reinsurance recoverable asset, as of December 31, 2019 [1]Reserves for future policy benefits includes paid-up life insurance and whole-life policies resulting from conversion from group life policies included within the Group Benefits $ segment and reserves for run-off structured settlement and terminal funding agreement liabilities which are in the Corporate category. 192 635 85 (85) 3 638 31 (2) (1) 28 642 86 (102) 9 635 27 4 — 31 Note 14 - Debt THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well- known seasoned issuer, as defined in Rule 405 under the Securities Act of 1933, the registration statement went effective immediately upon filing and The Hartford may offer and sell an unlimited amount of securities under the registration statement during the three-year life of the registration statement. Senior Notes On March 30, 2020, The Hartford repaid at maturity the $500 principal amount of its 5.5% senior notes. In the Navigators Group acquisition, the Company assumed $265 par value 5.75% Senior notes due on October 15, 2023 with a fair value of $284 as of the acquisition date. On August 19, 2019, The Hartford issued $600 of 2.8% senior notes (“2.8% Notes”) due August 19, 2029 and $800 of 3.6% senior notes (“3.6% Notes”) due August 19, 2049 for net proceeds of approximately $1.38 billion, after deducting underwriting discounts and expenses. Under both senior note issuances, interest is payable semi-annually in arrears on August 19 and February 19, commencing February 19, 2020. The Hartford, at its option, can redeem the 2.8% Notes and the 3.6% Notes at any time, in whole or part, at a redemption price equal to the greater of 100% of the principal amount being redeemed or a make- whole amount based on a comparable maturity US Treasury rate plus a basis point spread, plus any accrued and unpaid interest, except the make-whole amount is not applicable within the final three months of maturity for the 2.8% Notes and the final six months of maturity for the 3.6% Notes. The spread over the comparable maturity US Treasury rates for determining the make-whole amount is 20 and 25 basis points for the 2.8% Notes and 3.6% Notes, respectively. After receiving proceeds from the issuance of the 2.8% Notes and 3.6% Notes, in third quarter 2019, The Hartford repaid $265 of 5.75% senior notes due 2023 that had been assumed in the Navigators Group acquisition and $800 of 5.125% senior notes due 2022 of the Hartford Financial Services Group, Inc., and recognized a loss on extinguishment of debt of $90. On January 15, 2019, The Hartford repaid at maturity the $413 principal amount of its 6.0% senior notes. 14. DEBT The Company’s long-term debt securities are issued by HFSG Holding Company, are unsecured obligations of HFSG Holding Company, and rank on a parity with all other unsecured and unsubordinated indebtedness of HFSG Holding Company. Debt is carried net of discount and issuance cost. Interest expense on debt is included in the Corporate category for segment reporting. Short-term and Long-term Debt by Issuance As of December 31, 2020 2019 Revolving Credit Facilities $ — $ — Senior Notes and Debentures 5.5% Notes, due 2020 2.8% Notes, due 2029 5.95% Notes, due 2036 6.625% Notes, due 2040 6.1% Notes, due 2041 6.625% Notes, due 2042 4.3% Notes, due 2043 4.4% Notes, due 2048 3.6% Notes, due 2049 Junior Subordinated Debentures 7.875% Notes, due 2042 3 Month LIBOR + 2.125% Notes, due 2067 [1] 8.125% Notes, due 2068 — 600 300 295 409 178 300 500 800 600 500 — 500 600 300 295 409 178 300 500 800 600 500 — Total Notes and Debentures 4,482 4,982 Unamortized discount and debt issuance cost [2] Total Debt Less: Current maturities (130) (134) 4,352 4,848 — 500 Long-Term Debt [1]In April 2017, the Company entered into an interest rate swap agreement $ 4,352 $ 4,348 expiring February 15, 2027 to effectively convert the variable interest payments for this debenture into fixed interest payments of approximately 4.39%. [2]This amount includes unamortized discount of $75 and $76 as of December 31, 2020 and 2019, respectively, on the 6.1% Notes, due 2041. The effective interest rate on the 6.1% senior notes due 2041 is 7.9%. The effective interest rate on the remaining notes does not differ materially from the stated rate. The Company incurred interest expense of $236, $259 and $298 on debt for the years ended December 31, 2020, 2019 and 2018, respectively. Shelf Registrations On May 17, 2019, the Company filed with the Securities and Exchange Commission an automatic shelf registration statement (Registration No. 333-231592) for the potential offering and sale of debt and equity securities. The registration statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, guarantees, preferred stock, 193         Note 14 - Debt THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Junior Subordinated Debentures Junior Subordinated Debentures by Issuance as of December 31, 2020 Issue Face Value 7.875% Debentures 3 Month LIBOR + 2.125% $ 600 $ Interest Rate [1] 7.875 % [2] Call Date Interest Rate Subsequent to Call Date [2] April 15, 2022 3 Month LIBOR + 5.596% 500 [3] [4] N/A February 15, 2022 3 Month LIBOR + 2.125% [5] Final Maturity [1]Interest rate in effect until call date. [2]Payable quarterly in arrears. [3]Debentures were issued on the original call date of February 15, 2017. The April 15, 2042 February 12, 2067 interest rate is variable and resets quarterly. [4]Although the original call date was February 15, 2017, a Replacement Capital Covenant associated with the debenture prohibits the Company from redeeming all or any portion of the notes on or prior to February 15, 2022, unless consent from covered bondholders is obtained. [5]In April 2017, the company entered into an interest rate swap agreement expiring February 15, 2027 to effectively convert the interest payments for the 3 Month LIBOR + 2.125% debenture into fixed interest payments of approximately 4.39%. The debentures are unsecured, subordinated and junior in right of payment and upon liquidation to all of the Company’s existing and future senior indebtedness. In addition, the debentures are effectively subordinated to all of the Company’s subsidiaries’ existing and future indebtedness and other liabilities, including obligations to policyholders. The debentures do not limit the Company’s or the Company’s subsidiaries’ ability to incur additional debt, including debt that ranks senior in right of payment and upon liquidation to the debentures. The Company has the right to defer interest payments for up to a consecutive ten years without giving rise to an event of default. Deferred interest will continue to accrue and will accrue additional interest at the then applicable interest rate. If the Company defers interest payments, the Company generally may not make payments on or redeem or purchase any shares of its capital stock or any of its debt securities or guarantees that rank upon liquidation, dissolution or winding up equally with or junior to the debentures, subject to certain limited exceptions. The 7.875% and 3 Month LIBOR plus 2.125% debentures may be redeemed in whole prior to the call date upon certain tax or rating agency events, at a price equal to the greater of 100% of the principal amount being redeemed and the applicable make-whole amount plus any accrued and unpaid interest. The Company may elect to redeem the 7.875% and 3 Month LIBOR plus 2.125% debentures in whole or in part on or after the call date for the principal amount being redeemed plus accrued and unpaid interest to the date of redemption. In connection with the offering of the 3 Month LIBOR plus 2.125% debenture, the Company entered into a Replacement Capital Covenant ("RCC") for the benefit of holders of one or 194 more designated series of the Company's indebtedness, initially the Company's 4.3% notes due 2043. Under the terms of the RCC, if the Company redeems the debenture any time prior to February 12, 2047 (or such earlier date on which the RCC terminates by its terms) it can only do so with the proceeds from the sale of certain qualifying replacement securities. The RCC also prohibits the Company from redeeming all or any portion of the notes on or prior to February 15, 2022. In July 2017, the U.K. Financial Conduct Authority ("FCA") announced that, by the end of 2021, it intends to stop persuading or compelling banks to report information used to set LIBOR, which could result in LIBOR no longer being published after 2021 or a determination by regulators that LIBOR is no longer representative of its underlying market. In December 2020, based on feedback from the banks that report information used to set LIBOR and following discussions with the FCA, the administrator of LIBOR, ICE Benchmark Administration, released a consultation on the potential for it to continue publication of the most widely-used U.S. dollar LIBOR rates until the end of June 2023. Subject to the results of the consultation, it is possible that some U.S. dollar LIBOR rates will continue to be available for a limited period beyond the end of 2021.The Company continues to monitor and assess the potential impacts of the discontinuation of LIBOR on its outstanding junior subordinated debentures. Long-Term Debt Long-term Debt Maturities (at par value) as of December 31, 2020 2021 - Current maturities 2022 2023 2024 2025 Thereafter $ $ $ $ $ $ — — — — — 4,482 Revolving Credit Facilities The Company has a senior unsecured five-year revolving credit facility (“Credit Facility”) that provides up to $750 of unsecured credit through March 29, 2023. Revolving loans from the Credit Facility may be in multiple currencies. U.S. dollar loans will bear interest at a floating rate equivalent to an indexed rate depending on the type of borrowing and a basis point spread based on The Hartford's credit rating and will mature no later than March 29, 2023. Letters of credit issued from the Credit Facility bear a fee based on The Hartford's credit rating and expire no later than March 29, 2024. The Credit Facility requires the Company to maintain a minimum consolidated net worth, excluding AOCI, of $9 billion, limit the ratio of senior debt to capitalization, excluding AOCI, at 35% and meet other customary covenants. The Credit Facility is for general corporate purposes. As of December 31, 2020, no borrowings were outstanding, no letters of credit were issued under the Credit Facility and the Company was in compliance with all financial covenants. Note 14 - Debt THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) taken based on use of the funds with advances for general corporate purposes presented in short- or long-term debt and advances to earn incremental investment income presented in other liabilities, consistent with other collateralized financing transactions such as securities lending and repurchase agreements. The Connecticut Department of Insurance permits Hartford Fire and HLA to pledge up to $1.2 billion and $0.6 billion in qualifying assets, respectively, without prior approval, to secure FHLBB advances in 2021. The pledge limit is determined quarterly based on statutory admitted assets and capital and surplus of Hartford Fire and HLA, respectively. As of December 31, 2020, there were no advances outstanding under the FHLBB facility. Lloyd's Letter of Credit Facilities As a result of the acquisition of Navigators Group, The Hartford had two letter of credit facility agreements: the Club Facility and the Bilateral Facility, which were used to provide a portion of the capital requirements at Lloyd's. As of September 30, 2020, uncollateralized letters of credit with an aggregate face amount of $165 and £60 million, or $78, were outstanding under the Club Facility and £18 million, or $23, was outstanding under the $25 Bilateral Facility. These agreements terminated on November 5, 2020. On November 5, 2020, The Hartford entered into a new committed credit facility agreement with a syndicate of lenders (the “Club Facility”). The Club Facility has two tranches with one tranche extending a $104 commitment and the other tranche extending a £85 million ($116 as of December 31, 2020) commitment. In addition, on November 5, 2020, The Hartford entered into a new non-committed $25 credit facility with a lender (the “Bilateral Facility”). The term of both of these facilities is two years. The purpose of these facilities is to issue letters of credit that may be treated as Funds at Lloyd’s to support underwriting capacity provided by the Navigators Corporate Underwriters Limited to the Lloyd’s Syndicate 1221 for the 2021 and 2022 underwriting years of account (and prior open years). As of December 31, 2020, letters of credit with an aggregate face amount of $104 and £85 million, or $116, 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 at Lloyd’s, consistent with Lloyd’s requirements. As of December 31, 2020, The Hartford was in compliance with all financial covenants of both facilities. Commercial Paper On December 17, 2020, the Board of Directors terminated the HFSG Holding Company's commercial paper program, under which the maximum borrowings available were $750. Collateralized Advances with Federal Home Loan Bank of Boston The Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and HLA, are members of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. FHLBB membership required the purchase of member stock and requires additional member stock ownership of 3% or 4% of any amount borrowed. Acceptable forms of collateral include real estate backed fixed maturities and mortgage loans and the amount of advances that can be taken is limited to a percentage of the fair value of the assets that ranges from a high of 97% for US government-backed fixed maturities maturing within 3 years to a low of 40% for A-rated commercial mortgage-backed fixed maturities maturing in 5 years or more. In its consolidated balance sheets, The Hartford presents the liability for advances 195 Note 15 - Commitments and Contingencies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. COMMITMENTS AND CONTINGENCIES Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management establishes liabilities for these contingencies at its “best estimate,” or, if no one number within the range of possible losses is more probable than any other, the Company records an estimated liability at the low end of the range of losses. commercial insurance policies issued by the Hartford Writing Companies for alleged losses resulting from the shutdown or suspension of their businesses due to the spread of COVID-19. More than 230 such lawsuits have been filed, of which more than 50 purport to be filed on behalf of broad nationwide or statewide classes of policyholders. These lawsuits have been filed in state and federal courts in roughly 31 states. Although the allegations vary, the plaintiffs generally seek a declaration of insurance coverage, damages for breach of contract in unspecified amounts, interest, and attorney’s fees. Many of the lawsuits also allege that the insurance claims were denied in bad faith or otherwise in violation of state laws and seek extra-contractual or punitive damages. The Company and its subsidiaries deny the allegations and intend to defend vigorously. The Hartford Writing Companies maintain that they have no coverage obligations with respect to these suits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the clear terms of the applicable insurance policies. Although the policy terms vary depending, among other things, upon the size, nature, and location of the policyholder’s business, in general, the claims at issue in these lawsuits were denied because the claimant identified no direct physical damage or loss to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical loss or damage in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. In addition, the vast majority of the policies at issue expressly exclude from coverage any loss caused directly or indirectly by the presence, growth, proliferation, spread or activity of a virus, subject to a narrow set of exceptions not applicable in connection with this pandemic, and contain a pollution and contamination exclusion that, among other things, expressly excludes from coverage any loss caused by material that threatens human health or welfare. In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits present numerous uncertainties and contingencies that are not yet known, including how many policyholders will ultimately file claims, the number of lawsuits that will be filed, the extent to which any state or nationwide classes will be certified, and the size and scope of any such classes. The legal theories advocated by plaintiffs vary significantly by case as do the state laws that govern the policy interpretation. Many of these lawsuits remain in the earliest stages of litigation, many complaints are in the process of being amended, some have been dismissed voluntarily and may be refiled, while others have been dismissed through rulings in favor of the Hartford Writing Companies. Accordingly, little discovery has occurred. Some policyholders have appealed dismissals in favor of the Hartford Writing Companies; none of these appeals has been fully briefed at this time. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, virtually none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss, and, in any event, the Company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential Litigation The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties related to sexual molestation and sexual abuse claims discussed in Note 12, Reserve for Unpaid Losses and Loss Adjustment Expense, and in the following discussion under the caption “COVID-19 Pandemic Business Income Insurance Coverage Litigation” and under the caption “Run-off Asbestos and Environmental Claims,” management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of The Hartford. The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. In addition to the matter described below, these actions include putative class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper sales or underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, disability, life and inland marine. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods. COVID-19 Pandemic Business Income Insurance Coverage Litigation Like many others in the property and casualty insurance industry, beginning in April 2020, various direct and indirect subsidiaries of the Company (collectively the "Hartford Writing Companies”), and in some instances the Company itself, have been served as defendants in lawsuits seeking insurance coverage under 196 Note 15 - Commitments and Contingencies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, given the large number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in the aggregate, could have a material adverse effect on the Company’s consolidated operating results. Run-off Asbestos and Environmental Claims The Company continues to receive A&E claims. Asbestos claims relate primarily to bodily injuries asserted by people who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs. The vast majority of the Company's exposure to A&E relates to Run-off A&E, reported within the P&C Other Operations segment. In addition, since 1986, the Company has written asbestos and environmental exposures under general liability policies and pollution liability under homeowners policies, which are reported in the Commercial Lines and Personal Lines segments. Prior to 1986, the Company wrote several different categories of insurance contracts that may cover A&E claims. First, the Company wrote primary policies providing the first layer of coverage in an insured’s liability program. Second, the Company wrote excess and umbrella policies providing higher layers of coverage for losses that exhaust the limits of underlying coverage. Third, the Company acted as a reinsurer assuming a portion of those risks assumed by other insurers writing primary, excess, umbrella and reinsurance coverages. Significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid gross losses and expenses related to environmental and particularly asbestos claims. The degree of variability of gross reserve estimates for these exposures is significantly greater than for other more traditional exposures. In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty include inadequate loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent emerging legal doctrines. Furthermore, over time, insurers, including the Company, have experienced significant changes in the rate at which asbestos claims are brought, the claims experience of particular insureds, and the value of claims, making predictions of future exposure from past experience uncertain. Plaintiffs and insureds also have sought to use bankruptcy proceedings, including “pre-packaged” bankruptcies, to accelerate and increase loss payments by insurers. In addition, some policyholders have asserted new classes of claims for coverages to which an aggregate limit of liability may not apply. Further uncertainties include insolvencies of other carriers and unanticipated developments pertaining to the Company’s ability to recover reinsurance for A&E claims. Management believes these issues are not likely to be resolved in the near future. In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include expanding theories of liability and damages, the risks inherent in major litigation, inconsistent decisions concerning the existence and scope of coverage for environmental claims, and uncertainty as to 197 the monetary amount being sought by the claimant from the insured. The reporting pattern for assumed reinsurance claims, including those related to A&E claims, is much longer than for direct claims. In many instances, it takes months or years to determine that the policyholder’s own obligations have been met and how the reinsurance in question may apply to such claims. The delay in reporting reinsurance claims and exposures adds to the uncertainty of estimating the related reserves. It is also not possible to predict changes in the legal and legislative environment and their effect on the future development of A&E claims. Given the factors described above, the Company believes the actuarial tools and other techniques it employs to estimate the ultimate cost of claims for more traditional kinds of insurance exposure are less precise in estimating reserves for A&E exposures. For this reason, the Company principally relies on exposure-based analysis to estimate the ultimate costs of these claims, both gross and net of reinsurance, and regularly evaluates new account information in assessing its potential A&E exposures. The Company supplements this exposure-based analysis with evaluations of the Company’s historical direct net loss and expense paid and reported experience, and net loss and expense paid and reported experience by calendar and/or report year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity. While the Company believes that its current A&E reserves are appropriate, significant uncertainties limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not estimable now, could be material to The Hartford’s consolidated operating results and liquidity. For its Run-off A&E, as of December 31, 2020, the Company reported $702 of net asbestos reserves and $87 of net environmental reserves. In addition, the Company has recorded a $210 deferred gain within other liabilities for losses economically ceded to NICO but for which the benefit is not recognized in earnings until later periods. While the Company believes that its current Run-off A&E reserves are appropriate, significant uncertainties limit our ability to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not reasonably estimable now, could be material to The Hartford's consolidated operating results and liquidity. The Company’s A&E ADC reinsurance agreement with NICO reinsures substantially all A&E reserve development for 2016 and prior accident years, including Run-off A&E and A&E reserves included in Commercial Lines and Personal Lines. The A&E ADC has a coverage limit of $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion. As of December 31, 2020, the Company has incurred $860 in cumulative adverse development on A&E reserves that have been ceded under the A&E ADC treaty with NICO, leaving $640 of coverage available for future adverse net reserve development, if any. Cumulative adverse development of A&E claims for accident years 2016 and prior could ultimately exceed Note 15 - Commitments and Contingencies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) the $1.5 billion treaty limit in which case any adverse development in excess of the treaty limit would be absorbed as a charge to earnings by the Company. In these scenarios, the effect of these charges could be material to the Company’s consolidated operating results and liquidity. For more information on the A&E ADC, refer to Note 12, Reserve for Unpaid Losses and Loss Adjustment Expenses. Unfunded Commitments As of December 31, 2020, the Company has outstanding commitments totaling $1,119, of which $804 is primarily committed to fund limited partnerships and other alternative investments, which may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. Additionally, $79 of the outstanding commitments relate to various funding obligations primarily associated with private debt and equity securities. The remaining outstanding commitments of $236 relate to mortgage loans. Of the $1,119 in total outstanding commitments, $149 are related to mortgage loan commitments which the Company can cancel unconditionally. Guaranty Funds and Other Insurance-Related Assessments In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund. In most states, in the event of the insolvency of an insurer writing any such class of insurance in the state, the guaranty funds may assess its members to pay covered claims of the insolvent insurers. Assessments are based on each member's proportionate share of written premiums in the state for the classes of insurance in which the insolvent insurer was engaged. Assessments are generally limited for any year to one or two percent of the premiums written per year depending on the state. Some states permit member insurers to recover assessments paid through surcharges on policyholders or through full or partial premium tax offsets, while other states permit recovery of assessments through the rate filing process. Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated, and when the event obligating the Company to pay an imposed or probable assessment has occurred. Liabilities for guaranty funds and other insurance- related assessments are not discounted and are included as part of other liabilities in the Consolidated Balance Sheets. As of December 31, 2020 and 2019 the liability balance was $83 and $89, respectively. As of December 31, 2020 and 2019 amounts related to premium tax offsets of $0 and $2, respectively, were included in other assets. Derivative Commitments Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and, in certain 198 instances, enable the counterparties to terminate the agreements and demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of December 31, 2020 was $86. For this $86, the legal entities have posted collateral of $90 in the normal course of business. Based on derivative market values as of December 31, 2020, a downgrade of one level below the current financial strength ratings by either Moody’s or S&P would not require additional assets to be posted as collateral. A downgrade of two levels below the current financial strength ratings by either Moody’s or S&P would require an additional $2 of assets to be posted as collateral. These collateral amounts could change as derivative market values change, as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the additional collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities. Guarantees In the ordinary course of selling businesses or entities to third parties, the Company has agreed to indemnify purchasers for losses arising subsequent to the closing due to breaches of representations and warranties with respect to the business or entity being sold or with respect to covenants and obligations of the Company and/or its subsidiaries. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable. The Company does not expect to make any payments on these guarantees and is not carrying any liabilities associated with these guarantees. The Hartford has guaranteed the timely payment of contractual claims under certain life, accident and health and annuity contracts issued by its former life and annuity business with most of the guaranteed contracts issued between 1990 and 1997 (the "Talcott Guarantees"). Upon the sale of the life and annuity business in May 2018, the purchaser indemnified the Company for any liability arising under the guarantees. The Talcott Guarantees cover contractual obligations only but otherwise have no limitation as to maximum potential future payments. Prior to January 1, 2020, the Company had not recorded a liability because the likelihood of any payment under the Talcott Guarantees is remote. Upon adoption of new credit loss guidance on January 1, 2020, the Company estimated a liability for credit loss ("LCL") of $25. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. The LCL is calculated for the estimated amount payable under guaranteed contracts multiplied by the probability of default and the amount of loss given a default. The probability of default is assigned by credit rating of the applicable insurance company that issued the contract and is based on historical insurance industry defaults for liabilities with similar durations estimated Note 15 - Commitments and Contingencies THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) through multiple economic cycles. Credit ratings are current and forward-looking and consider a variety of economic outcomes. Because annuities represent the majority of the contracts issued, the loss given default factors are based on a historical study of annuity policyholder recoveries from insolvent estate assets. The Company's exposure is expected to run off over a period that will include more than one economic cycle. The Company's evaluation of the required LCL for the Talcott Guarantees considers the current economic environment as well 16. EQUITY Capital Purchase Program ("CPP") Warrants CPP warrants were issued in 2009 as part of a program established by the U.S. Department of the Treasury under the Emergency Economic Stabilization Act of 2008. The CPP warrants expired on June 26, 2019. The declaration of common stock dividends by the Company in excess of a threshold triggered a provision in the Company's warrant agreement with The Bank of New York Mellon resulting in adjustments to the CPP warrant exercise price and the number of shares deliverable for each warrant exercised (“Warrant Share Number”). Accordingly, the CPP warrant exercise price was $8.836 and the Warrant Share Number was 1.1 as of December 31, 2018. The exercise price was settled by the Company withholding the number of common shares issuable upon exercise of the warrants equal to the value of the aggregate exercise price of the warrants so exercised determined by reference to the closing price of the Company's common stock on the trading day on which the warrants were exercised and notice was delivered to the warrant agent. CPP warrant exercises were 1.9 million and 0.3 million during the years ended December 31, 2019 and 2018, respectively. Equity Repurchase Program The Hartford’s $1.0 billion equity repurchase program authorized by its Board of Directors in February 2019, expired on December 31, 2020. For the years ended December 31, 2020 and 2019, The Hartford repurchased $150 (2.7 million shares) and $200 (3.4 million shares), respectively, of common stock under this program. In December, 2020, the Company announced a $1.5 billion share repurchase authorization by the Board of Directors which is effective from January 1, 2021 through December 31, 2022. The timing of any future repurchases will be dependent upon several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, and other considerations. Preferred Stock On November 6, 2018, the Company issued 13.8 million depositary shares each representing 1/1000th interest in a share of the Company’s 6.0% Series G non-cumulative perpetual preferred stock (“Preferred Stock”) with a liquidation preference of $25,000 per share (equivalent to $25.00 per depositary share), for net cash proceeds of $334. The Preferred Stock is perpetual 199 as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 6 - Investments. In response to significant economic stress experienced as a result of the COVID-19 pandemic, the Company increased the weight of both a moderate and severe recession scenario in our estimate of the LCL as of December 31, 2020. The Company has never experienced a loss on financial guarantees of this nature and we believe the risk of loss is remote. and has no maturity date. Dividends are recorded when declared. Dividends are payable, if declared, quarterly in arrears on the 15th day of February, May, August and November of each year. If a dividend is not declared and paid or made payable on all outstanding shares of the Preferred Stock for the latest completed dividend period, no dividends may be paid or declared on The Hartford’s common stock and The Hartford may not purchase, redeem, or otherwise acquire its common stock. The Preferred Stock is redeemable at the Company’s option in whole or in part, on or after November 15, 2023 at a redemption price of $25,000 per share, plus unpaid dividends attributable to the current dividend period. Prior to November 15, 2023, the Preferred Stock is redeemable at the Company’s option, in whole but not in part, within 90 days of the occurrence of (a) a rating agency event at a redemption price equal to $25,500 per share, plus unpaid dividends attributable to the current dividend period in circumstances where a rating agency changes its criteria used to assign equity credit to securities like the Preferred Stock; or (b) a regulatory capital event at a redemption price equal to $25,000 per share, plus unpaid dividends attributable to the current dividend period in circumstances where a capital regulator such as a state insurance regulator changes or proposes to change capital adequacy rules. Statutory Results The U.S. domestic insurance subsidiaries of The Hartford prepare their statutory financial statements in conformity with statutory accounting practices prescribed or permitted by the applicable state insurance department which vary materially from U.S. GAAP. Prescribed statutory accounting practices include publications of the NAIC, as well as state laws, regulations and general administrative rules. The differences between statutory financial statements and financial statements prepared in accordance with U.S. GAAP vary between domestic and foreign jurisdictions. The principal differences are that statutory financial statements do not reflect deferred policy acquisition costs and limit deferred income taxes, recognize a deferred gain on retroactive reinsurance within a special surplus account rather than as other liabilities, predominately use interest rate and mortality assumptions prescribed by the NAIC for life benefit reserves, generally carry bonds at amortized cost, and present reinsurance assets and liabilities net of reinsurance. For reporting purposes, statutory capital and surplus is referred to collectively as "statutory capital". Note 16 - Equity THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) U.S. Statutory Net Income For the years ended December 31, 2020 2019 2018 Group Benefits Insurance Subsidiary Property and Casualty Insurance Subsidiaries Life and annuity business sold in May, 2018 Total $ 310 $ 513 $ 390 1,598 1,391 1,114 — — 196 $ 1,908 $ 1,904 $ 1,700 U.S. Statutory Capital As of December 31, 2020 2019 Group Benefits Insurance Subsidiary Property and Casualty Insurance Subsidiaries Total $ 2,601 $ 2,644 10,795 10,208 $ 13,396 $ 12,852 Regulatory Capital Requirements The Company's U.S. insurance companies' states of domicile impose risk-based capital (“RBC”) requirements. The requirements provide a means of measuring the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations based on its size and risk profile. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. All of the Company's operating insurance subsidiaries had RBC ratios in excess of the minimum levels required by the applicable insurance regulations. Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which the Company operates generally establish minimum solvency requirements for insurance companies. All of the Company's international insurance subsidiaries expect to maintain capital levels in excess of the minimum levels required by the applicable regulatory authorities. Dividend Restrictions Dividends to HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. Upon the acquisition of Navigators Group, the Company’s principal insurance subsidiaries are domiciled in the United States, the United Kingdom and Belgium. The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s statutory policyholder surplus as of December 31 of the preceding year or (ii) net income 200 (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. Property casualty insurers domiciled in New York, including Navigators Insurance Company ("NIC") and Navigators Specialty Insurance Company ("NSIC"), generally may not, without notice to and approval by the state insurance commissioner, pay dividends out of earned surplus in any twelve‑month period that exceeds the lesser of (i) 10% of the insurer’s statutory policyholders’ surplus as of the most recent financial statement on file, or (ii) 100% of its adjusted net investment income, as defined, for the same twelve month period. As part of the New York state insurance commissioner's approval of the Navigators Group acquisition, and as is common practice, any dividend from NIC and NSIC before May 2021 will require prior approval from the state insurance commissioner. 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 FAL capital requirement. The FAL is determined based on the syndicate’s solvency capital requirement of the syndicate 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 its parent out of its statutory profits subject to restrictions imposed under U.K. Company law and Solvency II. Belgium domiciled insurers may only pay dividends if, at the end of its previous fiscal year, the total amount of its assets, as reduced by its provisions and debts, are in excess of certain minimum capital thresholds calculated under Belgian law. 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 , liquidity requirements of the individual operating company and are also dependent on the extent to which COVID-19 impacts our business, results of operations, financial condition, and liquidity. In 2020, the Company received $350 of dividends from HLA and $127 from Hartford Funds. In addition, HFSG Holding Company received $900 of net dividends from P&C subsidiaries in 2020 which excludes $50 of P&C dividends that were subsequently contributed to a run-off P&C subsidiary and $78 of P&C dividends related to interest payments on an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company. The Company’s property and casualty insurance subsidiaries have dividend capacity of $1.7 billion for 2021, with $850 to $900 of net dividends expected in 2021.     Note 16 - Equity THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) HLA has dividend capacity of $295 in 2021 with $250 to $295 of dividends expected in 2021. There are no current restrictions on HFSG Holding Company's ability to pay dividends to its stockholders. 17. INCOME TAXES Income Tax Expense The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions, as applicable. Income from continuing operations before income taxes included income from domestic operations of $2,222, $2,644 and $1,753 for the years ended December 31, 2020, 2019 and 2018, and income (losses) from foreign operations of $(102), $(84) and $0 for the years ended December 31, 2020, 2019 and 2018. Income Tax Expense Income tax expense (benefit) Current - U.S. federal Foreign Total current Deferred - U.S. federal Foreign Total deferred For the years ended December 31, 2020 2019 2018 $ 410 $ 8 $ (18) — 410 — 8 — (18) (20) 476 286 (7) (9) — (27) 467 286 Total income tax expense $ 383 $ 475 $ 268 Restricted Net Assets The Company's insurance subsidiaries had net assets of $17.5 billion, determined in accordance with U.S. GAAP, that were restricted from payment to the HFSG Holding Company, without prior regulatory approval at December 31, 2020. for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in other expenses. The Hartford has not recorded state deferred taxes, including net deferred tax assets from state operating loss carryforwards because the Company does not expect to earn state taxable income to utilize such state tax benefits. Deferred Tax Assets (Liabilities) As of December 31, 2020 2019 Deferred tax assets Loss reserves and tax discount $ 312 $ 214 Unearned premium reserve and other underwriting related reserves Investment-related items Employee benefits Net operating loss carryover Other 384 125 282 11 34 385 130 287 84 27 Total deferred tax assets 1,148 1,127 Valuation allowance Deferred tax assets, net of valuation allowance (4) (4) 1,144 1,123 Income Tax Rate Reconciliation Deferred tax liabilities Deferred acquisition costs (120) (143) Tax provision at U.S. Federal statutory rate Tax-exempt interest Increase in deferred tax valuation allowance Sale of business Carryback benefit Tax law change Other For the years ended December 31, 2020 2019 2018 $ 445 $ 538 $ 368 (46) (56) (66) 9 (8) (5) (6) (6) 2 — — — (9) — — — (39) 5 Provision for income taxes $ 383 $ 475 $ 268 Deferred Taxes Deferred tax assets and liabilities on the consolidated balance sheets represent the tax consequences of differences between the financial reporting and tax basis of assets and liabilities. The Company predominantly pays non-income state taxes as a percentage of premiums written which are accounted for as policy acquisition costs. State income taxes were $3, $5 and $4 Net unrealized gains on investments Other depreciable and amortizable assets Total deferred tax liabilities (758) (458) (220) (1,098) (223) (824) 299 Net deferred tax asset $ 46 $ For the year ended December 31, 2020, the Company has utilized all US net operating loss carryforwards as a reduction of 2020 current tax liability. The Company has foreign net operating losses of $11 for which a valuation allowance of $4 has been established. While the foreign net operating losses ("NOLs") do not expire, this assessment reflects uncertainty in the Company's ability to generate sufficient taxable income in the near term in those specific jurisdictions. Management has assessed the need for a valuation allowance against its deferred tax assets based on tax character and jurisdiction. In making the assessment, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies. From time to time, tax planning strategies could include holding a portion of fixed income securities with 201               Note 17 - Income Taxes THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) market value losses until recovery, altering the level of tax exempt securities held, making investments which have specific tax characteristics, and business considerations such as asset- liability matching. Management views such tax planning strategies as prudent and feasible and would implement them, if necessary, to realize the deferred tax assets. Uncertain Tax Positions Rollforward of Unrecognized Tax Benefits For the years ended December 31, 2020 2019 2018 Balance, beginning of period Gross increases - tax positions in prior period Gross decreases - tax positions in prior period Gross increases - tax positions in current period $ 14 $ 14 $ — — 1 — — — Balance, end of period $ 15 $ 14 $ 9 5 — — 14 The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release. In addition, for the year ended December 31, 2018 the Company recorded a receivable of $5 related to a tax indemnification agreement associated with the life and annuity business sold in May 2018. The receivable is separate from the tax liability and is classified in other assets on the balance sheet. Other Tax Matters On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax ("AMT") credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. The legislation results in a benefit of $6 related to the ability to carryback non-insurance losses to recover taxes paid in prior years as described below. The changes to AMT recovery periods do not impact the Company due to the fact that the Company has received a refund or reduction of regular tax payable for all the remaining AMT credits in 2020. For the year ended December 31, 2020 the Company recorded a tax benefit of $11 related to the expected carryback of losses from the Navigators Group 2019 pre-acquisition tax returns to recover taxes paid in prior years at the previous statutory tax rate of 35%, of which $6 was by virtue of the non-insurance carryback provision of the CARES Act. Included in 2018 is a benefit of $39, primarily due to the elimination of the sequestration fee on alternative minimum tax credits included in the Tax Cuts and Jobs Act ("TCJA"). For the year ended December 31, 2020 the Company recorded a tax benefit of $8 related to the excess tax over GAAP basis on the sale of the continental Europe operations. Refer to Note 22 - Business Dispositions and Discontinued Operations. The federal audits for the Company have been completed through 2013, and the Company is not currently under federal examination for any open years. The statute of limitations is closed through the 2016 tax year with the exception of NOL carryforwards utilized in open tax years. Management believes that adequate provision has been made in the Company's Consolidated Financial Statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years. The Company classifies interest and penalties (if applicable) as income tax expense in the Consolidated Financial Statements. The Company recognized net interest income of $1, $1 and $0 for the years ended December 31, 2020, 2019 and 2018. The Company has no interest payable as of December 31, 2020, 2019 and 2018. The Company does not believe it would be subject to any penalties in any open tax years and, therefore, has not recorded any accrual for penalties. 18. CHANGES IN AND RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Changes in AOCI, Net of Tax for the Year Ended December 31, 2020 Changes in Net Unrealized Gain on Fixed Maturities Unrealized loss on Fixed Maturities with ACL Net Gain (Loss) on Cash Flow Hedging Instruments Foreign Currency Translation Adjustments Pension and Other Postretirement Plan Adjustments AOCI, net of tax Beginning balance $ 1,684 $ (3) $ 9 $ 34 $ (1,672) $ 52 OCI before reclassifications Amounts reclassified from AOCI OCI, net of tax Ending balance 1,285 (135) 1,150 1 — 1 24 (21) 3 9 — 9 (92) 1,227 47 (109) (45) 1,118 $ 2,834 $ (2) $ 12 $ 43 $ (1,717) $ 1,170 202     Note 18 - Accumulated Other Comprehensive Income (Loss), Net of Tax THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Changes in AOCI, Net of Tax for the Year Ended December 31, 2019 Changes in Net Unrealized Gain on Fixed Maturities OTTI Losses in OCI Net Gain (Loss) on Cash Flow Hedging Instruments Foreign Currency Translation Adjustments Pension and Other Postretirement Plan Adjustments AOCI, net of tax Beginning balance $ 24 $ (4) $ (5) $ 30 $ (1,624) $ (1,579) OCI before reclassifications [2] Amounts reclassified from AOCI OCI, net of tax Ending balance 1,797 (137) 1,660 1 — 1 22 (8) 14 4 — 4 (82) 1,742 34 (111) (48) 1,631 $ 1,684 $ (3) $ 9 $ 34 $ (1,672) $ 52 Changes in AOCI, Net of Tax for the Year ended December 31, 2018 Changes in Net Unrealized Gain on Fixed Maturities OTTI Losses in OCI Net Gain on Cash Flow Hedging Instruments Foreign Currency Translation Adjustments Pension and Other Postretirement Plan Adjustments AOCI, net of tax Beginning balance Cumulative effect of accounting changes, net of tax [1] Adjusted balance, beginning of period $ $ OCI before reclassifications [2] Amounts reclassified from AOCI OCI, net of tax 1,931 $ 273 2,204 $ (2,245) 65 (2,180) (3) $ — (3) $ — (1) (1) 18 $ 2 20 $ 8 (33) (25) 34 $ (1,317) $ 663 4 (284) (5) 38 $ (1,601) $ 658 (8) — (8) (61) (2,306) 38 69 (23) (2,237) Ending balance [1]Includes reclassification to retained earnings of $88 of stranded tax effects and $93 of net unrealized gains, net of tax, related to equity securities. Refer to Note 1 - Basis of (1,624) $ 24 $ 30 $ (4) $ (5) $ $ (1,579) Presentation and Significant Accounting Policies. [2]The reduction in AOCI included the effect of removing $758 of AOCI from the balance sheet when the life and annuity business was sold in May 2018. 203 Note 18 - Accumulated Other Comprehensive Income (Loss), Net of Tax THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reclassifications from AOCI AOCI Amount Reclassified from AOCI For the year ended December 31, 2020 For the year ended December 31, 2019 For the year ended December 31, 2018 Affected Line Item in the Consolidated Statement of Operations Net Unrealized Gain on Fixed Maturities Fixed maturities, AFS $ 171 $ 174 $ (80) Net realized capital gains (losses) Unrealized Loss on Fixed Maturities with ACL [1] Fixed maturities, AFS Net Gains on Cash Flow Hedging Instruments Interest rate swaps Interest rate swaps Interest rate swaps Foreign currency swaps Foreign currency swaps Pension and Other Postretirement Plan Adjustments Amortization of prior service credit Amortization of actuarial loss $ $ $ $ $ $ 171 36 — 174 37 — (80) Total before tax (17) Income tax expense Income from discontinued operations, net of tax (2) 135 $ 137 $ (65) Net income — $ — $ — Net realized capital gains (losses) — — — — — — — Total before tax — Income tax expense Income from discontinued operations, net of tax 1 — $ — $ 1 Net income — $ 29 (7) (1) 5 26 5 — 2 $ 6 Net realized capital gains (losses) 4 1 — 3 10 2 — 30 Net investment income — Interest expense — Net realized capital gains (losses) — Net investment income 36 Total before tax 8 Income tax expense Income from discontinued operations, net of tax 5 21 $ 8 $ 33 Net income 7 $ 7 $ (67) (60) (13) (47) (50) (43) (9) (34) Insurance operating costs and other expenses 7 Insurance operating costs and other expenses (55) (48) Total before tax (10) Income tax expense (38) Net income Total amounts reclassified from AOCI $ 109 $ 111 $ (69) Net income [1] Prior to January 1, 2020, includes OTTI in OCI on fixed maturities, AFS. See Note 1 - Basis of Presentation and Significant Accounting Policies. 19. EMPLOYEE BENEFIT PLANS Investment and Savings Plan Substantially all U.S. employees of the Company are eligible to participate in The Hartford Investment and Savings Plan under which designated contributions may be invested in a variety of investments, including up to 10% in a fund consisting largely of common stock of The Hartford. The Company's contributions include a non-elective contribution of 2.0% of eligible compensation and a dollar-for-dollar matching contribution of up to 6.0% of eligible compensation contributed by the employee 204 Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) each pay period. The Company also maintains a non-qualified savings plan, The Hartford Excess Savings Plan, with the dollar- for-dollar matching contributions of employee compensation in excess of the amount that can be contributed under the tax- qualified Investment and Savings Plan. An employee's eligible compensation includes overtime and bonuses but for the Investment and Savings Plan and Excess Savings Plan combined, is limited to $1 annually. The total cost to The Hartford for these plans was approximately $153, $156 and $134 for the years ended December 31, 2020, 2019 and 2018, respectively. Additionally, The Hartford has established defined contribution pension plans for certain employees of the Company’s international subsidiaries. The cost to The Hartford for the years ended December 31, 2020, 2019 and 2018 for these plans was immaterial. Post Retirement Benefit Plans Defined Benefit Pension Plan- The Company maintains The Hartford Retirement Plan for U.S. Employees, a U.S. qualified defined benefit pension plan (“Pension Plan”) that covers substantially all U.S. employees hired prior to January 1, 2013. The Company also maintains non-qualified pension plans to provide retirement benefits previously accrued that are in excess of Internal Revenue Code limitations. The Pension Plan includes two benefit formulas, both of which are frozen: a final average pay formula (for which all accruals ceased as of December 31, 2008) and a cash balance formula for which benefit accruals ceased as of December 31, 2012, although interest will continue to accrue to existing cash balance formula account balances. Employees who were participants as of December 31, 2012 continue to earn vesting credit with respect to their frozen accrued benefits if they continue to work. The interest crediting rate on the cash balance plan is the greater of the average annual yield on 10-year U.S. Treasury Securities or 3.3%. The Hartford Excess Pension Plan II, the Company's non- qualified excess pension benefit plan for certain highly compensated employees, is also frozen. Group Retiree Health Plan- The Company provides certain health care and life insurance benefits for eligible retired employees. The Company’s contribution for health care benefits are a function of the retiree’s date of retirement and years of service. In addition, the plan has a defined dollar cap for certain retirees which limits average Company contributions. The Hartford has prefunded a portion of the health care obligations through a trust fund where such prefunding can be accomplished on a tax effective basis. Beginning January 1, 2017, for retirees 65 and older who were participating in the Retiree PPO Medical Plan, the Company funds the cost of medical and dental health care benefits through contributions to a Health Reimbursement Account and covered individuals can access a variety of insurance plans from a health care exchange. Effective January 1, 2002, Company-subsidized retiree medical, retiree dental and retiree life insurance benefits were eliminated for employees with original hire dates with the Company on or after January 1, 2002. The Company also amended its postretirement medical, dental and life insurance coverage plans to no longer provide subsidized coverage for employees who retired on or after January 1, 2014. Assumptions Pursuant to accounting principles related to the Company’s pension and other postretirement obligations to employees under its various benefit plans, the Company is required to make a significant number of assumptions in order to calculate the related liabilities and expenses each period. The two economic assumptions that have the most impact on pension and other postretirement expense under the defined benefit pension plan and group retiree health plan are the discount rate and the expected long-term rate of return on plan assets. The assumed discount rates and yield curve is based on high-quality fixed income investments consistent with the maturity profile of the expected liability cash flows. Based on all available market and industry information, it was determined that 2.65% and 2.36% were the appropriate discount rates as of December 31, 2020 to calculate the Company’s pension and other postretirement obligations, respectively. The expected long-term rate of return considers the actual compound rates of return earned over various historical time periods. The Company also considers the investment volatility, duration and total returns for various time periods related to the characteristics of the pension obligation, which are influenced by the Company's workforce demographics. In addition, for the pension plan, the Company anticipates an allocation of approximately 60% in fixed income securities and 40% in non fixed income securities (global equities, hedge funds and private market alternatives) to derive an expected long-term rate of return. For the other post-retirement plans, the Company anticipates an allocation of approximately 70% in fixed income securities and 30% in non fixed income securities. Based upon these analyses, management determined the long-term rate of return assumption to be 6.00% and 5.60% for the Company's pension and other postretirement obligations, respectively, for the year ended December 31, 2020 and 6.45% and 6.00% for the Company's pension and other postretirement obligations, respectively, for the year ended December 31, 2019. To determine the Company's 2021 expense, the Company has assumed an expected long-term rate of return on plan assets of 5.40% and 4.90% for the Company's pension and other post retirement obligations, respectively. Weighted Average Assumptions Used in Calculating the Benefit Obligations and the Net Amount Recognized Pension Benefits Other Postretirement Benefits For the years ended December 31, 2020 2019 2020 2019 Discount rate 2.65 % 3.33 % 2.36 % 3.15 % Weighted Average Assumptions Used in Calculating the Net Periodic Benefit Cost for Pension Plans For the years ended December 31, 2020 2019 2018 3.33 % 4.35 % 3.73 % 6.00 % 6.45 % 6.60 % Discount rate Expected long-term rate of return on plan assets 205         Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Weighted Average Assumptions Used in Calculating the Net Periodic Benefit Cost for Other Postretirement Plans Discount rate Expected long-term rate of return on plan assets For the years ended December 31, 2020 2019 2018 3.15 % 4.23 % 3.55 % 5.60 % 6.00 % 6.60 % Assumed Health Care Cost Trend Rates Pre-65 health care cost trend rate Post-65 health care cost trend rate Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate For the years ended December 31, 2020 2019 2018 7.00 % 7.00 % 6.50 % N/A N/A N/A 4.50 % 4.50 % 4.50 % 2033 2033 2028 Obligations and Funded Status The following tables set forth a reconciliation of beginning and ending balances of the benefit obligation and fair value of plan assets, as well as the funded status of the Company's defined benefit pension and postretirement health care and life insurance benefit plans. International plans represent an immaterial percentage of total pension assets, liabilities and expense and, for reporting purposes, are combined with domestic plans. Change in Benefit Obligation Pension Benefits Other Postretirement Benefits For the years ended December 31, 2020 2019 2020 2019 Benefit obligation — beginning of year Service cost Interest cost Plan participants’ contributions Actuarial loss (gain) Amendments Changes in assumptions Benefits and expenses paid Benefit obligation — end of year $ 4,498 $ 4,000 $ 223 $ 220 4 127 — 12 — 4 159 — 48 — — 6 11 (2) — — 8 13 6 (2) 437 488 16 19 (203) (201) (34) (41) $ 4,875 $ 4,498 $ 220 $ 223 Changes in assumptions in 2020 primarily included a $434 increase in the benefit obligation for pension benefits as a result of a decrease in the discount rate from 3.33% as of the December 31, 2019 valuation to 2.65% as of the December 31, 2020 valuation. Changes in assumptions in 2019 included a $508 increase in the benefit obligation for pension benefits as a result of a decrease in the discount rate from 4.35% as of the December 31, 2018 valuation to 3.33% as of the December 31, 2019 valuation. The cash balance plan pension benefit obligation was $443 and $420 as of December 31, 2020 and 2019, respectively. The interest crediting rate was 3.30% in 2020, 2019, and 2018. 206         Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Change in Plan Assets Pension Benefits Other Postretirement Benefits For the years ended December 31, 2020 2019 2020 2019 Fair value of plan assets — beginning of year Actual return on plan assets Employer contributions [1] Benefits paid [2] Expenses paid Foreign exchange adjustment Fair value of plan assets — end of year $ 3,914 $ 3,344 $ 75 $ 85 568 701 70 70 6 5 12 — (177) (176) (23) (22) (12) (26) — 1 — — — — $ 4,363 $ 3,914 $ 63 $ 75 Funded status — end of year [1]Employer contributions in 2020 and 2019 to the U.S. qualified defined benefit (512) $ (157) $ (584) $ $ (148) pension plan were discretionary, made in cash, and did not include contributions of the Company’s common stock. [2]Other postretirement benefits paid represent non-key employee postretirement medical benefits paid from the Company's prefunded trust fund. The fair value of assets for pension benefits, and hence the funded status, presented in the table above excludes assets of $186 and $161 as of December 31, 2020 and 2019, respectively, held in rabbi trusts and designated for the non-qualified pension plans. The assets do not qualify as plan assets; however, the assets are available to pay benefits for certain retired, terminated and active participants. Such assets are available to the Company’s general creditors in the event of insolvency. The rabbi trust assets consist of equity and fixed income investments. To the extent the fair value of these rabbi trusts were included in the table above, pension plan assets would have been $4,549 and $4,075 as of December 31, 2020 and 2019, respectively, and the funded status of pension benefits would have been $(326) and $(423) as of December 31, 2020 and 2019, respectively. Defined Benefit Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets As of December 31, 2020 2019 Projected benefit obligation Accumulated benefit obligation Fair value of plan assets $ $ $ 4,875 $ 4,875 $ 4,363 $ 4,498 4,498 3,914 Amounts Recognized in the Consolidated Balance Sheets Pension Benefits Other Postretirement Benefits As of December 31, 2020 2019 2020 2019 Other liabilities $ 512 $ 584 $ 157 $ 148 Service cost Interest cost Expected return on plan assets Amortization of prior service credit Amortization of actuarial loss Net periodic cost (benefit) Net Periodic Cost (Benefit) Pension Benefits Other Postretirement Benefits For the years ended December 31, 2020 2019 2018 2020 2019 2018 $ 4 $ 4 $ 4 $ — $ — $ 127 (215) — 60 159 (226) — 44 142 (227) — 49 6 (4) (7) 7 8 (4) (7) 6 $ (24) $ (19) $ (32) $ 2 $ 3 $ Amounts Recognized in Other Comprehensive Income (Loss) Amortization of actuarial loss Amortization of prior service credit Net loss arising during the year Prior service cost (credit) Total Pension Benefits Other Postretirement Benefits For the years ended December 31, 2020 2019 2018 2020 2019 2018 $ 60 $ 44 $ 49 $ 7 $ 6 $ — (106) — — (88) — — (91) — (7) (11) — (7) (18) 2 $ (46) $ (44) $ (42) $ (11) $ (17) $ 207 — 7 (7) (7) 6 (1) 6 (6) 3 — 3                 Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Amounts in Accumulated Other Comprehensive Income (Loss), Before Tax, not yet Recognized as Components of Net Periodic Benefit Cost Net loss Prior service credit Total Pension Benefits Other Postretirement Benefits As of December 31, 2020 2019 2018 2020 2019 2018 $ (2,098) $ (2,052) $ (2,008) $ (136) $ (132) $ (120) — — — 60 67 $ (2,098) $ (2,052) $ (2,008) $ (76) $ (65) $ 72 (48) Pension Plan Assets Investment Strategy and Target Allocation The overall investment strategy of the Pension Plan is to maximize total investment returns to provide sufficient funding for present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. With respect to asset management, the oversight responsibility of the Pension Plan rests with The Hartford’s Pension Investment Committee composed of individuals whose responsibilities include establishing overall objectives and the setting of investment policy; selecting appropriate investment options and ranges; reviewing the asset allocation mix and asset allocation targets on a regular basis; and monitoring performance to determine whether or not the rate of return objectives are being met and that policy and guidelines are being followed. The Company believes that the asset allocation decision will be the single most important factor determining the long-term performance of the Pension Plan. Target Asset Allocation Pension Plans Other Postretirement Plans Minimum Maximum Minimum Maximum Equity securities 5 % 35 % 15 % 45 % Fixed income securities Alternative assets 50 % 70 % 55 % 85 % — % 45 % — % — % Divergent market performance among different asset classes may, from time to time, cause the asset allocation to deviate from the desired asset allocation ranges. The asset allocation mix is reviewed on a periodic basis. If it is determined that an asset allocation mix rebalancing is required, future portfolio additions and withdrawals will be used, as necessary, to bring the allocation within tactical ranges. The Pension Plan invests in commingled funds and partnerships managed by unaffiliated managers to gain exposure to emerging markets, equity, hedge funds and other alternative investments. These portfolios encompass multiple asset classes reflecting the current needs of the Pension Plan, the investment preferences and risk tolerance of the Pension Plan and the desired degree of diversification. These asset classes include publicly traded equities, bonds and alternative investments and are made up of individual investments in cash and cash equivalents, equity securities, debt securities, asset-backed securities, mortgage loans and hedge funds. Hedge fund investments represent a diversified portfolio of partnership investments in a variety of strategies. In addition, the Company uses U.S. Treasury bond futures contracts and U.S. Treasury STRIPS in a duration overlay program to adjust the duration of Pension Plan assets to better match the duration of the benefit obligation. 208       Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Pension Plan Assets at Fair Value Asset Category Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Short-term investments: $ 75 $ 25 $ — $ 100 $ 34 $ 54 $ — $ 88 As of December 31, 2020 As of December 31, 2019 Fixed Income Securities: Corporate RMBS U.S. Treasuries Foreign government CMBS Other fixed income [1] Mortgage Loans Equity Securities: Domestic International Total pension plan assets at fair value, in the fair value hierarchy [2] Other Investments, at net asset value [3]: Private Market Alternatives Hedge funds — — — — — — — 513 271 2,303 39 2,342 41 47 16 30 137 — — — 1 — 9 — — 161 — — 42 47 25 30 137 161 513 271 — — — — — — — 429 261 2,058 61 101 17 32 96 — 1 — 27 2,085 — — 1 — 1 131 — — 61 101 18 32 97 131 430 261 $ 859 $ 2,599 $ 210 $ 3,668 $ 724 $ 2,420 $ 160 $ 3,304 451 224 358 212 3,874 Total pension plan assets at fair value [1]Includes ABS, municipal bonds, and CDOs. [2]Excludes approximately $20 and $40 as of December 31, 2020 and 2019, respectively, of investment receivables net of investment payables that are excluded from this 4,343 $ 2,599 $ 2,420 $ 724 $ 210 $ 859 $ 160 $ $ disclosure requirement because they are trade receivables in the ordinary course of business where the carrying amount approximates fair value. [3]Investments that are measured at net asset value per share or an equivalent and have not been classified in the fair value hierarchy. The tables below provide fair value level 3 rollforwards for the Pension Plan Assets for which significant unobservable inputs ("Level 3") are used in the fair value measurement on a recurring basis. The Pension Plan classifies the fair value of financial instruments within Level 3 if there are no observable markets for the instruments or, in the absence of active markets, if one or more of the significant inputs used to determine fair value are based on the Pension Plan’s own assumptions. Therefore, the gains and losses in the tables below include changes in fair value due to both observable and unobservable factors. 209 Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Pension Plan Asset Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Assets Fair Value as of January 1, 2020 Realized gains (losses), net Changes in unrealized gains, net Purchases Settlements Sales Transfers into Level 3 Transfers out of Level 3 Fair Value as of December 31, 2020 Fair Value as of January 1, 2019 Realized gains, net Changes in unrealized gains, net Purchases Settlements Sales Transfers into Level 3 Transfers out of Level 3 Corporate RMBS Foreign government Mortgage loans Other [1] Totals $ 27 $ — $ 1 $ 131 $ 1 $ 160 $ $ — 1 14 — (3) — — 39 $ 14 $ 3 2 7 — (3) 4 — — — 1 — — — — 1 $ 1 $ — — — — (1) — — — — 9 — — — (1) 9 $ 2 $ — — — — (1) — — — 4 32 — (6) — — 161 $ 133 $ — 4 — — (6) — — (1) 1 — — — — (1) — $ 1 $ — — — — — — — (1) 6 56 — (9) — (2) 210 151 3 6 7 — (11) 4 — Fair Value as of December 31, 2019 [1]"Other" includes U.S. Treasuries, Other fixed income and CMBS investments. During the year ended December 31, 2020, transfers into and (out) of Level 3 are primarily attributable to the appearance of or lack thereof of market observable information and the re- evaluation of the observability of pricing inputs. During the year ended December 31, 2019, transfers into and (out) of Level 3 are primarily attributable to the appearance of or $ 27 $ — $ 1 $ 131 $ 1 $ 160 lack thereof of market observable information and the re- evaluation of the observability of pricing inputs. There was less than $1 in Company common stock included in the Pension Plan’s assets as of December 31, 2020 and 2019. Other Postretirement Plan Assets at Fair Value As of December 31, 2020 As of December 31, 2019 Asset Category Short-term investments Fixed Income Securities: Corporate RMBS U.S. Treasuries CMBS Other fixed income Equity Securities: Large-cap Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $ 2 $ — $ — $ 2 $ 3 $ — $ — $ — — — — — 17 16 9 16 1 2 — — — — — — — 16 9 16 1 2 17 — — — — — 19 18 12 20 1 2 — — — — — — — Total other postretirement plan assets at fair value $ 19 $ 44 $ — $ 63 $ 22 $ 53 $ — $ 3 18 12 20 1 2 19 75 There was no Company common stock included in the other postretirement benefit plan assets as of December 31, 2020 and 2019. Concentration of Risk In order to minimize risk, the Pension Plan maintains a listing of permissible and prohibited investments. In addition, the Pension Plan has certain concentration limits and investment quality requirements imposed on permissible investment options. Permissible investments include U.S. equity, international equity, alternative asset and fixed income investments including derivative instruments. Permissible derivative instruments include futures contracts, options, swaps, currency forwards, caps or floors and may be used to control risk or enhance return but will not be used for leverage purposes. 210 Note 19 - Employee Benefit Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Securities specifically prohibited from purchase include, but are not limited to: shares or fixed income instruments issued by The Hartford, short sales of any type within long-only portfolios, non- derivative securities involving the use of margin, leveraged floaters and inverse floaters, including money market obligations, natural resource real properties such as oil, gas or timber and precious metals. Other than U.S. government and certain U.S. government agencies backed by the full faith and credit of the U.S. government, the Pension Plan does not have any material exposure to any concentration risk of a single issuer. Expected Employer Contributions The Company does not have a 2021 required minimum funding contribution for the U.S. qualified defined benefit pension plan. The Company has not determined whether, and to what extent, contributions may be made to the U. S. qualified defined benefit pension plan in 2021. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during 2021 to make this determination. Benefit Payments Amounts of Benefits Expected to be Paid over the next Ten Years from Pension and other Postretirement Plans as of December 31, 2020 Pension Benefits Other Postretirement Benefits 2021 2022 2023 2024 2025 $ 223 $ 229 235 242 246 2026 - 2030 Total 1,252 2,427 $ $ 22 20 18 17 15 59 151 20. STOCK COMPENSATION PLANS The Company's stock-based compensation plans are described below. Shares issued in satisfaction of stock-based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares purchased in the open market. In 2020, 2019 and 2018, the Company issued shares from treasury in satisfaction of stock-based compensation. This modification had no impact on compensation cost recognized over the vesting period since compensation cost based on the original performance share conditions is projected to be higher than what the cost would be based on the performance share conditions as modified. Stock-based compensation expense, included in insurance operating costs and other expenses in the consolidated statement of operations, was as follows: Stock-Based Compensation Expense For the years ended December 31, 2020 2019 2018 Stock-based compensation plans expense $ 116 $ 125 $ 130 Income tax benefit (20) (21) (27) Excess tax benefit on awards vested, exercised and expired Total stock-based compensation plans expense, net of tax (1) (6) (5) $ 95 $ 98 $ 98 The Company did not capitalize any cost of stock-based compensation. As of December 31, 2020, the total compensation cost related to non-vested awards not yet recognized was $68, which is expected to be recognized over a weighted average period of 2 years. In the second quarter of 2018, The Hartford modified the terms of the portion of its outstanding 2016 and 2017 performance share awards that are based on actual versus targeted return on equity over the performance period. The modification eliminated the benefit to return on equity that arose from the charge against earnings in 2017 driven by the effect of the lower corporate income tax rate on the carrying value of net deferred tax assets. 211 Stock Plan Future stock-based awards may be granted under The Hartford's 2020 Stock Incentive Plan (the "Stock Incentive Plan") other than the Subsidiary Stock Plan and the Employee Stock Purchase Plan described below. The Stock Incentive Plan provides for awards to be granted in the form of non-qualified or incentive stock options qualifying under Section 422 of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock or restricted stock units, or any other form of stock-based award. The maximum number of shares, subject to adjustments set forth in the 2020 Stock Plan, that may be issued to Company employees and third-party service providers during the 10-year duration of the Stock Incentive Plan is the sum of 11,250,000 shares, any shares cancelled subsequent to February 29, 2020, plus any shares used for tax withholding purposes. If any award under an earlier incentive stock plan is forfeited, terminated, surrendered, exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax withholding) or for the net issuance of a lesser number of shares than the number subject to the award, the shares of stock subject to such award (or the relevant portion thereof) shall be available for awards under the Stock Incentive Plan and such shares shall be added to the maximum limit. As of December 31, 2020, there were 11,735,111 shares available for future issuance. The fair values of awards granted under the Stock Incentive Plan are measured as of the grant date and expensed ratably over the awards’ vesting periods, generally 3 years. For stock option awards to retirement-eligible employees the Company recognizes the expense over a period shorter than the stated vesting period because the employees receive accelerated vesting upon retirement and therefore the vesting period is Note 20 - Stock Compensation Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) considered non-substantive. Beginning with awards granted in 2017, employees with restricted stock units and performance shares receive accelerated vesting upon meeting certain retirement eligibility criteria. Stock Option Awards Under the Stock Incentive Plan, options granted have an exercise price at least equal to the market price of the Company’s common stock on the date of grant, and an option’s maximum term is not to exceed 10 years. Options generally become exercisable over a period of three years commencing one year from the date of grant. Certain other options become exercisable at the later of three years from the date of grant or upon specified market appreciation of the Company's common shares. The Company uses a hybrid lattice/Monte-Carlo based option valuation model (the “Plan Valuation Model”) that incorporates the possibility of early exercise of options into the valuation. The Plan Valuation Model also incorporates the Company’s historical termination and exercise experience to determine the option value. The Plan Valuation Model incorporates ranges of assumptions for inputs, and those ranges are disclosed below. The term structure of volatility is generally constructed utilizing implied volatilities from exchange-traded options, CPP warrants related to the Company’s stock, historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the Plan Valuation Model, and accommodates variations in employee preference and risk-tolerance by segregating the grantee pool into a series of behavioral cohorts and conducting a fair valuation for each cohort individually. The expected term of options granted is derived from the output of the option Plan Valuation Model and represents, in a mathematical sense, the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Constant Maturity Treasury yield curve in effect at the time of grant. Stock Options Valuation Assumptions Expected dividend yield Expected annualized spot volatility Weighted average annualized volatility Risk-free spot rate Expected term For the years ended December 31, 2020 2.6% 2019 2.5% 2018 1.8% 22.2 % - 36.2% 20.7 % - 36.7% 20.8 % - 36.5% 30.9% 29.3% 29.0% 1.3 % - 1.6% 2.4 % - 2.6% 1.5 % - 2.9% 6.6 years 5.9 years 5.7 years Non-qualified Stock Option Activity Under the Stock Incentive Plan Number of Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at beginning of year Granted Exercised Forfeited Expired Outstanding at end of year Outstanding, fully vested and expected to vest Exercisable at end of year Aggregate intrinsic value represents the value of the Company's closing stock price on the last trading day of the period in excess of the exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value. The weighted average grant-date fair value per share of options granted during the years ended December 31, 2020, 2019, and 2018 was $12.97, $11.71 and $14.04, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $2, $16, and $14, respectively. For the year ended December 31, 2020 5,846 $ 998 $ (128) $ (23) $ — $ 6,693 $ 6,693 $ 4,793 $ 43.43 55.27 24.15 51.27 — 45.54 63.59 42.62 5.8 $ 5.8 $ 4.7 $ 34 33 34 Share Awards Share awards granted under the Stock Incentive Plan and outstanding include restricted stock units and performance shares. Restricted Stock and Restricted Stock Units Restricted stock units are share equivalents that are credited with dividend equivalents. Dividend equivalents are accumulated and paid in incremental shares when the underlying units vest. Restricted stock are shares of The Hartford's common stock with 212     Note 20 - Stock Compensation Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) restrictions as to transferability until vested. Restricted stock units and restricted stock awards are valued equal to the market price of the Company’s common stock on the date of grant. Generally, restricted stock units vest at the end of or over three years; certain restricted stock units vest at the end of five years. Beginning in 2017, restricted stock units vest at the earlier of an employee's retirement eligibility date or three years. Equity awards granted to non-employee directors generally vest in one year and were made in the form of restricted stock units in 2020, 2019 and 2018. Performance Shares Performance shares become payable within a range of 0% to 200% of the number of shares initially granted based upon the attainment of specific performance goals achieved at the end of or over three years. While most performance shares vest at the end of or over three years, certain performance shares vest at the end of five years. Beginning in 2017, performance shares vest at the earlier of an employee's retirement eligibility date or three years. Performance share awards granted prior to 2020 that are not dependent on market conditions are valued equal to the market price of the Company's common stock on the date of grant less a discount for the absence of dividends. Performance share awards granted in 2020 that are not dependent on market conditions are valued equal to the market price of the Company’s common stock on the date of grant. Stock-compensation expense for these performance share awards without market conditions is based on a current estimate of the number of awards expected to vest based on the performance level achieved and, therefore, may change during the performance period as new estimates of performance are available. Other performance share awards or portions thereof have a market condition based upon the Company's total stockholder return relative to a group of peer companies within a period of three years from the date of grant. Stock compensation expense for these performance share awards is based on the number of awards expected to vest as estimated at the grant date and, therefore, does not change for changes in estimated performance. The Company uses a risk neutral Monte-Carlo Plan Valuation Model that incorporates time to maturity, implied volatilities of the Company and the peer companies, and correlations between the Company and the peer companies and interest rates. Assumptions for Total Shareholder Return Performance Shares For the years ended December 31, 2019 2018 2020 Volatility of common stock Average volatility of peer companies Average correlation coefficient of peer companies Risk-free spot rate Term Total Share Awards 19.6% 19.4% 20.8% 18.0 % - 31.0% 16.0 % - 27.0% 17.0 % - 25.0% 51.0% 1.2% 50.0% 2.4% 54.0% 2.4% 3.0 years 3.0 years 3.0 years Non-vested Share Award Activity Under the Stock Incentive Plan Non-vested shares Non-vested at beginning of year Granted Performance based adjustment, net Vested Forfeited Non-vested at end of year Restricted Stock and Restricted Stock Units Performance Shares Number of Shares (in thousands) Weighted- Average Grant-Date Fair Value Number of Shares (in thousands) Weighted- Average Grant date Fair Value For the year ended December 31, 2020 3,912 $ 1,323 $ 50.83 54.64 (1,224) $ (145) $ 3,866 $ 49.19 52.71 52.58 770 $ 391 $ (73) $ (276) $ (22) $ 790 $ 52.31 55.62 50.09 50.90 53.54 54.82 The weighted average grant-date fair value per share of restricted stock units and restricted stock granted during the years ended December 31, 2020, 2019, and 2018 was $54.64, $50.49 and $53.11, respectively. The weighted average grant- date fair value per share of performance shares granted during the years ended December 31, 2020, 2019, and 2018 was $55.62, $54.07 and $50.26, respectively. 213     Note 20 - Stock Compensation Plans THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Employee Stock Purchase Plan The Company sponsors The Hartford Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees of The Hartford purchase common stock of the Company at a discount rate of 5% of the market price per share on the last trading day of the offering period. Accordingly, the plan is a non-compensatory plan. Employees purchase a variable number of shares of stock through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 15,400,000 shares of stock to eligible employees under the ESPP. As of December 31, 2020, there were 3,743,847 shares available for future issuance. During the years ended December 31, 2020, 2019 and 2018, 340,653 shares, 213,472 shares, and 219,661 shares were sold, respectively. The weighted average per share fair value of the discount under the ESPP was $1.99, $2.82 and $2.56 during the years ended December 31, 2020, 2019 and 2018, respectively. The fair value is estimated based on the 5% discount off the market price per share on the last trading day of the offering period. Supplemental Operating Lease Information Operating cash flows for operating leases (for the twelve months ended) Right-of-use asset obtained in exchange for new operating lease liabilities Weighted-average remaining lease term in years for operating leases Weighted-average discount rate for operating leases For the years ended December 31, 2020 2019 $ 54 $ 50 49 42 7 years 6 years 3.1 % 3.5 % The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $73, $102 and $114, respectively, based on actual or estimated performance factors. The Company did not make cash payments in settlement of stock compensation during the years ended December 31, 2020, 2019 and 2018. Subsidiary Stock Plan In 2013 the Company established a subsidiary stock-based compensation plan similar to the Stock Incentive Plan, except that it awards non-public subsidiary stock as compensation. The Company recognized stock-based compensation plan expense of $11, $11 and $9 in the years ended December 31, 2020, 2019 and 2018, respectively, for the subsidiary stock plan. Upon employee vesting of subsidiary stock, the Company recognizes a noncontrolling equity interest. Employees are restricted from selling vested subsidiary stock to anyone other than the Company and the Company has discretion on the amount of stock to repurchase. Therefore, the subsidiary stock is classified as equity because it is not mandatorily redeemable. For the year ended December 31, 2020, the Company repurchased $10 in subsidiary stock. 21. LEASES The Hartford has operating leases for real estate and equipment. The right-of-use asset as of December 31, 2020 and 2019 was $209 and $191, respectively, and is included in property and equipment, net, in the Consolidated Balance Sheet. The lease liability as of December 31, 2020 and 2019 was $221 and $201, respectively, and is included in other liabilities in the Consolidated Balance Sheet. Variable lease costs include changes in interest rates on variable rate leases primarily for automobiles. Components of Lease Expense For the years ended December 31, 2020 2019 Operating lease cost $ 52 $ — — (5) 49 2 1 (5) Short-term lease cost Variable lease cost Sublease income Total lease costs included in insurance operating costs and other expenses $ 47 $ 47 The total rental expense recognized in accordance with prior lease guidance was $56 in 2018, which excludes sublease rental income of $4 in 2018. 214 Note 21 - Leases THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Maturities of Operating Lease Liabilities as of December 31, 2020 2021 2022 2023 2024 2025 Thereafter Total lease payments Less: Discount on lease payments to present value Total lease liability Operating Leases $ $ 47 42 39 30 22 63 243 22 221 22. BUSINESS DISPOSITIONS AND DISCONTINUED OPERATIONS sold which increased subsequent to the date the Company entered into the sale agreement. At closing, stockholders’ equity was further reduced for the amount of AOCI of the life and annuity business, which was approximately $758, largely consisting of net unrealized gains on investments, net of shadow DAC. Cash inflows and outflows from and to the life and annuity business after closing were immaterial to the overall inflows and outflows of the Company. Additionally, the revenues and expenses presented in continuing operations related to pre- disposal operations were immaterial. The Company has been managing invested assets of the life and annuity business sold in May 2018 for an initial term of five years and provided transition services through February, 2020. The Hartford reported its 9.7% ownership interest in Hopmeadow Holdings LP, which is accounted for under the equity method, in other assets in the Consolidated Balance Sheet. The Hartford recognizes its share of income in other revenues in the Consolidated Statement of Operations on a three month delay, when financial information from the investee becomes available. The Company recognized $42 and $66, before tax, of income in 2020 and 2019, respectively. Cash inflows for dividends received from Hopmeadow Holdings LP were $30 and $67, respectively. Other cash inflows and outflows from and to the life and annuity business after closing were immaterial to the overall inflows and outflows of the Company. Sale of life and annuity business On May 31, 2018, the Company’s wholly-owned subsidiary, Hartford Holdings, Inc, completed the sale of its life and annuity business to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group, Pine Brook and J. Safra Group. Under the terms of the sale agreement signed December 3, 2017, the investor group formed a limited partnership, Hopmeadow Holdings LP, that acquired HLI, and its life and annuity operating subsidiaries, for cash of approximately $1.4 billion after a pre-closing dividend to The Hartford of $300. The Hartford received a 9.7% ownership interest in the limited partnership, valued at a cost of $164 as of the sale date. In addition, as part of the terms of the sale agreement, The Hartford reduced its long-term debt by $142 because the debt, which was issued by HLI, was included as part of the sale. Including cash proceeds and the retained equity interest and net of transaction costs, net proceeds for the sale were approximately $1.5 billion. The life and annuity operations met the criteria for reporting as discontinued operations and are reported in the Corporate category through the date of sale. After having recognized a loss on sale within discontinued operations of approximately $3.3 billion in 2017, the Company recognized a reduction in loss on sale of $202 in 2018. The reduction in loss on sale in 2018 primarily resulted from the reclassification to retained earnings of $193 of tax effects stranded in AOCI due to the accounting for Tax Reform and a $141 increase in estimated retained tax benefits, primarily net operating loss carryovers, partially offset by $104 of operating income from discontinued operations during the period up until the closing date and a reclassification of $10 of net unrealized capital gains from AOCI to retained earnings. See Note 1 - Adoption of New Accounting Standards within Basis of Presentation and Significant Accounting Policies, for additional information about the reclassifications from AOCI to retained earnings. The estimated amount of retained net operating loss carryovers depends on the estimated tax basis of the business 215 Note 22 - Business Dispositions and Discontinued Operations THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Major Classes of Assets and Liabilities Transferred to the Buyer in Connection with the Sale Reconciliation of the Major Line Items Constituting Pretax Profit (Loss) of Discontinued Operations Carrying Value as of Closing For the year ended December 31, 2018 Assets Cash and investments Reinsurance recoverables Loss accrual [1] Other assets Separate account assets Total assets held for sale Liabilities $ $ Reserve for future policy benefits and unpaid loss and loss adjustment expenses $ Other policyholder funds and benefits payable Long-term debt Other liabilities Separate account liabilities Total liabilities held for sale $ 27,058 20,718 (3,044) 2,907 110,773 158,412 14,308 28,680 142 2,222 110,773 156,125 [1]Represents the estimated accrued loss on sale of the Company's life and annuity business. Revenues Earned premiums Fee income and other Net investment income Net realized capital losses Total revenues $ Benefits, losses and expenses Benefits, losses and loss adjustment expenses Amortization of DAC Insurance operating costs and other expenses [1] Total benefits, losses and expenses Income before income taxes Income tax expense Income from operations of discontinued operations, net of tax Net realized capital gain (loss) on disposal, net of tax Income (loss) from discontinued operations, net of tax $ [1]Corporate allocated overhead has been included in continuing operations. 39 382 519 (68) 872 535 58 157 750 122 2 120 202 322 Cash Flows from Discontinued Operations included in the Consolidated Statement of Cash Flows For the year ended December 31, 2018 Net cash provided by operating activities from discontinued operations Net cash provided by investing activities from discontinued operations Net cash used in financing activities from discontinued operations [1] [1]Excludes return of capital to parent of $619 for 2018. $ $ $ 603 463 (737) 216 Note 22 - Business Dispositions and Discontinued Operations THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Sale of Continental Europe Operations On September 30, 2020, the Company entered into a definitive agreement to sell our Continental Europe Operations. The transaction is expected to close by the second quarter of 2021, subject to customary closing conditions, including regulatory approvals. The complete sale of the Continental Europe Operations consists of multiple arrangements designed as a single transaction. The assets and liabilities of the Continental Europe Operations have been classified as held for sale in the Company's Consolidated Balance Sheets as of December 31, 2020. Total consideration less costs to sell is estimated to be approximately $14, resulting in an estimated loss on the sale of approximately $48, before tax, which has been recorded within net realized capital gains (losses) for the year ended December 31, 2020 in the Consolidated Statements of Operations. The Company also recorded related income tax benefits of $18, for an estimated after tax loss of $30 on the sale, for the year ended December 31, 2020. The accrual for the estimated before tax loss is included as a reduction of the carrying value of assets held for sale in the Company's Consolidated Balance Sheets as of December 31, 2020. The Continental Europe Operations are reported under the Commercial Lines segment. The estimate of consideration less costs to sell of $14 includes an estimate of consideration that is contingent on how the ultimate amounts required to settle claims on 2020 and prior accident years, as determined at the end of 2024, compare with recorded reserves as currently estimated. The contingent consideration has been estimated at its fair value of $12 and could increase or decrease depending on how ultimate losses develop. Any change in the estimated fair value of contingent consideration in a future period would increase or decrease the estimated loss on sale in that period. Carrying Value of Assets and Liabilities to be Transferred in Connection With the Sale [1] Assets Investments and cash Reinsurance recoverables and other Total assets held for sale Liabilities Unpaid losses and loss adjustment expenses Unearned premiums Other liabilities As of December 31, 2020 $ 142 35 177 84 31 43 Total liabilities held for sale 158 [1] As of December 31, 2020, the estimated fair value of the disposal group is $14 based on the estimated consideration to be received less cost to sell. Within the disposal group, as of December 31, 2020, investments in fixed maturities and short-term investments, which are measured at fair value on a recurring basis, had a fair value of $84, of which $1 was based on quoted prices in active markets for identical assets and $83 was based on significant observable inputs. The remaining fair value less costs to sell for the disposal group is ($70), which is measured on a nonrecurring basis using significant unobservable inputs. See Note 5—Fair Value Measurements for more information. $ 23. RESTRUCTURING AND OTHER COSTS In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020 the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Hartford Next is intended to reduce annual insurance operating costs and other expenses through reduction of the Company's headcount, investment in information technology ("IT") to further enhance our capabilities, and other activities. The activities are expected to be substantially complete by the end of 2022. costs in the Consolidated Statement of Operations and unpaid restructuring costs are included in other liabilities in the December 31, 2020 Consolidated Balance Sheet. Subsequent to December 31, 2020, the Company expects to incur additional costs including, amortization of right of use assets and other lease exit costs, other IT costs to retire applications, professional fees and other expenses. Total restructuring and other costs are expected to be approximately $158, before tax, and will be recognized in Corporate for segment reporting. Termination benefits related to workforce reductions and professional fees are included within restructuring and other 217 Note 23 - Restructuring and Other Costs THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Restructuring and Other Costs, Before Tax Severance benefits IT costs Professional fees and other expenses Total restructuring and other costs, before tax Incurred in the Year Ended December 31, 2020 [1] Total Amount Expected to be Incurred $ $ 73 $ 2 29 104 $ 73 26 59 158 [1] Amounts incurred for the twelve months ended December 31, 2020 are the cumulative incurred under the restructuring program. Accrued Restructuring and Other Costs Balance, beginning of period Incurred Payments Balance, end of period Year Ended December 31, 2020 Severance Benefits and Related Costs IT Costs Professional Fees and Other Total Restructuring and Other Costs Liability $ $ — $ 73 (19) 54 $ — $ 2 (2) — $ — $ 29 (29) — $ — 104 (50) 54 24. QUARTERLY RESULTS (UNAUDITED) Current and Historical Quarterly Results of the Company Revenues Benefits, losses and expenses Net income Less: Preferred stock dividends Three months ended March 31, June 30, September 30, December 31, 2020 2019 2020 2019 2020 2019 2020 2019 $ 4,956 $ 4,940 $ 5,068 $ 5,092 $ 5,171 $ 5,347 $ 5,328 $ 5,361 4,612 4,165 4,476 4,636 4,639 4,694 4,676 4,685 $ 273 $ 630 $ 468 $ 372 $ 459 $ 535 $ 537 $ 548 5 5 5 — 6 11 5 5 Net income available to common stockholders $ 268 $ 625 $ 463 $ 372 $ 453 $ 524 $ 532 $ 543 Net income available to common stockholders per common share Basic Diluted $ 0.75 $ 1.74 $ 1.29 $ 1.03 $ 1.26 $ 1.45 $ 1.48 $ 1.51 $ 0.74 $ 1.71 $ 1.29 $ 1.02 $ 1.26 $ 1.43 $ 1.47 $ 1.49 218       (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) 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(cid:55)(cid:75)(cid:72)(cid:3)(cid:43)(cid:68)(cid:85)(cid:87)(cid:73)(cid:82)(cid:85)(cid:71)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17) (cid:50)(cid:81)(cid:72)(cid:3)(cid:43)(cid:68)(cid:85)(cid:87)(cid:73)(cid:82)(cid:85)(cid:71)(cid:3)(cid:51)(cid:79)(cid:68)(cid:93)(cid:68) (cid:43)(cid:68)(cid:85)(cid:87)(cid:73)(cid:82)(cid:85)(cid:71)(cid:15)(cid:3)(cid:38)(cid:55)(cid:3)(cid:19)(cid:25)(cid:20)(cid:24)(cid:24) HELPING EVERYDAY KIDS BECOME EVERYDAY HEROES. The Hartford has been committed to fire prevention and safety since our founding as a fire insurance company in 1810. To bring this resolve to life, we created the Junior Fire Marshal® program in 1947 to teach children how to prevent fires and what to do if a fire starts. Junior Fire Marshal is one of the oldest corporate-sponsored public education programs in the country. Since its inception, more than 111 million children have been deputized as Junior Fire Marshals and proudly worn our signature red fire helmets in recognition of the accomplishment. We’re proud of the program’s legacy, but know that more can be done to prevent the devastation caused by fires. Across the country, a home fire occurs every 87 seconds—a startling reminder about the importance of teaching children the basics of personal fire safety. In 2020, to ensure that as many kids as possible can learn life-saving fire safety lessons, we launched the Junior Fire Marshal Training Academy, a fun, interactive online program available to teachers, families and communities everywhere. Above and on the cover: children participating in Junior Fire Marshal fire safety activities. MORE THAN 111 MILLION CHILDREN have learned about fire prevention and safety and been deputized as Junior Fire Marshals since 1947. FIRE SAFETY EDUCATION GRANTS will be provided by The Hartford to public school districts and fire departments in the top 150 cities with the highest home fire risk. MILLIONS MORE CHILDREN will learn fire safety, become Junior Fire Marshals, and go from everyday kids to everyday heroes. THE JUNIOR FIRE MARSHAL TRAINING ACADEMY includes a one-of-a-kind, standards-aligned fire safety and prevention curriculum, as well as a digital companion for smartboards and tablets. DOING WHAT’S RIGHT ALLOWS US TO HOLD OURSELVES TO THE HIGHEST ETHICAL STANDARDS It’s fundamental to our culture: Doing the right thing every day and in every situation. And while our efforts do award us recognition, the real reward is the impact we make on our employees, our customers and our communities. Highest ranked insurance company, America’s Most “JUST” Companies, JUST Capital and Forbes (2021) World’s Most Ethical Companies®, Ethisphere Institute (2020) Best Place to Work for Lesbian, Gay, Bisexual and Transgender (LGBT) Equality, Human Rights Campaign, Corporate Equality Index (2021) Military Friendly Employer, Military Times (2021) 2021 Bloomberg Financial Services Gender-Equality Index (BFGEI) America’s Best Employers For Diversity, Forbes (2020) 100% Disability Equality Index, Best Place to Work (2020) Named to the Dow Jones Sustainability Indices (2020) LEARN MORE AT TheHartford.com/our-company FOLLOW THE HARTFORD ON The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries, including issuing companies, Hartford Fire Insurance Company, and Hartford Life and Accident Insurance Company. Its headquarters is in Hartford, CT. 21-EN-564962 © March 2021 The Hartford Business Insurance Employee Benefits Auto Home 

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