NOTICE OF 2022 ANNUAL MEETING OF SHAREHOLDERS, PROXY STATEMENT AND 2021 ANNUAL REPORT NOTICE OF 2022 ANNUAL MEETING
OF SHAREHOLDERS
VOTING
Date and Time
Wednesday, May 18, 2022
12:30 p.m. EDT
Access*
www.virtualshareholdermeeting.com/HIG2022
Record Date
You may vote if you were a shareholder of record at the close of business on
March 21, 2022.
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, 2022;
3. Consider and approve, on a non-binding, advisory basis,
the compensation of our named executive officers as
disclosed in this proxy statement;
4. Select, on a non-binding, advisory basis, the preferred
frequency for the advisory vote on named executive
officer compensation;
5. Vote on shareholder proposal that the company’s
Board adopt policies ensuring its underwriting
practices do not support new fossil fuel supplies; and
6. Act upon any other business that may properly come
before the Annual Meeting or any adjournment
thereof.
Board
Recommendation
Page
FOR
FOR
FOR
1 YEAR
AGAINST
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34
36
69
70
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 77 under “How do I vote my shares?”
We urge you to review the proxy statement carefully and exercise your right to
vote.
Dated: April 8, 2022
By order of the Board of Directors
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 21, 2022, 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
Senior Vice President and 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 not 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.
2022 Proxy Statement
1
LETTER FROM OUR CHAIRMAN &
CEO AND LEAD DIRECTOR
Dear fellow shareholders:
The Hartford delivered strong financial performance in 2021 and made significant progress on our ESG journey. While the majority
of our workforce has operated remotely since the pandemic began, our employees remain united around The Hartford’s purpose of
underwriting human achievement and stand behind our promises to customers and distribution partners.
The Board, too, has operated remotely during this time, and remained highly engaged, meeting virtually 31 times since March 2020.
With oversight of the company’s strategic direction, The Board spends significant time at each regularly scheduled Board meeting
discussing business unit strategy and performance with business line leaders. Independent directors also meet without
management to discuss important issues. An annual strategy deep-dive offers additional opportunity for the directors to probe and
question management team members. These ongoing strategy touchpoints allow the Board to affirm that The Hartford is well
positioned to deliver maximum value to all stakeholders. As shared during the company’s November 2021 Investor Day, The
Hartford seeks to generate superior risk-adjusted returns through:
•
Accelerated profitable organic growth across our businesses
• Unwavering focus on ROE performance, driven by underwriting excellence
•
•
Consistent generation of excess capital and optimizing superior returns
A deep-rooted ethical culture and industry-leading environmental, social and governance (ESG) practices
The Hartford possesses an enviable portfolio of leading, core businesses with sustainable, long-term competitive advantages. Over
the last decade, the business has undergone a transformational journey to optimize and restructure the portfolio. Significant
investments in digital, data and automated solutions across our businesses have strengthened our competitive advantages. Strong
M&A execution has reduced exposure to capital market sensitive, lower ROE producing businesses, while broadening product
portfolio and distribution reach in our P&C businesses and adding significant scale to our Group Benefits businesses. Additionally, a
disciplined approach to capital management has helped produce strong returns.
The prominence of ESG as a critical strategic priority reflects its importance to the Board and management. The Hartford has led
the way in embracing its responsibilities to all stakeholders. We continued to raise the bar in 2021 with accomplishments that
include:
•
•
Publication of our first SASB and second TCFD reports
Release of EEO-1 data
• Disclosure of representation goals for women and people of color in senior management roles, which tie senior executive
compensation to their achievement
Sign-on to the U.N. Global Compact
Refreshed climate priorities
Commitment to investing $2.5 billion over the next five years in technologies, companies and funds that advance the
energy transition and address climate change
•
•
•
We also expanded director engagement with our largest shareholders and shared video messages from several directors via our
website, which offer all stakeholders a better view into The Hartford’s boardroom. We are proud these efforts have garnered
extensive recognition, including The Hartford’s inclusion for the third straight year as the top-ranked insurance company on JUST
Capital list of America’s Most “JUST” Companies for 2022. Going forward, our goal is to further advance the benchmark for ESG in
the U.S. insurance sector while expanding efforts around alternative and renewable energy investments, supplier diversity and
emerging shareholder expectations. We understand our role in addressing societal challenges and recognize the importance of ESG
to the long-term success of our business and the insurance sector as a whole.
To that end, The Hartford has announced our goal to achieve net zero greenhouse gas emissions for its full range of businesses and
operations by 2050, in alignment with the Paris Climate Accord. ESG principles are embraced throughout our organization and, like
others in the business community, we have set ambitious ESG goals. Today’s announcement builds on our existing initiatives to
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further net zero objectives, including the successful implementation of our Coal and Tar Sands Policy; our targets to operate with
100% renewable-energy source consumption for our facilities by 2030 and to reduce select GHGe by at least 2.1% each year
starting in 2015 for a total reduction of 46.2% by 2037; and transparent reporting through TCFD and CDP disclosures. While there
are many unknowns that will have a direct impact on our ability to achieve our net zero goal, including the development of
appropriate reporting and measurement protocols, we remain committed to fostering a cleaner, healthier environment and to
balancing stakeholder impact as we navigate the global energy transition. We look forward to sharing more about our plans to
achieve these goals in a future update.
At The Hartford, the best is yet to come. We’re positioned to deliver on our financial objectives and enhance value for all
stakeholders. At every level of our company, from the boardroom to the underwriting desk to the call center, we are motivated by
our mission of providing people with the support and protection they need to pursue their unique ambitions, seize opportunity, and
prevail through unexpected challenge. Thank you for your ongoing support.
Christopher J. Swift
Chairman and Chief Executive Officer
Trevor Fetter
Lead Director
2022 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
Item 4: Advisory Approval of Preferred Frequency for Advisory Vote on Executive Compensation
SHAREHOLDER PROPOSAL
Item 5: Vote on Shareholder Proposal That the Company’s Board Adopt Policies Ensuring Its Underwriting
Practices Do Not Support New Fossil Fuel Supplies
INFORMATION ON STOCK OWNERSHIP
Directors and Executive Officers
Certain Shareholders
Delinquent Section 16(a) Reports
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
21
25
27
27
28
34
34
34
35
35
36
36
37
37
42
50
50
52
53
53
53
54
67
69
70
70
73
73
74
75
76
76
76
80
81
Some of the statements in this proxy statement, including those related to our goal of achieving net zero greenhouse gas emissions ("GHGe") for the full range of our businesses and
operations by 2050, may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We caution investors that these forward-
looking statements are not guarantees of future performance, and actual results may differ materially. Factors that could cause actual results to differ, possibly materially, from those
in the forward-looking statements include, but are not limited to, our ability to formulate and implement plans to reduce our Scope 1 and 2 GHGe as anticipated; our reliance on third
parties, whose actions are outside our control, to reduce our Scope 3 GHGe; and the lack of widely accepted standards for measuring greenhouse gas emissions associated with
underwriting, insurance and investment activities, as well as other factors discussed in our 2021 Annual Report on Form 10-K, subsequent Quarterly Reports on Forms 10-Q, and the
other filings we make with the Securities and Exchange Commission. We assume no obligation to update this proxy statement, which speaks as of the date issued.
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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.
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
Larry D. De Shon, 62
Former President, CEO and COO,
Avis Budget Group
Carlos Dominguez, 63
Vice Chairman and Lead Evangelist,
Sprinklr
Trevor Fetter,(2) 62
Senior Lecturer,
Harvard Business School
Donna James, 64
President and CEO,
Lardon & Associates
Kathryn A. Mikells, 56
Chief Financial Officer
Exxon Mobil
Teresa W. Roseborough, 63
Executive Vice President, General Counsel and
Corporate Secretary, The Home Depot
Virginia P. Ruesterholz, 60
Former Executive Vice President,
Verizon Communications
Christopher J. Swift, 61
Chairman and CEO,
The Hartford
Matthew E. Winter, 65
Former President,
The Allstate Corporation
Greig Woodring, 70
Former President and CEO,
Reinsurance Group of America
Independent
Director
since
Current
Committees(1)
Other Current
Public Company Boards
✓
✓
✓
✓
✓
✓
✓
✓
✓
• United Rental, Inc.
• Air New Zealand
• PROS Holdings
2020
2018
2007
• Audit
• FIRMCo
• NCG
• Comp
• FIRMCo
• NCG
• Comp
• FIRMCo
2021
• Audit
• FIRMCo
• Boston Scientific
• Victoria's Secret
2010
• Audit*
• FIRMCo
2015
2013
• Comp
• FIRMCo
• NCG*
• Comp
• FIRMCo
• NCG
• 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.
2022 Proxy Statement
5
PROXY SUMMARY
BOARD NOMINEE COMPOSITION
Independent
Oversight
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.
✓ 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
Engaged
Board /
Shareholder
Rights
✓ 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
Good
Governance
✓ Annual review of CEO succession plan by the independent directors with the CEO
✓ Annual Board review of long-term and emergency succession plans for senior management and the
CEO
✓ 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
✓ Comprehensive sustainability reporting, including a Sustainability Highlight Report, TCFD and SASB
reports and EEO-1 data
✓ Sustainability Governance Committee, including several subcommittees, comprised of senior
management charged with overseeing a comprehensive sustainability strategy and ensuring the full
Board is briefed at least annually
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6.6 Years Average Tenure5320-5 years5-10 years>10 years40% Women46WomenMen30% People of Color37Black, Latinx or AsianWhite
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 the following key areas:
PROXY SUMMARY
To learn more, please access our Sustainability Highlight Report, which presents our sustainability goals and provides data on our
sustainability practices and achievements, as well as our TCFD, SASB, and EEO-1 reports at: https://www.thehartford.com/about-
us/corporate-sustainability.
2022 Proxy Statement
7
PROXY SUMMARY
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 2022.
✓ The Board recommends a vote "FOR" this item
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 organic growth and ROE performance while maintaining an ethical culture
supported by industry-leading ESG practices, (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
The Hartford’s mission is to provide people with the support and protection they need to pursue their unique ambitions, seize
opportunity, and prevail through unexpected challenge. Our strategy to maximize value creation for all stakeholders focuses on
advancing underwriting excellence, emphasizing digital capabilities, maximizing distribution channels, optimizing organizational
efficiency, and advancing ESG leadership.
We endeavor to maintain and enhance our position as a market leader by leveraging our core strengths of underwriting excellence,
risk management, claims, product development and distribution. We are investing in claims, analytics, data science and digital
capabilities to strengthen our existing competitive advantages.
An ethics, people, and performance-focused culture drives our values. We have taken proactive positions on ESG issues important
to our sustainability, and our capacity to deliver long-term shareholder value.
STRATEGIC PRIORITIES
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PROXY SUMMARY
2021 FINANCIAL RESULTS
Our 2021 financial results were excellent, compared to 2020, with strong limited partnership income and higher underlying P&C
underwriting results, partially offset by a change from net favorable to net unfavorable P&C prior accident year reserve
development and an increase in group life excess mortality claims. Full year net income available to common stockholders and core
earnings* were $2.34 billion ($6.62 per diluted share) and $2.18 billion ($6.15 per diluted share), respectively. Net income and core
earnings return on equity ("ROE")*† were 13.1% 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 three-year net income ROE and core earnings ROE results. 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).
* 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.
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 2021 Corporate Peer Group (provided on page 51).
Includes reinvestment of dividends.
COMPONENTS OF COMPENSATION AND PAY MIX
NEO compensation is heavily weighted toward 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.
2022 Proxy Statement
9
$ (Millions)Net Income Available toCommonStockholders$1,716$2,34420202021$ (Millions)Core Earnings$2,086$2,17820202021Net Income ROE14.4%10.0%13.1%201920202021Core Earnings ROE13.6%12.7%12.7%20192020202144%67%26%54%32%70%19%61%29%100%The Hartford (HIG)2021 Corporate Peer GroupS&P 500 Insurance CompositeS&P 500 Property and CasualtyS&P 500ONE-YEAR (2021)THREE-YEAR (2019-2021)
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, retention 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
22%
Long-Term Incentive
69%
Variable with Performance: 91%
Target Pay Mix — Other NEOs
Salary
16%
Annual Incentive
29%
Long-Term Incentive
55%
Variable with Performance: 84%
2021 COMPENSATION DECISIONS
2021 Compensation Decisions
Rationale
The Compensation Committee
updated the payout curve for
2021 AIP awards
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. (page 42)
The Compensation Committee
added a diversity modifier for
2021-2023 performance shares
The Compensation Committee added a modifier to performance shares awarded in 2021 tied
to the company’s diversity and workforce representation goals. The modifier will increase or
decrease the aggregate payout on 2021 performance share awards (after compensation core
ROE and TSR performance objectives have been determined) by +/- 10% based upon
performance against pre-determined year-end 2023 representation goals for women and
people of color, with the maximum payout not to exceed 200% of target. The Compensation
Committee's intent is to include the modifier with 2024 and 2027 performance share awards
to encourage progress toward the Company's 2030 representation goals. (page 46)
The Compensation Committee
approved an AIP funding level
of 158% of target
Performance against the pre-established Compensation Core Earnings target produced a
formulaic AIP funding level of 158% of target. The Compensation Committee undertook its
qualitative review of performance and concluded that the formulaic AIP funding level
appropriately reflected 2021 performance. Accordingly, no adjustments were made. (page 43)
The Compensation Committee
certified a 2019-2021
performance share award
payout at 157% of target.
The company's average annual Compensation Core ROE during the performance period was
12.2%, resulting in a payout of 113% of target for the ROE component (50% of the award). The
company's TSR during the period was at the 87th percentile of the performance peers,
resulting in a 200% payout for the TSR component (50% of the award). (page 46)
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The Compensation Committee (and, in the case of the CEO, the independent directors) approved the following compensation for
each NEO:
Base Salary
AIP Award
LTI Award
Total Compensation
PROXY SUMMARY
NEO
2021
Change
from 2020
2021
Change
from 2020
2021
Change
from 2020
$ 4,740,000
97.5%
$ 9,250,000
$ 2,054,000
105.4%
$ 2,000,000
$ 3,002,000
97.5%
$ 5,450,000
8.8%
8.1%
2.6%
$ 1,224,500
111.1%
$ 1,450,000
11.5%
$ 3,274,500
$ 1,343,000
NA*
$ 850,000
NA*
$ 2,643,000
$ 1,000,000
25.0%
$ 1,600,000
23.1%
$ 3,225,000
18.3 %
2021
$ 15,140,000
$ 4,779,000
$ 9,402,000
Change
from 2020
25.6 %
33.7 %
20.8 %
32.0 %
NA*
Christopher Swift $ 1,150,000
Beth Costello
$ 725,000
Douglas Elliot
David Robinson
$ 950,000
$ 600,000
Amy Stepnowski $ 450,000
William Bloom
$ 625,000
0%
0%
0%
0%
NA*
0%
*Ms. Stepnowski was not previously an NEO.
This table provides a concise picture of compensation decisions made in 2021, and highlights changes from 2020. In each case,
Total 2021 Compensation was higher than 2020 compensation due primarily to the higher AIP awards for 2021. Another view of
2021 compensation for the NEOs is available in the Summary Compensation Table on page 54.
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 not to exceed 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 2021 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, sustainability and corporate governance practices, during our annual shareholder
2022 Proxy Statement
11
PROXY SUMMARY
engagement 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 addition of a diversity
modifier to performance share awards. For further discussion of our shareholder engagement program, see page 21.
ITEM 4
ADVISORY APPROVAL OF PREFERRED FREQUENCY
FOR ADVISORY VOTE ON COMPENSATION OF NAMED
EXECUTIVE OFFICERS
Section 14A of the Securities Exchange Act of 1934, as amended, provides that shareholders can indicate their preference, at least
once every six years, as to how frequently the company should seek an advisory vote on NEO compensation as disclosed pursuant
to the SEC's compensation disclosure rules. By voting on this proposal, shareholders may indicate whether they would prefer that
the company seek future advisory votes on NEO compensation once every one, two, or three years.
✓
The Board recommends that shareholders vote for the option of every "1 year" as the frequency with which
shareholders are provided an opportunity to vote on named executive officer compensation, as disclosed pursuant to
the compensation disclosure rules of the Securities and Exchange Commission.
ITEM 5
SHAREHOLDER PROPOSAL THAT THE COMPANY'S
BOARD ADOPT POLICIES ENSURING ITS
UNDERWRITING PRACTICES DO NOT SUPPORT NEW
FOSSIL FUEL SUPPLIES
Vote on the shareholder proposal that The Hartford’s Board of Directors adopt and disclose new policies to help ensure that its
underwriting practices do not support new fossil fuel supplies, in alignment with the IEA’s Net Zero Emissions by 2050 Scenario.
× The Board of Directors unanimously recommends that shareholders vote "AGAINST" this Proposal for the following
The Hartford is a leader in the insurance industry in its efforts to address climate change and support the global
energy transition;
reasons:
•
•
•
•
•
•
The Hartford has announced a goal to achieve net zero greenhouse gas emissions for its full range of business
and operations by 2050, in alignment with the Paris Climate Accord;
The Hartford does not support divestiture-first strategies as an effective path to net zero;
The Proposal would create regulatory risk and complexity without any benefit;
The Proposal would encroach upon The Hartford’s underwriting judgment; and
The Proposal runs counter to shareholder sentiment and the direct feedback we have heard during our regular
discussions with shareholders.
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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 29, 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
✓ 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
Good
Governance
✓ Annual review of CEO succession plan by the independent directors with the CEO
✓ Annual Board review of long-term and emergency succession plans for senior management and the
CEO
✓ 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
✓ Comprehensive sustainability reporting, including a Sustainability Highlight Report, TCFD and SASB
reports and EEO-1 data
✓ Sustainability Governance Committee, including several subcommittees, comprised of senior
management charged with overseeing a comprehensive sustainability strategy and ensuring the full
Board is briefed at least annually
2022 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
Senior Vice President and Corporate Secretary (see page 79 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 (twenty-one such
meetings in 2021).
As part of its evaluation process, the Board reviews its
leadership structure annually as part of its evaluation process
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, as well as setting
and reviewing board goals.
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 also include directors' evaluations of their peers.
When the Lead Director led the Board evaluation session in May 2021, there was agreement that the Board maintained its focus on
stated goals in 2020, but appropriately shifted its focus due to the pandemic. As a result, there was a high degree of continued
interest from 2020-2021 priorities to 2021-2022 priorities, with some change in emphasis. There was also agreement that the
Board was fully effective in virtual meetings, and was successful in integrating and adding new members. At the same time, there
was consensus around the 2021-2022 goals for the Board, including driving profitable growth strategies, overseeing strong
management succession processes, monitoring the future economic landscape, focusing on the Personal Lines business, and staying
abreast of cyber threats and preparedness.
2022 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 year 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, and was
appointed to the Audit Committee in May 2021 and the Nominating and Corporate Governance Committee effective in May 2022.
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.
Our director onboarding program is designed to reduce the learning curve for new members and enable them to provide meaningful
contributions to the oversight of the company as early in their tenures as possible. It 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 continued to limit in-person involvement in 2021, 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.
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. The Board believes that its rigorous self-
16 www.thehartford.com
BOARD AND GOVERNANCE MATTERS
evaluation process (described above), 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, and the mandatory retirement of two of our longest
tenured directors this year.
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 Nominating Committees are both currently 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.
BOARD NOMINEE COMPOSITION
The Board currently has an average tenure of 8 years, is 33% women, and 25% people of color; however, two of our longest-tenured
directors will reach our mandatory retirement age in 2022. The charts below reflect average tenure and representation of women
and people of color for the director nominees standing for election at the date of the Annual Meeting of Shareholders.
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
2022. To nominate a candidate at our 2023 Annual Meeting, notice must be received by our Senior Vice President and Corporate
Secretary at the address below by February 17, 2023 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 2023 proxy statement must be received by our Senior Vice President
and Corporate Secretary at the address below no earlier than November 9, 2022 and no later than December 9, 2022.
In each case, submissions must be delivered or mailed to Donald C. Hunt, Senior Vice President and Corporate Secretary, The
Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155.
2022 Proxy Statement
17
6.6 Years Average Tenure5320-5 years5-10 years>10 years40% Women46WomenMen30% People of Color37Black, 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 III
L. De Shon
D. James
K. Mikells (Chair)
M. Morris
G. Woodring
“The Audit Committee had a heightened focus on cyber risks, particularly given the increased incidence of
ransomware attacks and the expanding threat landscape. The Committee also continued to review in-depth
assessments of overall risk and control environments for several lines of business and functional areas, while
also reviewing processes for evaluating loss reserves that are more difficult to estimate, including reserves for
excess mortality claims in the Group Benefits business."
ROLES AND RESPONSIBILITIES
• Oversees the integrity of the company's financial statements.
Kathryn Mikells, Committee Chair since 2019
MEETINGS IN 2021: 9
• Oversees accounting, financial reporting and disclosure processes and the adequacy of
management’s systems of internal control over financial reporting.
* 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.
• Oversees the company's relationship with, and performance of, the independent registered
public accounting firm, including its qualifications and independence.
• Considers appropriateness of rotation of independent registered public accounting firm
• 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.
18 www.thehartford.com
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
CURRENT MEMBERS:
BOARD AND GOVERNANCE MATTERS
C. Dominguez
T. Fetter
T. Roseborough
V. Ruesterholz
M. Winter (Chair)
MEETINGS IN 2021: 6
“When making compensation decisions with respect to the 2021 performance year, in addition to factors such
as The Hartford’s outstanding operational and share price performance, the Compensation Committee
considered The Hartford’s progress to attract, retain and develop talent, as well as ongoing efforts to create a
diverse, equitable and inclusive culture. The Hartford made significant progress on its talent and DEI agenda
in 2021, including the internal promotions of female executives to the roles of Chief Information Officer, Chief
Ethics and Compliance Officer and Chief Claims Officer – which were the result of deliberate succession
planning that capitalized on our deep bench strength – as well as the external hire of a new Chief Marketing
Officer. Over the course of the year as the workforce continued to navigate the pandemic, the Committee also
monitored the actions the company took to support employee health and well-being while continuing to foster
a high-performance culture.”
ROLES AND RESPONSIBILITIES
Matthew Winter, Committee Chair since 2021
• 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 initiatives and progress in the area of human capital management, including an annual
review of the diversity of the company’s workforce and diversity, equity and inclusion (“DE&I”)
programs, and of 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 37.
FINANCE, INVESTMENT AND RISK MANAGEMENT COMMITTEE
CURRENT MEMBERS:
R. Allardice III (Chair)
L. De Shon
C. Dominguez
T. Fetter
D. James
K. Mikells
M. Morris
T. Roseborough
V. Ruesterholz
C. Swift
M. Winter
G. Woodring
MEETINGS IN 2021: 5
“In 2021, FIRMCo continued to devote substantial time to reviewing the COVID-19 pandemic’s effect on the
risk profile of the company, including impacts to insurance coverages, the economy and financial markets,
and the legal and regulatory environment. The committee also regularly reviewed emerging risks related to
cyber insurance and the evolving external threat environment, property catastrophe exposures, particularly
in light of the implications of climate change and severe weather, as well as the ongoing insurance
underwriting practices of The Hartford.”
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, including acts of terrorism and changing climate or weather patterns, and any
other risk that poses a material threat to the strategic viability of the company.
• 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.
• Provides a forum for discussion among management and the entire Board of key financial,
investment, and risk management matters.
2022 Proxy Statement
19
BOARD AND GOVERNANCE MATTERS
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Current Members:
“In 2021, the Nominating and Corporate Governance Committee focused its attention on Board
composition and leadership succession, ensuring a smooth transition upon the planned retirements of two
seasoned Directors in May 2022, as well as continued attention to ensuring strong ESG governance
practices. The Committee also reviewed management governance and reporting frameworks that are
designed to ensure material risks are identified across the organization and elevated to the Board in a timely
manner.”
Teresa Roseborough, Committee Chair since 2021
ROLES AND RESPONSIBILITIES
• Advises and makes recommendations to the Board on corporate governance matters.
• Considers potential nominees to the Board.
• Makes recommendations on the organization, size and composition of the Board and its
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.
L. De Shon
C. Dominguez
M. Morris
T. Roseborough (Chair)
V. Ruesterholz
MEETINGS IN 2021: 4
20 www.thehartford.com
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 2021, the
Board continued to focus on the risks arising from the COVID-19 pandemic, including the market, regulatory, underwriting and
operational impacts of COVID-19 on the business, and maintained its increased meeting cadence to remain current.
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
• DE&I initiatives and pay
equity practices
• 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 2021 (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, 2021.
BOARD AND SHAREHOLDER MEETING ATTENDANCE
The Board met 21 times during 2021 and each of the 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 19, 2021.
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
practices in these areas. In the fall of 2021, management reached out to shareholders representing approximately 58% of shares
outstanding and had discussions with or received written feedback from shareholders representing approximately 41% of shares
outstanding. Discussions with management and our Lead Director were very positive again this year, with shareholders highly
engaged and knowledgeable on the discussion topics and providing universally positive feedback with regard to our ESG practices
and disclosures, board composition and effectiveness, and our compensation program design and metrics.
2022 Proxy Statement
21
BOARD AND GOVERNANCE MATTERS
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. 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, including the internal promotions of female
executives to the roles of Chief Information Officer, Chief Ethics and Compliance Officer, and Chief Claims Officer.
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 thirteen times by The Ethisphere® Institute as one of the “World’s Most Ethical Companies,” and for the third straight
year were the top-ranked insurance company on JUST Capital and CNBC's list of America's Most "JUST" Companies for 2022. 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, including
anonymous 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. The PACs contribution guidelines have been expanded to include a focus on policymakers who demonstrate a record of
operating in a bipartisan manner. The PACs also formalized a commitment to proactively educate lawmakers on The Hartford’s
core values. Lastly, the PACs are driving increased transparency into our contribution strategy across the entire enterprise and its
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 most current Political Activities Report, at https://ir.thehartford.com/corporate-governance/political-
engagement.
22 www.thehartford.com
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 the following key areas:
BOARD AND GOVERNANCE MATTERS
2022 Proxy Statement
23
BOARD AND GOVERNANCE MATTERS
We have a proud history of uncompromising commitment to sustainability, delivering on an ESG strategy built around ambitious
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 2021 included the following highlights:
•
Continuing to increase transparency in our ESG-related disclosures by:
◦
◦
◦
◦
◦
◦
Completing SASB and TCFD reporting
Releasing an ESG Supplement and updating our ESG narrative and data on our website
Publishing EEO-1 data and goals with accountability for diversification of leadership ranks by 2030
Publishing a Climate Change Statement aligned with the 5th Assessment of the Intergovernmental Panel on
Climate Change (most current)
Sharing our gender and people of color pay equity numbers, showing that, on average, base salaries for women
were 99.9% of those of men and people of color were 98.8% of white people
Releasing a Supplier Diversity Economic Impact Report for the first time
•
In addition, we have taken the following actions:
◦ Made marked progress on implementation of 2019 Coal and Tar Sands Policy with respect to insuring and
investing in coal and tar sands companies, ahead of targets
◦
◦
◦
◦
◦
Committed to invest $2.5 billion over the next five years in technologies, companies and funds that are advancing
the energy transition and addressing climate change
Posted our renewed climate priorities to our corporate sustainability site, including progress on greenhouse gas
emissions goals and targets
Committed $100 million to the TPG Rise Climate Fund, an organization that invests in entrepreneurs and
businesses working on climate solutions across the world
Became a member of ClimateWise and completed CDP to transparently share our climate progress
Signing on to the UN Global Compact, the world’s largest corporate sustainability initiative
Lastly, The Hartford has announced our goal of achieving net zero greenhouse gas emissions for its full range of businesses and
operations by 2050, in alignment with the Paris Climate Accord. We recognize that some crucial metrics and standards necessary
to measure progress towards our net zero goal have yet to be established. Standards for measuring emissions associated with
underwriting, insurance and investment activities are still being developed or have only recently emerged. The company will
evaluate various options and keep its stakeholders informed of progress towards adopting a methodology to measure GHGe in its
portfolio of businesses and investments through regular sustainability reporting. We will actively engage and offer our insights and
expertise as accountability models for marking net zero progress are developed. We are a recognized leader in ESG and it remains
a critical strategic priority. We intend to be an active participant in the discourse and a leader in our industry as the global economy
navigates energy transition.
As a property and casualty insurer and group benefits provider with a complex business model, our approach to achieving our net
zero ambition will be pragmatic. That entails a balanced view of stakeholder impact as we consider initiatives, policies and business
decisions on our net zero journey, with shareholder value creation remaining central to our work. We will continue to engage, as
appropriate, with companies to deliver access to energy and other basic services that are essential to improving people’s lives, while
also helping to develop and redeploy the capital necessary to drive an orderly, just, and inclusive energy transition.
We are committed to ensuring a sustainable future while creating value for our customers. An important feature of this
commitment is regular, transparent and best practice-aligned reporting of our corporate sustainability actions and progress. To
learn more, please access our Sustainability Highlight Report, which presents our sustainability goals and provides data on our
sustainability practices and achievements, as well as our TCFD, SASB, and EEO-1 reports 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 and provides input on a "deep dive" report on at least one ESG topic annually. The 2021
briefing provided an update on our performance and progress regarding actions taken, including increased disclosure, which have
enabled us to sustain top quartile rankings among U.S. insurers for our sustainability practices.
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 2021, the Sustainability Governance Committee met six times.
24 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 2020-2021 Board service year, non-management directors received a $110,000 annual cash retainer and a $180,000
annual equity grant of restricted stock units (“RSUs”).
ANNUAL CASH FEES
Cash compensation for the 2021-2022 Board service year beginning on May 19, 2021, the date of the 2021 Annual Meeting of
Shareholders, and ending on May 18, 2022, the date of the 2022 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 2021, 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 $750,000 of accidental death and dismemberment
and permanent total disability coverage while they serve on the Board. We also reimburse directors for travel and related expenses
they incur in connection with their Board and committee service.
STOCK OWNERSHIP GUIDELINES AND RESTRICTIONS ON TRADING
The Board has established stock ownership guidelines for each director to obtain, by the third anniversary of the director’s
appointment to the Board, an ownership position in our common stock equal to five times the total annual cash retainer (including
cash retainers paid for committee chair or Lead Director responsibilities). All directors with at least three years of Board service met
the stock ownership guidelines as of December 31, 2021.
Our insider trading policy prohibits all hedging activities by directors, and permits directors to engage in transactions involving The
Hartford's equity securities only through: (1) a pre-established trading plan pursuant to Rule 10b5-1 of the Securities Exchange Act
of 1934; or (2) during “trading windows” of limited duration following: (a) the filing with the SEC of our periodic reports on Forms
10-K and 10-Q, and (b) a determination by the company that the director is not in possession of material non-public information.
Even if pre-clearance is granted, directors must make an independent determination that they do not possess material non-public
information. In addition, our insider trading policy grants us the ability to suspend trading of our equity securities by directors.
2022 Proxy Statement
25
BOARD AND GOVERNANCE MATTERS
DIRECTOR SUMMARY COMPENSATION TABLE
We paid the following compensation to directors for the fiscal year ended December 31, 2021.
Name
Robert Allardice
Larry D. De Shon
Carlos Dominguez
Trevor Fetter
Donna James(3)
Kathryn A. Mikells
Michael G. Morris
Teresa W. Roseborough
Virginia P. Ruesterholz
Matthew E. Winter
Greig Woodring
Fees Earned or
Paid in Cash
($)(1)
135,000
Stock Awards
($)(2)
180,000
110,000
110,000
150,000
138,200
145,000
110,000
130,000
110,000
135,000
110,000
180,000
180,000
180,000
226,200
180,000
180,000
180,000
180,000
180,000
180,000
All Other
Compensation
($)
2,971
1,291
1,291
1,291
1,187
1,015
2,971
1,291
1,291
1,291
2,971
Total
($)
317,971
291,291
291,291
331,291
365,587
326,015
292,971
311,291
291,291
316,291
292,971
(1) Directors Dominguez, Fetter and Mikells each elected to receive 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,
2021.
(3) Director James received a pro-rated annual cash retainer of $28,200 upon her appointment to the Board on February 17,
2021. Director James also received a pro-rated restricted stock unit award valued at $46,200 on February 23, 2021, the first
day of the company’s scheduled trading window following the filing of the company’s 2020 annual report on Form 10-K. The
number of RSUs subject to the award was determined by dividing the grant value of $46,200 by $51.87, the closing market
price per share of The Hartford common stock on the grant date. This award fully vested on May 19, 2021, the last day of the
2020-2021 Board year. Director James has elected to defer receipt of her RSU award until the end of her Board service.
DIRECTOR COMPENSATION TABLE—OUTSTANDING EQUITY
The following table shows the number and value of unvested equity awards outstanding as of December 31, 2021. The value of
these unvested awards is calculated using a market value of $69.04, the NYSE closing price per share of our common stock on
December 31, 2021. The numbers have been rounded to the nearest whole dollar or share.
Name
Robert Allardice
Larry D. De Shon
Carlos Dominguez
Trevor Fetter
Donna James
Kathryn A. Mikells
Michael G. Morris
Teresa W. Roseborough
Virginia P. Ruesterholz
Matthew E. Winter
Greig Woodring
Stock Awards(1)
Number
of Shares or
Units of Stock
That Have Not
Vested (#)(3)
Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)
Stock
Grant Date(2)
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
7/30/2021
2,843
2,843
2,843
2,843
2,843
2,843
2,843
2,843
2,843
2,843
2,843
196,281
196,281
196,281
196,281
196,281
196,281
196,281
196,281
196,281
196,281
196,281
(1) Additional stock ownership information is set forth in the beneficial ownership table on page 73.
(2) The RSUs were granted on July 30, 2021, the first day of the scheduled trading window following the filing of our Form 10-Q
for the quarter ended June 30, 2021.
(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 18, 2022, 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.
26 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 2021.
COMMUNICATING WITH THE BOARD
Shareholders and other interested parties may communicate with directors by contacting Donald C. Hunt, Senior Vice President
and Corporate Secretary of The Hartford Financial Services Group, Inc., One Hartford Plaza, Hartford, CT 06155. The Senior Vice
President and 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
2022 Proxy Statement
27
BOARD AND GOVERNANCE MATTERS
DIRECTOR NOMINEES
Ten 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.
28 www.thehartford.com
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)
BOARD AND GOVERNANCE MATTERS
Director since: 2020
Age: 62
Committees:
• Audit
• FIRMCo
• Nominating
Other public company directorships:
• United Rental, Inc. (2021-present)
• Air New Zealand (2020-present)
• 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.
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: 63
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.
2022 Proxy Statement
29
BOARD AND GOVERNANCE MATTERS
TREVOR FETTER INDEPENDENT — LEAD DIRECTOR
Professional highlights:
• Senior Lecturer, Harvard Business School (Jan. 2019-
Director since: 2007
Age: 62
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 public and private 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.
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: 64
Committees:
• Audit
• FIRMCo
Other public company directorships:
• Boston Scientific, Inc. (2015-
present)
• Victoria's Secret (2021-present)
• L Brands, Inc. (2003-2021)
• 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.
30 www.thehartford.com
BOARD AND GOVERNANCE MATTERS
KATHRYN A. MIKELLS INDEPENDENT
Professional highlights:
• Chief Financial Officer, Exxon Mobile Corporation
(2021-present)
• Chief Financial Officer, Diageo plc (2015-2021)
• Chief Financial Officer, Xerox Corporation
(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)
Director since: 2010
Age: 56
Committees:
• Audit (Chair)
• FIRMCo
Other public company directorships:
• Diageo plc (2015-2021)
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.
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: 63
Committees:
• Compensation
• FIRMCo
• Nominating (Chair)
• 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.
2022 Proxy Statement
31
BOARD AND GOVERNANCE MATTERS
VIRGINIA P. RUESTERHOLZ INDEPENDENT
Professional highlights:
• Verizon Communications, Inc.
Age: 60
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
• 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: 61
Committees:
• FIRMCo
Other public company directorships:
• Citizens Financial Group, Inc. ( 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.
32 www.thehartford.com
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: 65
Committees:
• Compensation (Chair)
• 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: 70
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.
2022 Proxy Statement
33
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, 2022. 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 2022, 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, 2022.
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, 2021 and 2020.
Audit fees
Audit-related fees(1)
Tax fees(2)
All other fees(3)
Total
Year Ended December 31, 2021
Year Ended December 31, 2020
$
$
$
$
$
11,041,000 $
1,071,000 $
47,000 $
33,000 $
12,192,000 $
11,151,000
1,099,000
102,000
35,000
12,387,000
(1) Fees for the years ended December 31, 2021 and 2020 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, 2021 and 2020 principally consisted of tax compliance services.
(3) Fees for the year ended December 31, 2021 and 2020 pertain to permissible services not related to financial reporting.
The Audit Committee reviewed the non-audit services provided by the Deloitte Entities during 2021 and 2020 and concluded that
they were compatible with maintaining the Deloitte Entities’ independence.
34 www.thehartford.com
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 six 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 2021, 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, 2021.
In this context, the Audit Committee has:
(1) Reviewed and discussed the audited financial statements for the year ended December 31, 2021 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, 2021
for filing with the SEC.
Report Submitted: February 16, 2022
Members of the Audit Committee:
Kathryn A. Mikells, Chair
Robert B. Allardice III
Larry De Shon
Donna James
Michael G. Morris
Greig Woodring
2022 Proxy Statement
35
COMPENSATION MATTERS
ITEM 3
ADVISORY APPROVAL OF 2021 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 37, our executive compensation program is
designed to promote long-term shareholder value creation and support our strategy by: (1) encouraging profitable organic
growth and ROE performance while maintaining an ethical culture supported by industry-leading ESG practices, (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.
36 www.thehartford.com
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
Chairman and Chief Executive Officer
Beth Costello
Douglas Elliot
Executive Vice President and Chief Financial Officer
President
David Robinson
Executive Vice President and General Counsel
Amy Stepnowski
Executive Vice President, Chief Investment Officer; President of HIMCO
William Bloom
Former Executive Vice President, Claims, Operations, Technology and Data & Analytics
EXECUTIVE SUMMARY
The Hartford’s mission is to provide people with the support and protection they need to pursue their unique ambitions, seize
opportunity, and prevail through unexpected challenge. Our strategy to maximize value creation for all stakeholders focuses on
advancing underwriting excellence, emphasizing digital capabilities, maximizing distribution channels, optimizing organizational
efficiency, and advancing ESG leadership.
We endeavor to maintain and enhance our position as a market leader by leveraging our core strengths of underwriting excellence,
risk management, claims, product development and distribution. We are investing in claims, analytics, data science and digital
capabilities to strengthen our existing competitive advantages.
An ethics, people, and performance-focused culture drives our values. We have taken proactive positions on ESG issues important
to our sustainability, and our capacity to deliver long-term shareholder value.
STRATEGIC PRIORITIES
2022 Proxy Statement
37
COMPENSATION MATTERS
2021 FINANCIAL RESULTS
Our 2021 financial results were excellent, compared to 2020, with strong limited partnership income and higher underlying P&C
underwriting results, partially offset by a change from net favorable to net unfavorable P&C prior accident year reserve
development and an increase in group life excess mortality claims. Full year net income available to common stockholders and core
earnings* were $2.34 billion ($6.62 per diluted share) and $2.18 billion ($6.15 per diluted share), respectively. Net income and core
earnings return on equity ("ROE")*† were 13.1% 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 three-year net income ROE and core earnings ROE results. 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
2021 BUSINESS PERFORMANCE
In February 2021, the company provided outlooks for the key business metrics highlighted below. These outlooks were
management's estimates for 2021 performance based on business, competitive, capital market, catastrophe and other assumptions,
and supported the company's 2021 operating plan. When setting the 2021 operating plan, both the Board and management
concluded that these key business metrics would only be achievable with superior execution to deliver strong business
performance. As described on page 42, performance relative to the outlooks is a major determinant of the formulaic AIP funding
level.
* 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 Income Available toCommonStockholders$1,716$2,34420202021$ (Millions)Core Earnings$2,086$2,17820202021Net Income ROE14.4%10.0%13.1%201920202021Core Earnings ROE13.6%12.7%12.7%201920202021
COMPENSATION MATTERS
Key business metrics for full year 2021 compared to outlooks provided in February 2021
Commercial Lines
Personal Lines
Group Benefits
Combined ratio(1) of 95.8 was above the
outlook of 93.5-95.5, primarily due to
1.1 points of higher than budgeted
unfavorable prior accident year reserve
development and 2.1 points from
current accident year catastrophes
above plan, partially offset by a better
than expected underlying combined
ratio.
Underlying combined ratio* of 89.1,
which excludes catastrophes and prior
year development, was better than
outlook of 90.0-92.0, primarily due to
lower COVID-19 losses, better than
expected losses in workers’
compensation, lower non-catastrophe
property losses and the effect of higher
earned premium, partially offset by
higher losses in specialty wholesale and
international.
Combined ratio of 90.7 was better than
outlook of 94.0-96.0, primarily due to
current accident year catastrophes
being 1.5 points better than plan and 4.9
points of favorable prior year
development, partially offset by a higher
than expected underlying combined
ratio.
Net income margin of 3.9% was within
the outlook of 3.5%-4.5% due to net
realized gains, better than planned net
investment income and better than
expected long-term disability incidence
and recoveries, partially offset by
higher-than-expected excess mortality
in group life.
Underlying combined ratio of 89.9,
which excludes catastrophes and prior
year development, was above the
outlook of 87.0-89.0, primarily due to
higher than planned automobile claim
frequency and severity and a higher
expense ratio, partially offset by lower
than expected non-catastrophe losses in
homeowners.
Core earnings margin* of 2.5% was
below the outlook of 3.7%-4.7%,
primarily due to higher-than-expected
excess mortality, partially offset by
limited partnership returns in excess of
plan and better than expected long-term
disability incidence and recoveries.
(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. The combined ratio for Commercial Lines included 1.0 point of unfavorable reserve development for 2018 and prior accident
years on Navigators business ceded to the adverse development cover with National Indemnity Company ("NICO") which is not included in core earnings
because, while recognized as a deferred gain on retroactive reinsurance, it was economically ceded to NICO.
* 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 2021 Corporate Peer Group (provided on page 51).
Includes reinvestment of dividends.
COMPONENTS OF COMPENSATION AND PAY MIX
NEO compensation is heavily weighted toward 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.
2022 Proxy Statement
39
44%67%26%54%32%70%19%61%29%100%The Hartford (HIG)2021 Corporate Peer GroupS&P 500 Insurance CompositeS&P 500 Property and CasualtyS&P 500ONE-YEAR (2021)THREE-YEAR (2019-2021) 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, retention 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
22%
Long-Term Incentive
69%
Variable with Performance: 91%
Target Pay Mix — Other NEOs
Salary
16%
Annual Incentive
29%
Long-Term Incentive
55%
Variable with Performance: 84%
2021 COMPENSATION DECISIONS
2021 Compensation Decisions
Rationale
The Compensation Committee
updated the payout curve for
2021 AIP awards
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. (page 42)
The Compensation Committee
added a diversity modifier for
2021-2023 performance shares
The Compensation Committee added a modifier to performance shares awarded in 2021 tied
to the company’s diversity and workforce representation goals. The modifier will increase or
decrease the aggregate payout on 2021 performance share awards (after compensation core
ROE and TSR performance objectives have been determined) by +/- 10% based upon
performance against pre-determined year-end 2023 representation goals for women and
people of color, with the maximum payout not to exceed 200% of target. The Compensation
Committee's intent is to include the modifier with 2024 and 2027 performance share awards
to encourage progress toward the Company's 2030 representation goals. (page 46)
The Compensation Committee
approved an AIP funding level
of 158% of target
Performance against the pre-established Compensation Core Earnings target produced a
formulaic AIP funding level of 158% of target. The Compensation Committee undertook its
qualitative review of performance and concluded that the formulaic AIP funding level
appropriately reflected 2021 performance. Accordingly, no adjustments were made. (page 43)
The Compensation Committee
certified a 2019-2021
performance share award
payout at 157% of target.
The company's average annual Compensation Core ROE during the performance period was
12.2%, resulting in a payout of 113% of target for the ROE component (50% of the award). The
company's TSR during the period was at the 87th percentile of the performance peers,
resulting in a 200% payout for the TSR component (50% of the award). (page 46)
40 www.thehartford.com
The Compensation Committee (and, in the case of the CEO, the independent directors) approved the following compensation for
each NEO:
Base Salary
AIP Award
LTI Award
Total Compensation
COMPENSATION MATTERS
NEO
2021
Change
from 2020
2021
Change
from 2020
2021
Change
from 2020
Christopher Swift $ 1,150,000
Beth Costello
$ 725,000
Douglas Elliot
David Robinson
$ 950,000
$ 600,000
Amy Stepnowski $ 450,000
William Bloom
$ 625,000
0%
0%
0%
0%
NA*
0%
*Ms. Stepnowski was not previously an NEO.
$ 4,740,000
97.5%
$ 9,250,000
$ 2,054,000
105.4%
$ 2,000,000
$ 3,002,000
97.5%
$ 5,450,000
8.8%
8.1%
2.6%
$ 1,224,500
111.1%
$ 1,450,000
11.5%
$ 3,274,500
$ 1,343,000
NA*
$ 850,000
NA*
$ 2,643,000
$ 1,000,000
25.0%
$ 1,600,000
23.1%
$ 3,225,000
18.3 %
2021
$ 15,140,000
$ 4,779,000
$ 9,402,000
Change
from 2020
25.6 %
33.7 %
20.8 %
32.0 %
NA*
This table provides a concise picture of compensation decisions made in 2021, and highlights changes from 2020. In each case,
Total 2021 Compensation was higher than 2020 compensation due primarily to the higher AIP awards for 2021. Another view of
2021 compensation for the NEOs is available in the Summary Compensation Table on page 54.
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 not to exceed 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 2021 annual meeting, we received approximately 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, sustainability and corporate governance practices, during our annual
shareholder engagement 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
2022 Proxy Statement
41
COMPENSATION MATTERS
addition of a diversity modifier to performance share awards. For further discussion of our shareholder engagement program, see
page 21.
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 2021 compensation decisions made within this framework, see
2021 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 (80% of target), below which no AIP awards are earned, and the maximum
funding level of 200% for performance significantly exceeding target (120% of target). In 2021, the Compensation Committee
updated the AIP curve 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.
The Compensation Committee selected core earnings because:
•
•
•
•
It currently 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 a prevalent incentive plan metric 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 2021 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 2021 Corporate Peer Group (listed on page
51) include discretion in their annual award design.
42 www.thehartford.com
2021 Compensation Core Earnings
COMPENSATION MATTERS
2021 AIP Funding Level: When setting
the operating plan, which forms the
basis for the Compensation Core
Earnings target, management and the
Board anticipated strong Commercial
Lines results driven by written premium
growth including price increases in
excess of loss trends in nearly all lines
except workers’ compensation, lower
COVID-19 losses, improved
underwriting expenses and lower
catastrophe losses, partially offset by
not assuming the same level of net
favorable prior accident year
development we had in 2020; lower
margins in Group Benefits due to lower
investment income and moderation in
favorable disability incidence and
recovery trends, partially offset by an
expectation of lower excess mortality;
deterioration in Personal Lines driven by
increases in automobile claim frequency
compared to low levels in 2020 due to
COVID-19, and higher levels of non-
catastrophe weather losses in
homeowners, as well as not assuming
the same level of net favorable prior
accident year development in 2020; and
lower limited partnership returns
relative to the strong returns in 2020.
The 2021 AIP Compensation Core Earnings target was set at $1.91 billion, which was slightly above the 2020 Compensation Core
Earnings target of $1.88 billion, and nearly 8% higher than the 2020 Compensation Core Earnings result of $1.77 billion.
Actual Compensation Core Earnings for 2021 were $2.16 billion, which produced a formulaic AIP funding level of 158% of target,
with above target performance primarily related to strong limited partnership returns, better than expected P&C underlying
underwriting results, partially offset by unfavorable P&C prior year non-catastrophe reserve development and higher than
expected group life excess mortality due to COVID-19.
In assessing overall performance and arriving at the 2021 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.
2022 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 $15 million, primarily driven
by adjustments for Hartford Funds earnings above budget, partially offset by earnings below budget from the Company's
investment in Talcott Resolution, which was sold on June 30, 2021, and adjustments for catastrophes (see Appendix A for a
description of all adjustments).
• Compensation Core Earnings against the pre-established target resulted in a formulaic AIP funding of 158% of target
Quality of Earnings
Strategic
QUALITATIVE REVIEW
• Higher than-expected-limited partnership returns,
$600 million before taxes above operating plan
•
•
Favorable non-catastrophe prior year development
excluding the Boy Scouts of America ("BSA")
settlement
Favorable Commercial Lines underlying combined
ratio, partially offset by excess mortality losses in
Group Benefits and unfavorable Personal Lines
underlying combined ratio
Importance: Understanding trends that drove earnings
informs how the Compensation Committee thinks about
holistic company performance
•
•
•
Substantial advances in ESG disclosures and actions
in 2021 (see page 23).
Introduction of Prevail product to support modern
automobile and home policies
Small Commercial digital capabilities ranked No.1 in
Keynova Group’s Small Commercial Insurance
Scorecard and enhanced digital connection to
brokers and agents
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
Risk and Compliance
•
#1 ranked insurance company in both Forbes and
JUST Capital’s list of America’s “JUST” Companies for
2021
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
•
•
•
Total shareholder returns at 88th and 67th percentile
for one- and three-year periods, respectively
Above median Core ROE and book value per share
growth
Bottom-quartile core earnings per share growth
Importance: Performance against the public companies within
our 2021 Corporate Peer Group on key financial metrics and
TSR is not captured in the quantitative formula but informs
how the Compensation Committee thinks about holistic
company performance
Expense Management
•
•
Total managed expenses excluding AIP awards and
variable Hartford Funds expenses, were $31 million
below budget.
Calendar year savings from Hartford Next
operational transformation and cost reduction plan
were $73M higher than planned
Importance: Managing expenses is critical to maintaining
competitive pricing and freeing up resources for investments
in the business
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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 2022 for 2021 performance under the AIP, see 2021 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. 2021 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.
2021-2023 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 both the net
income ROE and Core Earnings ROE provided in our financial statements. The Compensation Committee's definition of
Compensation Core ROE for 2021 performance share awards is provided in Appendix A.
2021-2023 Compensation Core ROE
In January 2021, the Compensation
Committee set the target for 2021-2023
performance share awards at an average
annual Compensation Core ROE for
2021, 2022, and 2023 of 11.8%, as
reflected in the 2021-2023 operating
plan. As illustrated in the graph at right,
the Compensation Committee also set a
threshold performance level (80% of
target), below which no payout for the
ROE component of awards is received,
and a maximum payout for the ROE
component of 200% for performance
significantly exceeding target (120% of
target).
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 51, 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 publicly traded companies that offer similar products
and services and 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 2021 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 in prior years, the TSR
payout curve for performance share awards targets above-median performance. There is no payout for performance below the 30th
2022 Proxy Statement
45
COMPENSATION MATTERS
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.
2021 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.
Diversity Modifier for 2021-2023 Performance Shares
In 2020, the company set a goal to improve diverse representation among its executive ranks by the close of 2030 to 50% women
and 20% people of color. In keeping with these aspirations, the Compensation Committee updated the 2021 LTI program to include
a performance share modifier tied to the company’s progress toward those goals as of the close of 2023. The 2021 performance
share awards will pay out between 0% and 200% based on achievement of predetermined TSR and ROE goals. The modifier will
increase or decrease the total payout (if any) by 10%* based upon performance against predetermined year-end 2023
representation goals for women and people of color in executive level roles. Final results against these goals will be measured in
early 2024.
Representation
Women
People of Color
As of December 31,
2020
December 31, 2023
Goal
December 31, 2030
Goal
34.1 %
10.9 %
37.3 %
12.8 %
50.0 %
20.0 %
Achievement as of December 31, 2023
Performance Share Modifier*
Miss both goals
Achieve one goal
Achieve both goals
*Maximum payout nonetheless cannot exceed 200%
(10.0) %
no adjustment
+10%
The Compensation Committee also intends to include the modifier with 2024 and 2027 performance share awards to encourage
progress toward the Company’s 2030 executive representation goals, taking into consideration progress to date when establishing
targets for each 3-year performance period.
Certification of 2019-2021 Performance Share Awards
On February 26, 2019, 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. For the Core ROE component of the award, achievement of average annual Compensation Core ROE
of 9.5%, 11.9% and 14.3% during the measurement period would have resulted in payouts of 35%, 100% and 200% of target,
46 www.thehartford.com
COMPENSATION MATTERS
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, 2021, the end of the three-year performance period, and the Compensation
Committee certified a payout at 157% of target on February 14, 2022 based on the following results:
•
•
The average of the company's Compensation Core ROE for each year of the measurement period was 12.2%, resulting in a
payout of 113% of target for the Compensation Core ROE component of the awards.
Because the company’s TSR during the performance period was above the maximum 85th percentile ranking, there was a
payout of 200% of target for the TSR component of the awards.
Details of the 2019 performance shares are given on pages 46-48 of our 2020 Proxy Statement filed with the Securities and
Exchange Commission on April 9, 2020.
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 plans1 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, certain 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 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 President's use of the corporate aircraft for personal travel is subject to an annual limit of $90,000. 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 2021.
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.
(1) Effective December 31, 2012, the Hartford Excess Pension Plan II was frozen for all participants, including Senior Executives.
2021 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 accelerating profitable organic growth across all businesses, focusing on ROE
performance driven by underwriting excellence, generating excess capital to optimize returns, and sustaining an ethical culture
supported by industry-leading ESG practices.
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.
2021 Performance
In reviewing Mr. Swift’s performance, the independent directors considered that Mr. Swift delivered outstanding financial results
including core earnings of $2.178 billion and a core earnings ROE of 12.7%. The independent directors also considered Mr. Swift's
leadership in elevating the company's external ESG profile, including the company being named as the #1 insurer on America's Most
JUST Companies list, and implementing DEI unit plans for each of the company's business groups. Finally, the independent directors
considered Mr. Swift’s success in maintaining employee engagement through a period of uncertainty due to the ongoing COVID-19
pandemic, unsolicited acquisition proposals and the future of work, as well as his efforts to address the impact of the pandemic on
mental health.
2022 Proxy Statement
47
COMPENSATION MATTERS
2021 Compensation Decisions
• Salary. $1,150,000, unchanged from 2020.
• AIP Award. Target of $3,000,000, unchanged from 2020. The Compensation Committee approved a 2021 AIP award of
$4,740,000 (158% of target), which was equal to the company AIP funding level of 158% for 2021.
• LTI Award. In February 2021, the Compensation Committee granted him an LTI award of $9,250,000, an increase of 8.8%
from the previous year, in the form of 50% stock options and 50% performance shares.
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.
2021 Performance
In reviewing Ms. Costello’s performance, the Compensation Committee considered the exceptional overall company financial
performance in 2021 including her execution of the Hartford Next operational transformation and cost reduction plan, successful
execution of the company's first investor day in over five years, and support to the Board related to the unsolicited acquisition
proposals.
2021 Compensation Decisions
• Salary. $725,000, unchanged from 2020.
• AIP Award. Target of $1,300,000, a 4% increase from 2020. For 2021, the Compensation Committee approved an AIP award
of $2,054,000 (158% of target), which was equal to the company AIP funding level of 158% for 2021.
• LTI Award. In February 2021, the Compensation Committee granted her an LTI award of $2,000,000, an increase of 8.1%
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.
2021 Performance
In reviewing Mr. Elliot’s performance, the Compensation Committee considered the exceptional results of our Property & Casualty
business including ROE, core earnings and combined ratio, his leadership of a new product roll out in Personal Lines and meaningful
support of talent, including his involvement with the EMPOWER leadership development program focused on growing a diverse
talent leadership pipeline.
2021 Compensation Decisions
• Salary. $950,000, unchanged from 2020.
• AIP Award. Target of $1,900,000, unchanged from 2020. For 2021, the Compensation Committee approved an AIP award of
$3,002,000 (158% of target), which was equal to the company AIP funding level of 158% for 2021.
• LTI Award. In February 2021, the Compensation Committee granted him an LTI award of $5,450,000, an increase of 2.6%
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.
2021 Performance
In reviewing Mr. Robinson’s performance, the Compensation Committee considered his leadership in the context of a number of
issues facing the company during the year, including a particularly complex regulatory environment, analysis of COVID-19 business
interruption claims, the ongoing BSA bankruptcy, and the unsolicited acquisition proposals. Additionally, the Committee noted Mr.
Robinson's continued success in talent development.
48 www.thehartford.com
COMPENSATION MATTERS
2021 Compensation Decisions
• Salary. $600,000, unchanged from 2020.
• AIP Award. Target of $775,000. For 2021, the Compensation Committee approved an AIP award of $1,224,500 (158% of
target), which was equal to the company AIP funding level of 158% for 2021.
• LTI Award. In February 2021, the Compensation Committee granted him an LTI award of $1,450,000, an increase of 11.5%
from the previous year, in the form of 50% stock options and 50% performance shares.
AMY STEPNOWSKI
Executive Vice President, Chief Investment Officer, and President of HIMCO
Ms. Stepnowski has served as Executive Vice President since August 2020. She is responsible for The Hartford's investment
operations.
2021 Performance
In reviewing Ms. Stepnowski's performance, the Compensation Committee considered the strong net investment income results
both in aggregate and versus benchmark as well as the results of the alternative investment portfolio and its impact on core
earnings. Additionally, she made key strategic talent changes via deliberate succession planning and organizational design updates
for HIMCO.
2021 Compensation Decisions
• Salary. $450,000
• AIP Award. Target of $850,000. For 2021, the Compensation Committee approved an AIP award of $1,343,000 (158% of
target), which was equal to the company AIP funding level of 158% for 2021.
• LTI Award. In February 2021, the Compensation Committee granted her an LTI award of $850,000 in the form of 50% stock
options and 50% performance shares.
WILLIAM BLOOM
Former Executive Vice President, Claims, Operations, Technology, and Data & Analytics
Mr. Bloom served as Executive Vice President from July 1, 2014 until July 1, 2021, and continued as an employee of the company in
an advisory capacity until his retirement on October 1, 2021. The Compensation Committee approved an AIP award of $1,000,000
to Mr. Bloom based on results achieved through July 1 and to reflect the successful transition of his responsibilities to his successor.
2021 Compensation Decisions
• Salary. $625,000, unchanged from 2020.
• AIP Award. For 2021, the Compensation Committee approved an AIP award of $1,000,000.
• LTI Award. In February 2021, the Compensation Committee granted him an LTI award of $1,600,000, an increase of 23.1%
from the previous year,in the form of 50% stock options and 50% performance shares.
2022 Proxy Statement
49
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
• Receive independent consultant's annual report on executive compensation trends and regulatory trends
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, LLC ("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 2021, 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 Chief Human
Resources Officer oversees the development of the materials for each Compensation Committee meeting, including market data,
50 www.thehartford.com
COMPENSATION MATTERS
historical compensation and outstanding equity, individual and company performance metrics and 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.
2021 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. The Compensation Committee approved the removal of Cigna from
the 2021 peer group as they determined that the company was no longer comparable to The Hartford due to a recent acquisition.
Data in millions – as of 12/31/2021(1)
Company Name(2)
Allstate Corp.
American International Group, Inc.
Berkley (W. R.) Corp.
Chubb Ltd.
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
50,588 $
99,440 $
52,049 $
596,112 $
9,455 $
32,087 $
40,955 $
200,054 $
9,630 $
31,387 $
11,908 $
66,639 $
5,228 $
14,254 $
19,230 $
387,301 $
71,080 $
759,708 $
14,263 $
304,657 $
47,677 $
70,591 $
34,816 $
120,466 $
12,014 $
70,116 $
3,956 $
171,262 $
10,200 $
67,508 $
16,746 $
109,953 $
45,996 $
278,506 $
22,390 $
76,578 $
33,727
47,211
14,553
83,267
18,359
11,962
4,663
12,335
52,564
19,172
59,994
38,483
5,023
7,360
12,055
18,766
45,029
23,498
55%
40%
56%
(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 periodically reviews compensation data
prepared by third parties 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.
2022 Proxy Statement
51
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 21, 2022, 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 2021, 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.
52 www.thehartford.com
COMPENSATION MATTERS
POTENTIAL SEVERANCE AND CHANGE OF CONTROL PAYMENTS
The company does not have individual employment agreements. NEOs (other than Ms. Stepnowski) 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). Ms. Stepnowski is covered under a severance pay plan that provides severance in a lump sum that is (i) variable based on
years of service with the company but may not exceed 24 months of base salary for a severance that occurs before a change of
control and (ii) equal to 24 months of base salary for a severance that occurs 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 and the 2020 Stock Incentive Plan provide 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 two 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 Committee consists of directors Winter (Chair), Dominguez, Fetter,
Roseborough and Ruesterholz, all of whom are independent non-management directors. No Compensation 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, 2021.
Report submitted as of March 25, 2022 by:
Members of the Compensation Committee:
Matthew E. Winter, Chair
Carlos Dominguez
Trevor Fetter
Teresa W. Roseborough
Virginia P. Ruesterholz
2022 Proxy Statement
53
COMPENSATION MATTERS
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
($)(3)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
All Other
Compensation
($)(5)
Total
($)
Christopher Swift
Chairman and Chief
Executive Officer
2021
1,150,000
2020
1,150,000
2019
1,150,000
Beth Costello
Executive Vice
President and Chief
Financial Officer
Douglas Elliot
President
David Robinson
Executive Vice
President and
General Counsel*
Amy Stepnowski**
Executive Vice
President, Chief
Investment Officer,
and President of
HIMCO
William Bloom
Former Executive
Vice President,
Claims, Operations,
Technology & Data
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
—
—
—
—
—
—
—
—
—
—
—
5,001,475
4,625,000
3,740,850
4,250,000
4,551,525
4,125,000
1,081,400
1,000,000
814,185
979,268
925,000
887,500
2,946,815
2,725,000
2,336,931
2,655,000
2,841,255
2,575,000
784,015
572,130
725,000
650,000
NA
4,740,000
2,400,000
4,440,000
2,054,000
1,000,000
1,850,000
3,002,000
1,520,000
2,812,000
1,224,500
580,000
NA
725,000
725,000
725,000
950,000
950,000
950,000
600,000
593,750
NA
NA
NA
437,500
—
459,595
425,000
1,343,000
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
471,117
—
865,120
800,000
1,000,000
8,184
33,824
48,198
—
42,587
56,823
4,363
14,901
21,419
1,489
25,565
NA
—
NA
NA
—
299,689
15,824,348
231,521
11,806,195
246,025
14,560,748
65,800
4,926,200
65,700
3,572,472
68,800
4,567,391
80,515
9,708,693
65,700
7,542,532
133,175
9,332,849
65,800
3,400,804
54,350
2,475,795
NA
NA
65,800
2,730,895
NA
NA
NA
NA
65,800
3,202,037
65,700
2,734,318
65,600
3,519,856
625,000
612,500
—
—
572,130
689,625
650,000
625,000
800,000
1,500,000
21,488
27,131
*Mr. Robinson was not an NEO prior to 2020.
**Ms. Stepnowski 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, 2021, 2020 and 2019. Detail on the 2021 grants is provided in the Grants of Plan
Based Awards Table on page 56. 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 2021 and footnote 19 of the company's Annual Reports on Form 10-K for 2021, 2020 and
2019.
To determine the fair value of the 2021 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 108.14% 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 unvested performance shares, would in total be:
NEO
C. Swift
B. Costello
D. Elliot
D. Robinson
A. Stepnowski
W. Bloom
2021 Performance
Shares ($)
(February 23, 2021 grant date)
2020 Performance
Shares ($)
(February 25, 2020 grant date)
2019 Performance
Shares ($)
(February 26, 2019 grant date)
9,250,000
2,000,000
5,450,000
1,450,000
850,000
1,600,000
8,500,000
1,850,000
5,310,000
1,300,000
NA
1,300,000
7,664,156
1,649,006
4,784,292
NA
NA
1,161,197
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. Under the 2020 Stock Incentive Plan, no
more than 3,000,000 shares in the aggregate can be earned by an individual employee with respect to any awards in a single
54 www.thehartford.com
COMPENSATION MATTERS
calendar year, except in the event of a new hire or promotion. 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 these limits.
(2) This column reflects the full aggregate grant date fair value for the fiscal years ended December 31, 2021, 2020 and 2019
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 19
of the company's Annual Reports on Form 10-K for 2021, 2020 and 2019.
(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 2021 are described in
further detail in footnote 2 of the Pension Benefits Table on page 59. There were no increases for Ms. Costello, Ms. Stepnowski,
and Mr. Bloom. Their present values decreased by $373, $326, and $49,440 respectively.
(5) This column reflects amounts described in the Summary Compensation Table—All Other Compensation.
Summary Compensation Table - All Other Compensation
This table provides more details on the amounts presented in the “All Other Compensation” column in the Summary Compensation
Table on page 54 for the NEOs.
Name
Christopher Swift
Beth Costello
Douglas Elliot
David Robinson
Amy Stepnowski
William Bloom
Year
Perquisites
($)(1)
2021
233,889
2021
—
2021
14,715
2021
2021
2021
—
—
—
Contributions or Other
Allocations to Defined
Contribution Plans
($)(2)
65,800
65,800
65,800
65,800
65,800
Total
($)
299,689
65,800
80,515
65,800
65,800
65,800
65,800
(1) As permitted by SEC rules, we have included the perquisites and other personal benefits that we provided in 2021 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 ($220,721), commuting costs, and expenses related to an
executive physical. The perquisite amount for Mr. Elliot represents personal use of corporate aircraft.
(2) This column represents company contributions under the company’s tax-qualified 401(k) plan (The Hartford Investment and
Savings Plan) and The Hartford Excess Savings Plan (the “Excess Savings Plan”), a non-qualified plan established to “mirror” the
qualified plan to facilitate deferral of amounts that cannot be deferred under the 401(k) plan due to Internal Revenue Code
limits. Additional information can be found under the “Excess Savings Plan” section of the Non-Qualified Deferred Compensation
Table beginning on page 61.
2022 Proxy Statement
55
COMPENSATION MATTERS
GRANTS OF PLAN BASED AWARDS TABLE
This table discloses information about equity awards granted to the NEOs in 2021 pursuant to the 2020 Stock Incentive Plan. The
table also discloses potential payouts under the AIP and performance share awards. Actual AIP payouts are reported in the
Summary Compensation Table on page 54 under the heading “Non-Equity Incentive Plan Compensation.” Equity awards have been
rounded to the nearest whole share or option.
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)
Estimated Future Payouts
Under
Equity Incentive Plan
Awards(2)
Name
Plan
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
C.
Swift
2021 AIP
1,050,000
3,000,000
9,000,000
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)
Stock Options 2/23/2021
Performance
Shares
2/23/2021
15,604
89,165
178,330
5,001,475
310,820
51.87
4,625,000
B. Costello
2021 AIP
455,000
1,300,000
3,900,000
D.
Elliot
D.
Robinson
Stock Options 2/23/2021
Performance
Shares
2021 AIP
2/23/2021
Stock Options 2/23/2021
Performance
Shares
2021 AIP
2/23/2021
Stock Options 2/23/2021
Performance
Shares
2/23/2021
665,000
1,900,000
5,700,000
271,250
775,000
2,325,000
3,374
19,279
38,558
1,081,400
67,204
51.87
1,000,000
9,194
52,535
105,070
2,946,815
183,132
51.87
2,725,000
2,446
13,977
27,955
784,015
48,723
51.87
725,000
A.
Stepnowski 2021 AIP
297,500
850,000
2,550,000
Stock Options
Performance
Shares
2/23/2021
2/23/2021
1,434
8,194
16,387
459,595
28,562
51.87
425,000
W. Bloom 2021 AIP
350,000
1,000,000
3,000,000
Stock Options 2/23/2021
Performance
Shares
2/23/2021
2,699
15,423
30,846
865,120
53,763
51.87
800,000
(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 2021 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 23, 2021 vest on December 31, 2023, 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. The Compensation Committee added a modifier to
performance shares awarded in 2021 tied to the company’s diversity and workforce representation goals that may increase or
decrease the aggregate payout on 2021 performance share awards (after compensation core ROE and TSR performance
objectives have been determined) based upon performance against predetermined year-end 2023 representation goals for
women and people of color, with the maximum payout not to exceed 200% of target.
(3) The options granted in 2021 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 $14.88 and was determined by using a hybrid 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 23, 2021, the date of the 2021 LTI grants for the
NEOs, was $51.87. To determine the fair value of the performance share award under FASB ASC Topic 718, the market value
56 www.thehartford.com
COMPENSATION MATTERS
on the grant date is adjusted by a factor of 1.0814 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.
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, 2021 and valued using $69.04, the NYSE closing price per
share of the company’s common stock on December 31, 2021.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)(1)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(1)
Option
Exercise
Price
($)
Name
Grant Date
Chris Swift
Beth
Costello
Douglas
Elliot
David
Robinson
Amy
Stepnowski
William
Bloom
3/5/2013
3/4/2014
3/3/2015
3/1/2016
2/28/2017
2/27/2018
2/26/2019
2/25/2020
2/23/2021
3/4/2014
3/3/2015
3/1/2016
2/28/2017
2/27/2018
2/26/2019
2/25/2020
2/23/2021
3/4/2014
3/3/2015
3/1/2016
2/28/2017
2/27/2018
2/26/2019
2/25/2020
2/23/2021
3/1/2016
2/28/2017
2/27/2018
2/26/2019
2/25/2020
2/23/2021
2/26/2019
2/25/2020
8/3/2020
2/23/2021
2/28/2017
2/27/2018
2/26/2019
2/25/2020
2/23/2021
141,388
103,872
301,887
294,481
302,908
284,819
234,842
109,226
—
47,214
77,830
72,076
70,679
63,194
50,526
23,772
—
87,533
207,547
190,486
201,939
178,012
146,598
68,234
—
37,068
40,388
39,163
35,582
16,705
—
—
—
—
—
40,388
39,163
53,373
50,116
53,763
—
—
—
—
—
—
117,421
218,453
310,820
—
—
—
—
—
25,264
47,546
67,204
—
—
—
—
—
73,300
136,469
183,132
—
—
—
17,791
33,411
48,723
—
—
—
28,562
—
—
—
—
—
24.15
35.83
41.25
43.59
48.89
53.81
49.01
55.27
51.87
35.83
41.25
43.59
48.89
53.81
49.01
55.27
51.87
35.83
41.25
43.59
48.89
53.81
49.01
55.27
51.87
43.59
48.89
53.81
49.01
55.27
51.87
—
—
—
51.87
48.89
53.81
49.01
55.27
51.87
Option
Expiration
Date
3/5/2023
3/4/2024
3/3/2025
3/1/2026
2/28/2027
2/27/2028
2/26/2029
2/25/2030
2/23/2031
3/4/2024
3/3/2025
3/1/2026
2/28/2027
2/27/2028
2/26/2029
2/25/2030
2/23/2031
3/4/2024
3/3/2025
3/1/2026
2/28/2027
2/27/2028
2/26/2029
2/25/2030
2/23/2031
3/1/2026
2/28/2027
2/27/2028
2/26/2029
2/25/2030
2/23/2031
2/23/2031
2/28/2027
2/27/2028
2/26/2029
2/25/2030
2/23/2031
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)
80,791
90,576
5,577,811
6,253,367
17,584
19,584
1,213,999
1,352,079
50,471
53,367
3,484,518
3,684,458
12,356
14,198
3,695
5,703
8,596
8,323
853,058
980,230
255,103
393,735
593,468
574,620
12,356
15,667
853,058
1,081,650
(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 100% of target. Dividends are not credited on performance
shares awarded prior to February 25, 2020; however, dividend equivalents are credited on performance shares awarded on
2022 Proxy Statement
57
COMPENSATION MATTERS
February 25, 2020 and February 23, 2021, which remain subject to the same terms and conditions as the underlying
performance shares to which they relate 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 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 the 2021 proxy statement.
Performance shares granted on February 23, 2021 vest on December 31, 2023, 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 well as application of a diversity modifier, as described on page 46 of this proxy statement.
(3) This column reflects the market value of performance shares at 100% of target, plus the value of dividend equivalents credited
on performance shares granted on February 25, 2020 and February 23, 2021 as of December 31, 2021.
OPTION EXERCISES AND STOCK VESTED TABLE
This table provides information regarding option awards exercised and stock awards that vested during 2021. The numbers have
been rounded to the nearest whole dollar or share.
Name
Christopher Swift
Beth Costello
Douglas Elliot
David Robinson
Amy Stepnowski
William Bloom
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)
148,448
6,683,649
132,141
9,204,916
—
—
28,431
1,980,513
6,896
235,664
82,488
5,746,100
—
—
—
—
20,021
1,394,638
4,452
260,112
65,968
1,826,394
20,021
1,394,638
(1) The amounts in this column reflect the value realized upon the exercise of vested stock options during 2021. 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 2021. RSUs were granted on February 27,
2018 to Ms. Stepnowski and settled in shares of common stock on March 1, 2021 (2,636) and April 19, 2021 (14), respectively.
For all NEOs, performance shares were granted on February 26, 2019, vested on December 31, 2021 and paid out at 157% of
target following the Compensation Committee’s February 14, 2022 certification of company performance against two equally
weighted measures:
•
•
at 113% of target for performance against pre-established ROE targets, and
at 200% of target for the relative TSR performance objective for the three-year performance period January 1,
2019 – December 31, 2021.
(3) The value of performance share awards is based on the NYSE closing price per share of the company's common stock on
February 14, 2022 ($69.66), the date the Compensation Committee certified the vesting percentage.
58 www.thehartford.com
COMPENSATION MATTERS
PENSION BENEFITS TABLE
The table below shows the number of years of credited service, the actuarial present value of the accumulated pension benefit, and
the actual cash balance account as of December 31, 2021 under the company’s tax-qualified pension plan (The Hartford Retirement
Plan for U.S. Employees, or the “Retirement Plan”) and the non-qualified pension plan (The Hartford Excess Pension Plan II, or the
“Excess Pension Plan”) for each of the NEOs, except Mr. Bloom. Mr. Bloom had accrued a benefit in respect of a prior period of
employment when a final average pay formula was applicable. He was rehired after the cash balance account formula accruals
ceased as of December 31, 2012. Therefore, the columns below illustrate Mr. Bloom's accrued final average pay formula benefit for
his earlier period of employment.
Name
Christopher Swift
Beth Costello
Douglas Elliot
David Robinson
Amy Stepnowski
William Bloom
Number of
Years
Credited
Service
(#)(1)
Present
Value of
Accumulated
Benefit
($)(2)(3)
Actual Cash
Balance
Account or
Accrued
Benefit
($)(3)
Payments
During
Last Fiscal
Year
($)(3)
2.83
2.83
8.67
8.67
1.74
1.74
6.08
6.08
4.33
4.33
3.50
3.50
80,926
450,083
182,399
226,759
55,925
196,577
147,416
139,479
93,421
31,749
115,823
—
79,628
442,866
175,005
217,566
55,188
193,989
142,772
135,085
89,403
30,383
—
—
—
—
—
—
—
—
—
—
—
—
1,086
1,458
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, 2021, 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 2021), and the present value as of December 31, 2021 is determined using a discount rate of 2.9%,
the present value amounts are similar to the actual December 31, 2021 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
2022 Proxy Statement
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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.
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 ($290,000 in 2021). 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 2021 and their annual rates
of return for the calendar year ended December 31, 2021, 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, 2021) Name of Fund
Rate of Return
(for the year ended
Rate of Return
(for the year ended
December 31, 2021)
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
44.07 % Vanguard Target Retirement 2015 Trust
8.02 % Vanguard Target Retirement 2020 Trust
25.73 % Vanguard Target Retirement 2025 Trust
18.62 % Vanguard Target Retirement 2030 Trust
28.66 % Vanguard Target Retirement 2035 Trust
1.80 % Vanguard Target Retirement 2040 Trust
Hartford Total Return Bond HLS Fund
-0.95 % Vanguard Target Retirement 2045 Trust
SSgA Real Asset Fund
21.01 % Vanguard Target Retirement 2050 Trust
Vanguard Federal Money Market Fund
0.01 % 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
8.68 % Vanguard Target Retirement 2060 Trust
12.60 % Vanguard Target Retirement 2065 Trust
Vanguard Target Retirement Income Trust
5.28 %
5.85 %
8.26 %
9.93 %
11.50 %
13.11 %
14.70 %
16.35 %
16.63 %
16.62 %
16.62 %
16.59 %
(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%).
60 www.thehartford.com
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, 2021.
Name
Christopher Swift
Beth Costello
Douglas Elliot
David Robinson
Amy Stepnowski
William Bloom
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)
42,600
42,600
42,600
42,600
42,600
42,600
42,600
42,600
42,600
42,600
42,600
42,600
186,906
15,345
16,403
6,202
81,479
110,055
—
—
—
—
—
—
1,554,487
886,708
946,465
804,638
774,662
827,413
(1) The amounts shown reflect executive contributions into the Excess Savings Plan during 2021 with respect to Annual Incentive
Plan cash awards paid in 2021 in respect of performance during 2020. These amounts are included in the “Non-Equity
Incentive Plan Compensation” column of the Summary Compensation Table in the 2021 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 2021. 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 54.
(3) The amounts shown represent investment gains (or losses) during 2021 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 54 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, 2021. 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 2021 service.
2022 Proxy Statement
61
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, 2021 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, 2021 vary based on the reason for termination.
Senior Executive Severance Pay Plan
The NEOs (other than Ms. Stepnowski) participate in The Hartford Senior Executive Officer Severance Pay Plan (the “Senior
Executive Officer Plan”), which provides specified payments and benefits to participants upon termination of employment as a
result of severance eligible events. The Senior Executive Officer Plan applies to the NEOs (other than Ms. Stepnowski) and other
executives that the Chief Human Resources Officer (the “Plan Administrator”) approves for participation. As a condition to
participate in the Senior Executive Officer 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. Ms. Stepnowski participates in a similar severance pay plan (The Hartford Senior
Executive Severance Pay Plan). The Hartford Senior Executive Severance Pay Plan provides specified payments and benefits to
participants upon termination of employment as a result of severance eligible events, requires Ms. Stepnowski to agree to
restrictive covenants as required by the Plan Administrator, and contains the same confidentiality, non-disparagement, non-
competition and non-solicitation provisions as required by the Senior Executive Officer Plan.
If an NEO (other than Ms. Stepnowski) 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. If Ms. Stepnowski is involuntarily
terminated, other than for Cause (as defined on page 67), she would receive a lump sum severance amount equal to 22 months of
her base salary, 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 (other than Ms. Stepnowski) would receive the same severance pay under the Senior Executive Officer
Plan as the NEO would have received in the event of involuntary termination before a Change of Control (Ms. Stepnowski would
receive a lump severance amount equal to 24 months of her base salary), 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 $500,000, 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 the following retirement definition as of the last date paid: (i)
the NEO is at least age 55 with at least 5 years of service, and (ii) age plus service equals or exceeds 65 (the "Rule of 65"). Messrs.
Swift, Elliot, Robinson, and Bloom were eligible to receive retirement treatment for their AIP awards as of December 31, 2021,
under the Rule of 65, as described below.
62 www.thehartford.com
For the 2019, 2020 and 2021 LTI awards, an NEO will receive retirement treatment if they provide written notice three months in
advance of their planned retirement date, continue to perform their job responsibilities satisfactorily, and meet the Rule of 65.
Messrs. Swift, Elliot, Robinson, and Bloom were eligible to receive retirement treatment for their 2019, 2020 and 2021 LTI awards
under the Rule of 65, as described below.
COMPENSATION MATTERS
2022 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, 2021 assuming their termination of employment on December 31, 2021 under various
circumstances or in the event of a Change of Control effective December 31, 2021 (and, in the case of Mr. Bloom, that were actually
payable upon his retirement on October 1, 2021). 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 57,
The vested performance shares set forth in the Option Exercises and Stock Vested Table on page 58,
The vested pension benefits set forth in the Pension Benefits Table on page 59, and
The vested benefits set forth in the Non-Qualified Deferred Compensation Table on page 61 (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, 2021 of $69.04.
Payment Type
Christopher
Swift
Beth
Costello
Douglas
Elliot
David
Robinson
Amy
Stepnowski
VOLUNTARY TERMINATION OR RETIREMENT
2021 AIP Award ($)(1)
Accelerated Stock Option Vesting ($)(2)
Accelerated Performance Share Vesting ($)(3)
Accelerated Other LTI Vesting ($)(3)
Benefits Continuation and Outplacement ($)(5)
TOTAL TERMINATION BENEFITS ($)
INVOLUNTARY TERMINATION – NOT FOR CAUSE
2021 AIP Award ($)(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
2021 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 ($)
INVOLUNTARY TERMINATION – DEATH OR DISABILITY
4,740,000
10,696,820
11,831,208
—
—
27,268,028
—
—
—
—
—
—
3,002,000
6,491,754
7,168,926
—
—
16,662,680
4,740,000
8,300,000
10,696,820
11,831,208
—
2,054,000
4,050,000
1,160,746
1,260,025
—
3,002,000
5,700,000
6,491,754
7,168,926
—
43,997
35,612,025
44,376
8,569,147
37,922
22,400,602
4,740,000
8,300,000
10,696,820
11,831,208
—
2,054,000
4,050,000
2,314,639
2,566,080
—
3,002,000
5,700,000
6,491,754
7,168,926
—
43,997
35,612,025
44,376
11,029,095
37,922
22,400,602
1,224,500
1,652,997
1,833,339
—
—
4,710,836
1,224,500
2,750,000
1,652,997
1,833,339
—
43,997
7,504,833
1,224,500
2,750,000
1,652,997
1,833,339
—
43,997
7,504,833
—
—
—
—
—
—
1,343,000
825,000
—
257,167
703,402
43,997
3,172,566
1,343,000
900,000
490,410
673,068
1,143,922
43,997
4,594,397
2021 AIP Award ($)(1)
4,740,000
2,054,000
3,002,000
1,224,500
1,343,000
Accelerated Stock Option Vesting ($)(2)
10,696,820
2,314,639
6,491,754
1,652,997
Accelerated Performance Share Vesting ($)(3)
11,831,208
2,566,080
7,168,926
1,833,339
490,410
673,068
Accelerated Other LTI Vesting ($)(3)
Benefits Continuation ($)(5)
—
—
—
—
1,143,922
56,385
57,523
38,160
56,385
56,146
TOTAL TERMINATION BENEFITS ($)
27,324,413
6,992,242
16,700,840
4,767,221
3,706,546
64 www.thehartford.com
COMPENSATION MATTERS
(1) 2021 AIP Award
Voluntary Termination or Retirement. Generally, upon a voluntary termination of employment during 2021, the NEO would
not be eligible to receive an AIP award for 2021 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 2021 based
on the portion of the year served, payable no later than March 15 following the calendar year of termination. Messrs. Swift,
Elliot, and Robinson were eligible for retirement treatment as of December 31, 2021 under the AIP. The amounts shown
represent the actual award payable for 2021, as reflected in the “Non-Equity Incentive Plan Compensation” column of the
Summary Compensation Table on page 54.
Involuntary Termination – Not For Cause. Each NEO would be eligible for a pro rata portion of their 2021 AIP award. The
amounts shown represent the actual award payable for 2021, as reflected in the “Non-Equity Incentive Plan Compensation”
column of the Summary Compensation Table on page 54.
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 2021 AIP award, commensurate with amounts received by
the executives who did not terminate employment. The amounts shown represent the actual award payable for 2021, as
reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 54.
Involuntary Termination For Cause. No AIP award would be payable.
Death or Disability. Each NEO would receive a 2021 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. Messrs. Swift, Elliot, and Robinson, were eligible for retirement treatment as of
December 31, 2021 on their 2019, 2020 and 2021 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. Messrs. Swift, Elliot, and Robinson were eligible for retirement treatment as of
December 31, 2021 on their 2019, 2020 and 2021 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, 2021
(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 25, 2020 and February 23, 2021 would fully
vest, subject to compliance with a non-competition provision. As of December 31, 2021, Messrs. Swift, Elliot, and Robinson
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, 2021 on February
25, 2020 and February 23, 2021 performance awards.
Involuntary Termination – Not For Cause. Messrs. Swift, Elliot, and Robinson, would receive full vesting for their 2020 and
2021 performance share awards due to eligibility for retirement treatment, subject to compliance with the non-competition
provision. Ms. Costello and Ms. Stepnowski, who are not retirement eligible, would be entitled to pro rata treatment of 2020
2022 Proxy Statement
65
COMPENSATION MATTERS
and 2021 performance share awards at the end of the applicable performance period. The amount shown is the value the NEO
would be entitled to at the end of the respective performance period for these awards to which pro rata or full payment
applies, based on $69.04, the closing stock price on December 31, 2021, and payout at target. The amounts shown include
dividend equivalents accrued as of December 31, 2021 on February 25, 2020 and February 23, 2021 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 $69.04, the closing stock price on December 31,
2021, 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, 2021 on February 25, 2020 and February 23, 2021 performance awards.
Involuntary Termination For Cause. All unvested awards would be canceled.
Death or Disability. Performance share awards and other LTI granted in 2020 and 2021 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,
2021 on February 25, 2020 and February 23, 2021 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 (other than Ms. Stepnowski) 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, 2021 for this purpose). For an involuntary termination not for Cause before a Change of Control, Ms.
Stepnowski would receive a severance payment calculated as a lump sum equal to 22 months of her base salary at the time of
termination (assumed to be December 31, 2021 for this purpose). For an involuntary termination not for Cause after a
Change of Control, or a termination for Good Reason within two years following a Change of Control, Ms. Stepnowski would
receive a severance payment calculated as a lump sum equal to 24 months of her base salary at the time of termination
(assumed to be December 31, 2021 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.
TREATMENT OF FORMER NEO
In July 2021, the company announced Mr. Bloom'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 October 1, 2021. No adjustments were made to Mr. Bloom's salary or
benefits during this transition period. Upon Mr. Bloom's retirement on October 1, 2021, his outstanding, unvested equity awards
received the following treatment, pursuant to the standard terms and conditions of the relevant plan documents:
•
•
•
Stock options granted on February 26, 2019 accelerated so that the final tranche of 17,791 options became vested on
October 1, 2021, which are included in the Outstanding Equity table on page 57.
Stock options granted on February 25, 2020 accelerated so that the final two tranches of 33,411 options became vested
on October 1, 2021, which are included in the Outstanding Equity table on page 57.
Stock options granted February 23, 2021 accelerated so that all 53,763 options became vested on October 1, 2021, which
are included in the Outstanding Equity table on page 57.
66 www.thehartford.com
COMPENSATION MATTERS
•
Performance shares granted in 2020 and 2021 will vest based on actual performance following the end of their respective
performance periods, subject to Mr. Bloom'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 2023 and 2024, 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, 2021 ($69.04) and payout at target performance, and including
dividend equivalents accrued as of December 31, 2021, would be $1,934,708, which is included in the Outstanding Equity
table on page 57.
Mr. Bloom also received a cash AIP award of $1,000,000 as shown in the Summary Compensation Table on page 54.
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. With
respect to 2021 LTI awards, prior to a Change of Control, "Cause" is defined as termination of the executive's employment
due to the executive engaging in any of the following (as determined by the company in its sole discretion): (i) the willful
failure to perform substantially the executive's employment-related duties; (ii) the executive's willful or serious
misconduct that has caused or could reasonably be expected to result in material injury to the business or reputation of
the company; (iii) the executive's conviction of, or entering a plea of guilty or nolo contendere to, a crime constituting a
felony; or (iv) the executive's breach of any written covenant or agreement with the company or any material written
policy of the company.
• 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
Officer Plan (or, in the case of Ms. Stepnowski, The Hartford Senior Executive Severance Pay 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.
2022 Proxy Statement
67
COMPENSATION MATTERS
CEO Pay Ratio
For 2021, Mr. Swift had total compensation, as reported in the Summary Compensation Table on page 54, of $15,824,348, while our
median employee had total compensation of $106,940, yielding a CEO pay ratio of 148 times the median. Annual base salary at
year-end 2021 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 (163 employees were based in the U.K., 8 in Hong Kong, 7 in Canada, and 4 in Switzerland).
68 www.thehartford.com
COMPENSATION MATTERS
ITEM 4
ADVISORY APPROVAL OF PREFERRED FREQUENCY
FOR ADVISORY VOTE ON COMPENSATION OF NAMED
EXECUTIVE OFFICERS
Section 14A of the Securities Exchange Act of 1934, as amended, provides that shareholders can indicate their preference, at least
once every six years, as to how frequently the company should seek an advisory vote on NEO compensation as disclosed pursuant
to the SEC's compensation disclosure rules. By voting on this proposal, shareholders may indicate whether they would prefer that
the company seek future advisory votes on NEO compensation once every one, two, or three years.
The Board believes that an advisory vote on NEO compensation that occurs every year is the most appropriate alternative for the
company and therefore recommends that you vote for a one-year interval for the advisory vote on executive compensation. In
formulating its recommendation, the Board considered that an annual advisory vote on NEO compensation will enable
shareholders to provide direct input to the company regarding its compensation philosophy, policies and practices as disclosed in
the proxy statement each year. Setting a one year period for holding this stockholder vote will enhance stockholder
communication by providing a clear, simple means for the company to ascertain general investor sentiment regarding the
company's executive compensation program.
Shareholders may cast a vote on the preferred voting frequency by selecting the option of 1 year, 2 years, 3 years, or abstain, when
voting in response to the resolution set forth below:
RESOLVED, that the option of every 1 year, 2 years, or 3 years which receives the highest number of votes cast for this
resolution will be the preferred frequency with which the company is to provide shareholders with the opportunity to
vote to approve the compensation of named executive officers, as disclosed pursuant to the compensation disclosure
rules of the Securities and Exchange Commission.
The option of every one year, two years or three years that receives the highest number of votes cast by shareholders will be the
frequency for the advisory vote on NEO compensation that has been selected by shareholders. Because the required vote is
advisory, it will not be binding upon the Board. The Board will, however, take into account the outcome of the vote when
considering the frequency with which the company will provide shareholders the opportunity to vote to approve the
compensation of NEOs.
✓
The Board recommends that shareholders vote for the option of every "1 year" as the frequency with which
shareholders are provided an opportunity to vote on named executive officer compensation, as disclosed pursuant to
the compensation disclosure rules of the Securities and Exchange Commission.
2022 Proxy Statement
69
SHAREHOLDER PROPOSAL
ITEM 5
SHAREHOLDER PROPOSAL THAT THE COMPANY'S
BOARD ADOPT POLICIES ENSURING ITS
UNDERWRITING PRACTICES DO NOT SUPPORT NEW
FOSSIL FUEL SUPPLIES
We have received notice of the intention of shareholder Green Century Capital Management Inc., on behalf of The Green Century
Funds to present the following proposal at the Annual Meeting. In accordance with federal securities regulations, the text of the
stockholder proposal and supporting statement appears below exactly as received, other than minor formatting changes. The
contents of the proposal or supporting statement are the sole responsibility of the proponent, and we are not responsible for
the content of the proposal or any inaccuracies it may contain. The Company will promptly provide the address of the proponent
and the number of shares owned by it upon request directed to the Company’s Senior Vice President and Corporate Secretary.
Whereas:
The Intergovernmental Panel on Climate Change (IPCC) reported that global greenhouse gas emissions must reach net zero by
2050 in order to limit a global temperature increase to 1.5 degrees Celsius by 2100, thereby averting the worst impacts of climate
change. Building on the IPCC’s findings, the International Energy Agency (IEA) issued a report, Net Zero by 2050, which provides a
comprehensive pathway for the energy sector to transition to net zero emissions by 2050. The report is unequivocal about the
expansion of fossil fuel supplies, saying “Beyond projects already committed as of 2021, there are no new oil and gas fields
approved for development in our pathway, and no new coal mines or mine extensions are required” to ensure stable and
affordable energy supplies.
As a property and casualty insurer, The Hartford Financial Services Group, Inc. (“The Hartford”) is uniquely exposed to climate
risks because it underwrites policies meant to protect its customers’ homes and businesses from the impacts of climate-driven
catastrophes such as storms, wildfires, and heat waves. It also underwrites policies for the fossil fuel industry, whose emissions are
widely believed to amplify devastating storms, wildfires, and heat waves. These practices are fundamentally incompatible.
While The Hartford restricts underwriting of investments in new coal-fired power plants and companies that primarily operate in
coal mining, coal power, and tar sands extraction, investors are concerned that The Hartford’s efforts are not sufficiently aligned
with global efforts to reduce emissions through, for example, the Paris Agreement. Further, the Company lags behind European
peers, including AXA, Allianz, Aviva, Generali, Munich Re, SCOR, Swiss Re, and Zurich, that have committed to transitioning their
underwriting portfolios to net zero emissions by 2050.
To develop a credible net zero commitment, the United Nations Environmental Program Finance Initiative suggests that financial
institutions including insurers engaged in underwriting “begin aligning with the required assumptions and implications of
Intergovernmental Panel on Climate Change’s 1.5 degrees Celsius no/low overshoot pathways as soon as possible.” Further, “All
no/low overshoot scenarios indicate an immediate reduction in fossil fuels, signaling that investment in new fossil fuel
development is not aligned with 1.5 degrees Celsius.”
Resolved:
Shareholders request that The Hartford’s Board of Directors adopt and disclose new policies to help ensure that its underwriting
practices do not support new fossil fuel supplies, in alignment with the IEA’s Net Zero Emissions by 2050 Scenario.
Supporting Statement:
The board and management, in its discretion, should define the scope, time frames and parameters of the policy, including defining
“new fossil fuel supplies,” with an eye toward the well-accepted definition that new fossil fuel supplies include exploration for and/
or development of oil, gas, and coal resources or reserves beyond those fields or mines already in production.
The Board of Directors unanimously recommends that shareholders vote "AGAINST" this Proposal for the following
reasons:
•
The Hartford is a leader in the insurance industry in its efforts to address climate change and support the global
energy transition;
×
•
•
•
•
•
The Hartford has announced a goal to achieve net zero greenhouse gas emissions for its full range of business
and operations by 2050, in alignment with the Paris Climate Accord;
The Hartford does not support divestiture-first strategies as an effective path to net zero;
The Proposal would create regulatory risk and complexity without any benefit;
The Proposal would encroach upon The Hartford’s underwriting judgment; and
The Proposal runs counter to shareholder sentiment and the direct feedback we have heard during our regular
discussions with shareholders.
70 www.thehartford.com
SHAREHOLDER PROPOSAL
After careful consideration, the Board of Directors has reached the conclusion the Proposal must be rejected. The Hartford is
already a recognized leader in ESG across the U.S. property & casualty and group benefits industry. The Hartford is one of the first
U.S. insurers to set a goal of net zero greenhouse gas emissions for its full range of businesses and operations by 2050, in alignment
with the Paris Climate Accord. The Hartford is willing to help lead the industry in the global energy transition, but what the Proposal
seeks is not an appropriate way to do so. Instead, the Proposal presents significant potential to undermine the Company’s efforts, as
it does not account for the risks and complexities associated with a highly-regulated insurance company adopting a broad,
exclusionary policy. ESG leadership is a critical strategic priority, and consistent with that focus, we are proactive and thoughtful in
the way we are navigating the global energy transition. The Hartford’s commitment to climate is reflected in our history and our
present. The 2021 UN Global Climate Change Conference in Glasgow invigorated the marketplace of ideas about how businesses
should do their part We are building on our early initiatives and successes on climate-related matters, sharpening our ambitions as
we go and keeping our shareholders informed.
The Hartford is a leader in the insurance industry in its efforts to address climate change and support the global energy transition.
The Company has adopted a number of goals, commitments and policies, after extensive analysis, focused on addressing climate
change and supporting the global energy transition. To that end, among other things, the Company has:
•
•
Pledged to stop insuring or investing in companies that generate more than 25% of their revenues from thermal coal
mining or more than 25% of their energy production from coal.
Committed to reducing our greenhouse gas emissions (GHGe*), achieving a reduction of at least 2.1% of GHGe each year,
resulting in a minimum decrease of 25.7% by 2027 and 46.2% by 2037 (using 2015 as the base year). Since 2007, the
Company has decreased GHGe by 83.9%.
• Offered premium discounts to encourage the purchase of electric vehicles and the use of energy-efficient equipment and
building materials by our customers.
•
Committed $2.5 billion over the next five years to investing in technologies, companies and funds that are advancing the
energy transition and addressing climate change.
These goals, commitments and policies were the result of careful consideration of the impact they would have on environmental
issues as well as the impact they would have on the business of the Company’s customers and the business of the Company
(including shareholder value creation). The Company also remains committed to transparency, publishing annual TCFD and SASB
reports to outline corporate actions and progress towards its climate goals.
The Hartford has announced a goal to achieve net zero greenhouse gas emissions for its full range of businesses and operations by 2050, in
alignment with the Paris Climate Accord.
The Hartford’s net zero by 2050 goal builds on our existing mission on climate and decarbonization. We are embracing ESG
principles throughout the organization and demonstrating our leadership in the business community by setting ambitious ESG
goals. We have several carbon-reducing missions already in progress that further net zero objectives, including the successful
implementation of our Coal and Tar Sands Policy, our commitments to 100% renewable-energy-source consumption for our
facilities by 2030, and to reduce Scope 1, 2, and certain Scope 3 GHGe through 2037, as well as our commitment to TCFD and CDP
disclosures.
The Hartford does not support divestiture-first strategies as an effective path to net zero.
Many of the Company's customers in the fossil fuel sector recognize the reality of the collective effort needed to address our global
climate challenges. These companies have announced, or are expected to announce goals, plans and targets to adapt their business
models in furtherance of these efforts. The Company and its management have the experience and expertise to responsibly support
these companies as they take on these fundamental shifts to their businesses in the coming years. A divestiture-first strategy
would limit our own solution set, both in our ability to build a net zero path and to provide strategic partnership to others working
towards that same end. The Proposal assumes, without any factual or empirical support, that a divestiture-first approach is the best
strategy to fulfill a net zero goal (in this case, the IEA’s Net Zero Emissions by 2050 Roadmap). The Company does not agree, and
believes strongly that appropriate assessment of risk is best for the Company and its stakeholders. In fact, the IEA report does not
include recommendations regarding insurance underwriting, or indeed insurance at all, and the other agreements and programs
cited in the supporting statement similarly lack any support for the type of prohibitive steps that the Proposal appears to seek.
The Company has established an ESG Underwriting Council, comprised of senior leaders in the P&C and Group Benefits businesses,
to further embed ESG principles into underwriting processes and develop business and product development opportunities that
align with our climate goals and progress. The Committee will evaluate and recommend opportunities to adopt and optimize
underwriting practices to support the energy transition and combat climate change, with a full understanding of the risks and
complexities that are unique to the Company and the insurance industry. We continue to believe that our management is in the
best position to make decisions related to our underwriting activities, and to assess the risks associated with doing business in
particular sectors and with particular customers.
Further, the Proposal could have far-reaching consequences and affect the Company’s profitability, cause the Company to incur
financial and other costs to implement the Proposal and could pose other unknown risks to the Company’s business, prospects and
shareholders.
The Proposal would create regulatory risk and complexity without any benefit.
2022 Proxy Statement
71
SHAREHOLDER PROPOSAL
A cornerstone of our corporate strategy is maintaining the highest standards of ethics and compliance on the legal and regulatory
front. That is especially necessary, and complex, in the climate space at this moment. In the US, we answer to insurance and
financial regulators in all 50 states, many of whom are already taking active leadership on regulating insurers’ approach to climate.
Insurance regulators are keenly focused on risk-based decision-making, and any deviation from this approach can result in
regulatory scrutiny. In fact, regulators may stake positions that conflict with the Proposal. Further, existing and future SEC
guidance and rules on climate disclosures and practices add to the complexity of that regulatory matrix.
What the Proposal seeks – divestiture in the guise of “alignment” with an inchoate path intended for the energy industry – creates
regulatory risk without any countervailing benefit to the Company or its shareholders. As a highly regulated entity, The Hartford is
not in a position to ignore our own regulators in favor of “aligning” with guidance from other sectors. On climate we must focus our
efforts – in compliance and “alignment” – on what insurance regulators and other governance bodies say and compel. That is the
path most consistent with The Hartford’s strategy and values, and the Proposal seeks the opposite.
The Proposal would encroach upon The Hartford’s underwriting judgment.
The Proposal fares no better when viewed at the operational level. Its purpose is to encroach on underwriting practices, the core of
our business model. Insurance underwriting is based on difficult and constantly changing risk assessments that guide policy and
decisions. Risk assessments drive decisions as to whether or not to underwrite given risks, and blanket exclusions on entire
categories of risk in the name of “alignment” skew our business model. As noted above, regulators are appropriately skeptical of
underwriting decisions and policies that are not and cannot be supported in terms of risk.
Maintaining all the levers of our underwriting expertise is vital to our success as a company and to remaining an effective ESG
leader. This is particularly true as the energy sector undergoes unprecedented transformation in response to climate change
concerns. We need to be in a position to support responsible energy producers as they invest in more sustainable methods of
energy production. Constraining our underwriting abilities up front, without a focus on risk assessment, can only undermine that
bedrock principle. We view underwriting judgment as a vital tool in our current and future climate strategy, as we have made clear
by our commitments to date on coal and tar sands. That underwriting judgment allows us to support meaningful progress in the
energy transition journey wherever it arises. The Proposal would limit our ability to exercise our underwriting judgment at a time
when it is crucial to our success as an insurer and an ESG leader.
The Proposal runs counter to shareholder sentiment and the direct feedback we have heard during our regular discussions with
shareholders.
The supporting statement portrays the Proposal as reflective of investor sentiment. From what we have heard from you, we
disagree. The Proposal seeks divestiture via underwriting, and we have heard loud and clear the shareholder voices urging against a
divestiture-first strategy, particularly on climate issues. Recently influential investors have publicly noted the inherent complexity
of the energy transition at hand and labeled divestiture-first strategies like the Proposal as counterproductive in the broader
climate fight. Instead, companies should show pragmatic clarity in plotting their own thoughtful progress on climate, while keeping
stakeholders informed of their progress and remaining accountable through disclosure. That is the course The Hartford is pursuing.
In our shareholder engagement efforts prior to the Proposal, we have received consistent guidance – a proactive and measured
approach, with clear goals, transparency and accountability, is the right course on climate. We agree with that guidance, and it is
reflected in what we are doing, and intend to keep doing, on climate and ESG. This Proposal would not help us reach the future we
seek.
Accordingly, our Board of Directors recommends a vote "AGAINST" the Proposal.
*The Hartford’s GHGe figures comprise scope 1, 2, and select categories of scope 3 emissions.
72 www.thehartford.com
INFORMATION ON STOCK OWNERSHIP
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of March 21, 2022: (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 21, 2022, 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 1.8% of the total outstanding shares of our common stock as of March 21, 2022.
Name of Beneficial Owner
Robert B. Allardice, III
William A. Bloom
Beth Costello
Larry De Shon
Carlos Dominguez
Douglas Elliot
Trevor Fetter(3)
Donna James
Kathryn A. Mikells(4)
Michael G. Morris
David Robinson
Teresa W. Roseborough
Virginia P. Ruesterholz
Amy Stepnowski
Christopher J. Swift(5)
Matthew E. Winter
Greig Woodring(6)
All directors, NEOs and Section 16 executive officers as a group (24 persons)
Common Stock(1)
10,802
207,510
532,232
7,964
17,728
1,446,527
120,542
3,769
95,893
94,716
234,387
25,975
40,114
21,977
2,475,235
8,546
14,544
Total(2)
10,802
235,686
731,670
7,964
17,728
1,945,064
120,542
3,769
95,893
94,716
385,067
25,975
40,114
101,161
3,337,943
8,546
14,544
5,815,864
8,072,027
(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 21, 2022: (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 21, 2022, (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 21, 2022 or within 60 days thereafter by: Mr. Bloom, 196415 shares; Ms. Costello, 476,729 shares; Mr.
Elliot, 1,195,394 shares; Mr. Robinson, 219,643 shares; Ms. Stepnowski, 9,520 shares; Mr. Swift, 2,103,676 shares; and all
NEOs and Section 16 executive officers as a group, 4,549,530 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 21, 2022, and all outstanding performance shares (at target).
(3) The amount shown includes 10,188 shares of common stock held by a trust for which Mr. Fetter serves as trustee.
(4) The amount shown includes 11,800 shares of common stock held by a limited liability company of which Ms. Mikells is a
member.
(5) The amount shown includes 43,179 shares of common stock held by Mr. Swift’s spouse and 156,251 held in two trusts for
which Mr. Swift or his spouse serves as trustee.
(6) The amount shown includes 84 shares of common stock held by a trust for which Mr. Woodring serves as trustee.
2022 Proxy Statement
73
INFORMATION ON STOCK OWNERSHIP
CERTAIN SHAREHOLDERS
The following table shows those persons known to the company as of February 16, 2022 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
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202
State Street Corporation
One Lincoln Street
Boston, MA 02111
JPMorgan Chase & Co.
383 Madison Avenue
New York, NY 10179
Amount and Nature of Beneficial
Ownership
39,787,394(2)
Percent of Class(1)
11.69%
25,991,605(3)
21,702,336(4)
20,504,713(5)
18,932,591(6)
7.6%
6.3%
6.02%
5.5%
(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,
2021.
(2) This information is based solely on information contained in a Schedule 13G/A filed on February 10, 2022 by The Vanguard
Group to report that it was the beneficial owner of 39,787,394 shares of our common stock as of December 31, 2021.
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 545,204 of such shares, (iii) sole power to dispose or direct the disposition with respect to
38,382,864 of such shares and (iv) the shared power to dispose or direct the disposition of 1,404,530 of such shares.
(3) This information is based solely on information contained in a Schedule 13G/A filed on February 1, 2022 by BlackRock, Inc. to
report that it was the beneficial owner of 25,991,605 shares of our common stock as of December 31, 2021. BlackRock has (i)
sole power to vote or to direct the vote with respect to 22,080,565 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 25,991,605 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 filed on February 14, 2022 by T. Rowe Price
Associates, Inc. to report that it was the beneficial owner of 21,702,336 shares of our common stock as of December 31, 2021.
T. Rowe Price has (i) sole power to vote or to direct the vote with respect to 10,833,499 of such shares; (ii) shared power to
vote or to direct the vote with respect to none of such shares and (iii) sole power to dispose or to direct the disposition of
21,702,336 of such shares; and (iv) shared power to dispose or direct the disposition of none of such shares.
(5) This information is based solely on information contained in a Schedule 13G filed on February 14, 2022 by State Street
Corporation to report that it was the beneficial owner of 20,504,713 shares of our common stock as of December 31, 2021.
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 18,634,742 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 20,375,936 of such shares.
(6) This information is based solely on information contained in a Schedule 13G/A filed on January 12, 2022 by JPMorgan Chase &
Co. to report that it was the beneficial owner of 18,932,591 shares of our common stock as of December 31, 2021. JPMorgan
has (i) sole power to vote or to direct the vote with respect to 18,117,675 of such shares; (ii) shared power to vote or to direct
the vote of 47,989 of such shares; (iii) sole power to dispose or to direct the disposition of 18,894,070 of such shares; and (iv)
shared power to dispose or to direct the disposition of 26,929 of such shares.
74 www.thehartford.com
INFORMATION ON STOCK OWNERSHIP
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires our directors and designated Section 16
executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of our common stock and other equity securities. Section 16 executive
officers, directors and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file.
Based upon a review of filings with the SEC and written representations from our directors and Section 16 executive officers that
no other reports were required, we believe that all Section 16(a) reports were filed timely in 2021, except that a Form 4 filed on July
23, 2021 for William Bloom to report the sale of 16,000 shares of our common stock pursuant to a trading plan previously adopted
by Mr. Bloom in accordance with Rule 10b5-1 of the Exchange Act was one day late due to an administrative error.
2022 Proxy Statement
75
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 2022 Annual Meeting of Shareholders,
Proxy Statement and 2021 Annual Report by writing to Donald C. Hunt, Senior Vice President and 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 2022 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 April 8, 2022.
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, Senior Vice President and 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 21, 2022 (the “Record Date”) may vote at the Annual Meeting.
On the Record Date, we had 330,708,782 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 77. 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 77.
76 www.thehartford.com
INFORMATION ABOUT THE MEETING
Q: What vote is required to approve each proposal?
A: Proposal
Voting Standard
1
2
3
4
5
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.
To select, on a non-binding, advisory basis, the
preferred frequency for the advisory vote on named
executive officer compensation
The option of every “1 year,” “2 years” or “3 years” that receives
the highest number of affirmative votes by those shares
present in person or represented by proxy entitled to vote.
To vote on the shareholder proposal described in the
accompanying proxy statement, if properly
presented at the meeting
An affirmative vote requires the majority of those shares present in
person or represented by proxy and entitled to vote.
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 proposal items 1-3 and 5, you may vote “for” or “against” the item or you may abstain from voting. When voting on
proposal item 4, you may vote "1 year," "2 years," or "3 years," 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/HIG2022, entering the
16-digit control number provided on your proxy card, voting instruction form or notice, and following the on-screen
instructions.
2022 Proxy Statement
77
INFORMATION ABOUT THE MEETING
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, Proposal #3, and Proposal #5. 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, and
they will have no effect on Proposal #4 because only votes of every “1 year,” “2 years” or “3 years” 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, matters relating to executive compensation, and shareholder
proposals opposed by management 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.
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 Senior Vice President and 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/HIG2022 (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 2023 proxy statement?
A: We must receive proposals submitted by shareholders for inclusion in the 2023 proxy statement relating to the 2023 Annual
Meeting no later than the close of business on December 9, 2022. Any proposal received after that date will not be included in
our proxy materials for 2023. In addition, all proposals for inclusion in the 2023 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 2023 Annual
Meeting unless we receive notice of the proposal by Friday, February 17, 2023. Proposals should be addressed to Donald C.
Hunt, Senior Vice President and 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 Senior Vice President and 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:
78 www.thehartford.com
INFORMATION ABOUT THE MEETING
SEC Filings
• Copies of this proxy statement
• Annual Report on Form 10-K for the fiscal year ended December 31, 2021
• 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.
In addition, you may access our Sustainability Highlight Report, which presents our sustainability goals and provides data on
our sustainability practices and achievements, as well as our TCFD, SASB, and EEO-1 reports at: https://www.thehartford.com/
about-us/corporate-sustainability.
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.
2022 Proxy Statement
79
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, 2021.
By order of the Board of Directors,
Donald C. Hunt
Senior Vice President and Corporate Secretary
Dated: April 8, 2022
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).
80 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 2021, 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 gains and losses - Some realized gains and losses are primarily driven by investment decisions and external
economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our
business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from
period to period based on capital market conditions. The Hartford believes, however, that some realized gains and losses are
integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic
settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the
income statement such as net investment income.
Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the
business.
Loss on extinguishment of debt - Largely consisting of make-whole payments or tender premiums upon paying debt off before
maturity, these losses are not a recurring operating expense of the business.
• Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a
business or to reinsure loss reserves, are not a recurring operating expense of the business.
•
•
Integration and other non-recurring M&A costs – These costs, including transaction costs incurred in connection with an
acquired business, are incurred over a short period of time and do not represent an ongoing operating expense of the
business.
Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings
because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to
the acquisition.
• Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance
agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core
earnings provides greater insight into the economics of the business.
•
•
Change in valuation allowance on deferred taxes related to non-core components of before tax income - These changes in
valuation allowances are excluded from core earnings because they relate to non-core components of before tax income, such
as tax attributes like capital loss carryforwards.
Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because
such results could obscure the ability to compare period over period results for our ongoing businesses.
In addition to the above components of net income available to common stockholders that are excluded from core earnings,
preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the
determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are
expected to be a recurring expense as long as the preferred stock is outstanding.
Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to
core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common
stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is
useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when
reviewing the Company’s performance. Below is a reconciliation of net income (loss) available to common stockholders to core
earnings for the years ended Dec. 31, 2021 and 2020.
2022 Proxy Statement
81
APPENDIX A
($ in millions)
Net income available to common stockholders
Adjustments to reconcile net income available to common stockholders to core earnings:
Net realized losses (gains), excluded from core earnings, before tax
Restructuring and other costs, before tax
Integration and other non-recurring M&A costs before tax
Change in deferred gain on retroactive reinsurance, before tax
Income tax expense (benefit)(1)
Core Earnings
Year Ended
Dec. 31, 2021
Year Ended
Dec. 31, 2020
$
2,344 $
1,716
(505)
1
58
246
34
18
104
51
312
(115)
$
2,178 $
2,086
(1) Primarily represents federal income tax expense (benefit) related to before tax items not included in core earnings and includes the effect of changes in net deferred taxes due to
changes in enacted rates..
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 2021 definition of “Compensation Core Earnings” and a reconciliation of core earnings to this non-
GAAP financial measure.
($ in millions)
2021 Core Earnings as reported
Adjusted for, after tax:
$
2,178
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 annual operating budget from the limited
partnership that owns Talcott Resolution
Total Hartford Funds earnings that are below or (above) the annual operating budget
—
10
—
(4)
19
(40)
Compensation Core Earnings
$
2,163
82 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, 2021.
APPENDIX A
Net income margin
Adjustments to reconcile net income margin to core earnings margin:
Net realized losses (gains) excluded from core earnings, before tax
Integration and other non-recurring M&A costs, before tax
Income tax expense
Impact of excluding buyouts from denominator of core earnings margin
Core earnings margin
Year Ended Dec. 31,
2021
3.9 %
(2.0) %
0.1 %
0.5 %
— %
2.5 %
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 ROE to Consolidated Core earnings ROE is set forth below.
Last Twelve
Months
Ended
Dec. 31, 2021
Last Twelve
Months
Ended
Dec. 31, 2020
Last Twelve
Months
Ended
Dec. 31, 2019
Net Income available to common stockholders ROE
13.1 %
10.0 %
14.4 %
Adjustments to reconcile net income ROE to core earnings ROE:
Net realized losses (gains), excluded from core earnings, before tax
(2.8)
Restructuring and other costs, before tax
Loss on extinguishment of debt, before tax
Loss on reinsurance transaction, before tax
Integration and other non-recurring M&A costs, 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
Impact of AOCI, excluded from denominator of Core Earnings ROE
= Core earnings ROE
—
—
—
0.3
—
1.4
0.2
0.5
12.7 %
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 %
2022 Proxy Statement
83
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 2021 definition of “Compensation Core ROE.” A
reconciliation of GAAP net income to Compensation Core ROE for the 2021 performance share awards will not be available until
the end of the performance period in 2023. Reconciliations for each year covered by the 2019 performance share awards are
provided in the table below, with any variations from the 2021 performance share award definition explained in the notes below the
table. Beginning with the 2020 performance share awards, the difference between actual and budgeted core earnings for the
Hartford Funds segment will also be a reconciling item between core earnings as reported and compensation core earnings since
the variation to budget in Hartford Funds is largely driven by market factors outside the company’s control.
Net income available to common shareholders
Adjustments to reconcile net income available to common stockholders to core
earnings:
Net realized 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 other non-recurring M&A costs, 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)
Total equity method earnings that are below (above) the annual operating budget from
the limited partnership that owns Talcott Resolution
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 2019, 2020 and 2021 Compensation Core ROE = 12.2%
2021
$2,344
2020
$1,716
2019
$2,064
(505)
1
—
—
—
58
246
34
—
18
104
—
—
—
51
312
(115)
—
(389)
—
90
91
97
91
16
2
—
2,178
2,086
2,062
13
19
—
—
(323)
(21)
—
—
(25)
(40)
—
—
2,210
1,742
1,997
17,052
15,884
14,346
17,337
17,194
17,052
16,468
15,884
15,115
12.9 %
10.6 %
13.2 %
(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.
84 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, 2021.
Combined Ratio
Impact of current accident year catastrophes and PYD on
combined ratio
= Underlying Combined Ratio
Commercial Lines
Personal Lines
95.8
(6.7)
89.1
90.7
(0.8)
89.9
2022 Proxy Statement
85
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
Description
Page
Item
Part I
1
1A.
BUSINESS
RISK FACTORS
Part II
5
7
9
9A.
10
11
13
14
MARKET FOR THE HARTFORD'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS 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
Part IV
15
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
4
17
31
33
None
115
117
[a]
[b]
[c]
118
[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", "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 continued COVID-19 pandemic, 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;
•
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 thunderstorms, tornadoes, 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:
◦
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;
2
◦
◦
◦
◦
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 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;
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
Part I - Item 1. Business
Item 1.
BUSINESS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
2018. In addition, up until June 30, 2021, Corporate included a
9.7% ownership interest in Hopmeadow Holdings LP, the legal
entity that acquired Talcott Resolution in May 2018
(Hopmeadow Holdings, LP, Talcott Resolution Life Inc., and its
subsidiaries are collectively referred to as “Talcott Resolution”).
2021 Revenues of $22,390 by Segment
[1]Includes Revenue of $88 for Property & Casualty Other Operations and
$137 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.
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 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, 2021, total assets and total
stockholders’ equity of The Hartford were $76.6 billion and $17.8
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 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 acquisitions,
certain M&A costs, purchase accounting adjustments related to
goodwill and other expenses not allocated to the reporting
segments. Corporate also includes investment management
fees and expenses related to managing third party business,
including management of a portion of the invested assets of
Talcott Resolution Life, Inc. and its subsidiaries as well as
certain affiliates. Talcott Resolution Life, Inc. is the holding
company of the life and annuity business that we sold in May
4
CommercialLines$11,34851%GroupBenefits$6,36728%PersonalLines$3,25215%Hartford Funds$1,1985%Other [1]$2251% Part I - Item 1. Business
|COMMERCIAL LINES
2021 Earned Premiums of $9,541 by Line of
Business
2021 Earned Premiums of $9,541 by Product
5
SmallCommercial$3,93041%Middle &LargeCommercial$3,20034%Global Specialty$2,36825%Other$430%Workers'Compensation$3,16033%Package Business$1,64717%General Liability$1,62117%CommercialProperty$8289%CommercialAutomobile$7898%ProfessionalLiability$6337%AssumedReinsurance$3283%Bond$2853%Marine$2282%Commercial Lines Other$220%
Part I - Item 1. Business
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, marine and agriculture risks throughout
the world but principally in Europe and the Americas. Business principally provides cover on broad books of business
(i.e. treaty), as opposed to individual risks (i.e. facultative).
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 lines, 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 $20, revenues under $50 and property
values less than $20 per location. Primary coverages provided
include workers' compensation, property, general liability and
commercial automobile. 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, including workers'
compensation, property, general liability and commercial
automobile 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 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. 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.
Lines of business written by small commercial and middle &
large commercial are subject to rate regulation and written
pricing increases or decreases partly in response to loss cost
trends. Workers’ compensation rates are based on loss
experience and are informed by data submitted through the
National Council on Compensation Insurance ("NCCI").
Workers’ compensation rates have been under downward
pressure for the industry due to favorable loss cost trends in
recent years, including due to lower claim frequency that
occurred during the pandemic.
6
Part I - Item 1. Business
Global specialty provides a variety of customized insurance
products, including property, liability, marine, professional
liability, and bond. The vast majority of the business written by
our Navigators Group insurance subsidiaries is reported in the
global specialty business unit.
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,
to a lesser extent, overseas, principally in the United Kingdom.
The products are marketed and distributed using independent
retail agents and brokers, wholesale agents and global and
specialty reinsurance brokers, with business also sold direct-to-
consumer. 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. 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, independent agents, brokers and
wholesalers are consolidating and this trend is expected to
continue. This will likely result in a larger proportion of written
premium being concentrated among fewer agents, brokers and
wholesalers. These distribution partners are leveraging data and
analytics for bargaining power.
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 are continually advancing 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. Carriers that can quote business
in an automated way have a competitive advantage by
shortening the time from quoting to issuance. Through its ICON
quoting tool, The Hartford quotes over 70% of its Spectrum
package business and workers’ compensation new business
policies without human intervention.
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. In addition, some larger brokers are
now becoming competitors through acquisition of managing
general agents or managing general underwriters. Carriers in
this marketplace seek to differentiate their product offerings,
including by leveraging their umbrella and excess liability
underwriting capacity to sell other lines of business. 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 and third party data 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.
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.
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 writes many surplus lines of business which are
lines of business not written through standard products licensed
or admitted in a state. Since 2010, surplus lines has accounted
for an increasing share of total commercial lines industry direct
written premiums.
Customers served by the global specialty marketplace expect
tailored policy language for their unique risks and, increasingly,
are looking for a single insurance carrier to meet all their
coverage needs. The Company has been successful in cross-
selling global specialty product lines acquired through the
Navigators Insurance Group acquisition to customers of small
commercial and of middle & large commercial and seeks to
expand cross-sell opportunities in the future. The Hartford
competes on the basis of its underwriting capabilities where it
uses data and actuarial insights to enhance risk selection. The
Company seeks to drive greater efficiency, shorten the quoting
process and improve the customer’s experience through
expanded use of digital capabilities. While global specialty
7
Part I - Item 1. Business
benefitted from firm market conditions in 2020 and 2021, more
capital has entered the specialty lines marketplace, increasing
competition and putting downward pressure on rates.
Lloyd's Syndicate and London market business have been
under financial stress in recent years due to a perceived lack of
adequate 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, have taken 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 has 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.
8
Part I - Item 1. Business
|PERSONAL LINES
2021 Earned Premiums of $2,954 by Line of
Business
2021 Earned Premiums of $2,954 by Product
Principal Products and Services
Automobile
Homeowners
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.
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 $2.7 billion, $2.8 billion and
$2.9 billion in 2021, 2020 and 2019, respectively. The AARP
relationship provides The Company with a competitive
advantage to capitalize on the continued growth of the over
age-50 population.
During 2021, the Company began introducing its new product,
Prevail, which is being rolled out for new business on a state-by-
state basis through 2022 and into 2023 and was in seven states
as of December, 2021. Prevail is tailored to the mature market
and includes digital service capabilities that provide real time
transaction support. Among other things, overall rate levels,
price segmentation, rating factors and underwriting procedures
are being updated through the introduction of Prevail. 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. The direct-to-consumer channel continues
to represent a larger share of the automobile insurance market,
accounting for more than one-third of premiums. 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 on-line, including via mobile devices. In
addition, its technology platform for telephone sales centers
9
AARP Direct$2,51885%AARPAgency$2107%Other Agency$1987%Other$281%Automobile$2,03569%Homeowners$91931%
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. Carriers, including The Hartford, have
invested in telematics capabilities to enable better risk selection
and pricing segmentation in response to changes in driving
patterns. In 43 states, the Hartford offers its telematics program,
TrueLane, which offers discounts for good driving behavior
based on such attributes as braking, speed, distracted driving,
and acceleration.
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.
In 2021, inflation had an increasing impact on the industry.
Supply chain pressures, advanced vehicle technology, and a
tight labor market have increased the cost of automobile repairs
and supply chain issues are also resulting in higher costs to
repair homes.
Part I - Item 1. Business
enables sales representatives to provide an enhanced
experience for direct-to-consumer customers, positioning the
Company to offer unique 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.
New business premium growth partly depends on the rate that
consumers shop for insurance and while shopping rates have
generally rebounded since the depths of the pandemic, they
have rebounded more slowly in the 50-plus age segment. Prior
to May 2021, in most states, new business automobile and
home policies were 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. However, beginning in May 2021, Personal Lines no
longer offers the lifetime continuation agreement to new
business home and automobile policies. The endorsement will
remain on renewal policies with original new business effective
dates prior to May 2021.
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. Larger carriers have the advantage of economies of
scale with the top ten personal lines insurers accounting for
approximately 70% of market share.
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 by 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
10
Part I - Item 1. Business
|P&C 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.
|GROUP BENEFITS
2021 Premiums and Fee Income of $5,687
Principal Products and Services
Group Life
Group Disability
Other Products
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 and long-term disability plans that pay 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.
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 for federal, state and
employer family and medical leave programs, as well as the administration of employer self-funded disability
plans.
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.
Statutory paid family leave ("PFL") and paid family medical
leave ("PFML") programs are a source of growth as the
Company offers fully insured coverage or administers self-
insured coverage for some of these programs. As of 2021, nine
states and the District of Columbia have enacted PFL programs
and additional states are considering adopting paid family leave
or paid family and medical leave programs.
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
11
Groupdisability$2,98352%Group life$2,38842%Other$3166%
Part I - Item 1. Business
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. Technology providers, including human
resources platform vendors, are taking an increasingly
prominent role in influencing customer decisions that also
influence selection of the group benefits insurance provider.
Competition
Group Benefits competes with numerous insurance companies
and financial intermediaries marketing insurance products. The
market for group benefits is expected to grow as the COVID-19
pandemic has driven new demand for employee benefits among
both employees and employers. For example, there is increased
interest in benefits addressing mental health and wellness,
caregiving costs and remote work considerations.
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
|HARTFORD FUNDS
Hartford Funds Segment Assets Under
Management ("AUM") of $157,895 as of
December 31, 2021
the marketplace also offer on-line and self-service capabilities to
third party distributors and consumers. The relatively large size
and underwriting capacity of the Group Benefits business
provides a competitive advantage over smaller competitors.
The Company's market presence has increased in recent years,
benefiting from our industry leading digital technology and
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. Across the industry,
the sale of voluntary product offerings, including supplemental
health coverage, is growing at a faster rate than employer-
provided benefits. Competitive factors affecting the sale of
voluntary products include the breadth of products, product
education, enrollment capabilities and overall customer service.
The Company, as well its competitors, are investing in
technology to offer digital capabilities, and to improve product
offerings and service levels, particularly with voluntary products.
We 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.
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.
Mutual Fund AUM as of December 31, 2021
12
Mutual Fund$139,42688%TalcottResolution lifeand annuity separateaccounts$15,26310%ETP$3,2062%Equity$95,70369%Multi-strategyinvestments$23,61017%Fixedincome$20,11314% Part I - Item 1. Business
Principal Products and Services
Mutual Funds
ETP
Talcott Resolution life and annuity separate
accounts
Includes approximately 60 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.
Exchange-traded products ("ETP") include actively managed exchange-traded
funds (ETFs) and multifactor ETFs. Actively managed ETFs include fixed income,
domestic equity and commodity products utilizing the same investment platform as
our mutual funds. Multifactor ETFs are designed to track indices using passive
investment techniques that strive to improve performance relative to traditional
capitalization-weighted indices.
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
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.
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
|CORPORATE
The Company includes in the Corporate category investment
management fees and expenses related to managing third party
business, including management of a portion 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,
certain M&A costs, purchase accounting adjustments related to
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.
goodwill and other expenses not allocated to the reporting
segments.
Additionally, until June 30, 2021 the Corporate category
included a 9.7% ownership interest in the legal entity that
acquired Talcott Resolution. For discussion of this sale, see
Part II, Item 7, MD&A — The Hartford's Operations.
13
Part I - Item 1. Business
RESERVES
Total Reserves as of December 31, 2021 [1]
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.
Total Group Benefits Reserves as of December 31,
2021 [1]
[1]Includes reserves for future policy benefits and other policyholder funds
and benefits payable of $596 and $687, respectively, of which $399 and
$426, 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.
Total Property & Casualty Reserves as of
December 31, 2021
[1]Includes short duration contract reserves of $129 for short-term disability
and $39 of supplemental health as well as reserves for future policy
benefits that includes $286 of paid up life reserves and policy reserves on
life policies, $96 of reserves for conversions to individual life and $17 of
other reserves.
Group Benefits reserves include unpaid loss and loss
adjustments expenses for long-term disability, group life and
other lines of business as well as reserves for other policyholder
funds and reserves for future policy benefits. 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.
14
P&C Unpaid lossesand lossadjustmentexpenses$31,44977%Group BenefitsUnpaid lossesand lossadjustmentexpenses$8,21020%All Other [1]$1,2833%Commercial Lines$26,90686%P&C OtherOperations$2,6999%Personal Lines$1,8446%LTD$6,67174%Life,includingpremiumwaiver$1,37115%Other [1]$5676%Other policyholderfunds andbenefits payable$4265%
Part I - Item 1. Business
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 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
8 %
5 %
4 %
3 %
33 %
53 %
2 %
1 %
1 %
1 %
11 %
16 %
2 %
3 %
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 2021.
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 benefits, losses 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.
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,
including certain assets of Talcott Resolution.
As of December 31, 2021 and 2020, the fair value of HIMCO’s
total assets under management was approximately $105.4
billion and $106.1 billion, respectively, including $43.6 billion and
$45.9 billion, respectively, that were held in HIMCO managed
third party accounts and $4.7 billion and $4.6 billion,
respectively, that support the Company's pension and other
postretirement 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, 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
15
Part I - Item 1. Business
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 $57.7
billion as of December 31, 2021
16
Taxable fixedmaturities (excl.U.S. treasuries& govt. agencies)52%U.S. treasuries andgov't agencies andshort-terms17%Tax-exemptfixed maturities12%Mortgage loans9%Equity and other4%Limited partnershipsand other alternativeinvestments6% Part I - Item 1A. Risk Factors
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 could continue to impact our
business 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 continued to cause
significant market uncertainty and economic disruption. The
extent to which COVID-19 continues to impact 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 potential spread of new
COVID-19 variants; the effectiveness of vaccines; natural
immunity and current or emerging therapeutic treatments in
preventing infection, serious illness and death; the percentage
of those infected who are of working age; and the strain on the
health care system preventing timely treatment of chronic
illnesses. 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
employment practices liability, as well as property business.
17
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 claims where COVID-19 is specifically listed as the cause
of death and indirect impacts of the pandemic such as
causes of death due to patients deferring regular treatments
of chronic conditions (together, referred to as "excess
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
are defending vigorously and while almost 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.
Regulatory/Legal Risk - There could be legal and
regulatory responses to concerns about COVID-19 and
related public health issues that 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,
Part I - Item 1A. Risk Factors
•
•
•
see Part I, Item 2, MD&A - Capital Resources and Liquidity,
Contingencies, Legislative and Regulatory Developments.
Recessionary and other Global Economic Risk - If
vaccines and other treatments are not effective at
preventing serious illness or death from any new COVID-19
variants that arise, governments may reinstitute
containment efforts, including curtailing access to
businesses, including many of the Company’s insureds. In
addition, disruption of the supply chain or other factors
caused by the pandemic could result in an economic
downturn and, as a result, potentially increase policy lapses
and non-renewals and reduce demand for new business. In
an economic downturn, employers may reduce work forces,
resulting in lower premiums for the Company’s workers’
compensation and group benefit products. As such, the
continuation of the COVID-19 pandemic and resulting
economic stress could reduce earned premiums.
In addition, in an economic downturn or in periods of a
decline in real estate valuations, 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 stockholders’
equity. In addition, disruption in equity markets could result
in net realized or unrealized losses on our equity securities
carried at fair value or reduce net investment income in
future periods from our non-fixed income investment
portfolio, including from private equity, hedge fund and real
estate partnership investments. The Company could also
experience 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. If 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
capital and 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 as of
18
February 2022. While the Company has the technology in
place to enable hybrid and remote arrangements 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. In addition,
if large numbers of our employees contract COVID-19 and
are unable to perform their duties due to illness, it may
result in periods of inadequate staffing. If any of those
disruptions become significant, results could include,
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 business are
sensitive to changes in economic, political and global capital
market conditions, such as the effect of a weak economy,
including labor supply shortages, 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
Part I - Item 1A. Risk Factors
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.
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 net realized or unrealized losses on our equity
securities carried at fair value or reduce net investment
income in future periods from our non-fixed income
investment portfolio, including from private equity, hedge
fund and real estate partnership investments, 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
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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.
•
•
•
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. Supply chain issues
arising from conditions due to the pandemic have
contributed to inflation in the cost of labor and repairs
for insurance claims paid to insureds and third parties.
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. In addition, sustained
inflation may result in an increase in interest rates,
which would result in a reduction in the fair value of our
investment portfolio.
Changes in the Labor Market - Evolving labor market
conditions, including increased competition for talent,
could make it difficult to hire and retain employees and
could increase compensation and benefit expense.
New technologies may lead to changes in skill sets
needed from the workforce, resulting in difficulty in
attracting, developing and retaining employees. If
insured businesses cannot hire enough qualified
people to sell products and services to customers,
economic activity may be depressed and lower insured
exposure, hindering the Company's growth.
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
Part I - Item 1A. Risk Factors
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 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, automobile,
workers’ compensation and 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. If third parties assert that climate
change-related risks and damages are caused by insured
businesses, or arise from alleged mismanagement at insured
businesses, we may experience increased claims under general
liability and management liability policies. 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
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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 investments that we hold, resulting in potential
realized or unrealized losses on our invested assets. Our
decision to invest in certain securities, loans, or other
investments may also be impacted by changes in climate
patterns due to:
•
•
•
•
changes in supply/demand for traditional sources of energy
(e.g., coal, oil, natural gas);
advances in low-carbon technology and renewable energy
development;
effects of extreme weather events on the physical and
operational exposure of industries and issuers; and
internal investment guidelines and policies related to the
global energy transition.
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. Moreover,
regulators may undertake actions to minimize the effects of
climate change on consumers, which could affect coverage
provided under insurance contracts and administrative process.
These emerging regulatory initiatives, or other climate-related
policies we adopt, may result in non-renewal of business or not
underwriting or investing in certain industry sectors.
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 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 intended to stop
persuading or compelling banks to report information used to set
LIBOR. Since 2017, actions by regulators have resulted in
efforts to establish alternative reference rates to LIBOR in
several major currencies. The Alternative Reference Rate
Part I - Item 1A. Risk Factors
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.
On March 5, 2021, the FCA announced that publication of
certain LIBOR settings in currencies other than U.S. dollars
would cease immediately after December 31, 2021, and that
publication of U.S. dollar LIBOR on a representative basis would
cease for the one-week and two-month settings immediately
after December 31, 2021 and for the remaining U.S. dollar
settings immediately after June 30, 2023. Although the most
widely used settings of U.S. dollar LIBOR continue to be
published and used in existing transactions, regulatory
pressures and other factors have resulted in a general decline in
new U.S. dollar LIBOR-based transactions.
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, (2) the effects of certain legislation
providing for LIBOR replacement rates or otherwise affecting
contractual fallback provisions and (3) 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.
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
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
21
Part I - Item 1A. Risk Factors
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.
Insufficient incorporation of climatic trends into widely used
catastrophe models and internal tools to assess risk from
natural catastrophe perils could lead to ineffective evaluation
and management of catastrophe risk. 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 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
22
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.
Cyber risk exposure exists through stand-alone cyber policies
as well as cyber coverage endorsements on some property,
general liability, management liability and directors and officers
policies. Increasing frequency of cyber attacks and the evolving
nature of cyber risk taking place across the globe may
potentially lead to increased insured losses across the industry
and for the businesses we insure. Our insureds may be
increasingly exposed to cyber-related attacks with insured
losses to property (including data and systems), breach of data,
ransom payments and business interruption.
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
Part I - Item 1A. Risk Factors
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
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. Moreover, regulators may seek to prohibit or
constrain the use of certain underwriting and rating factors,
which may affect our ability to price risks. 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
23
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.
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. Increased use of advanced
analytics and automation in the workplace could potentially
affect the demand for workers' compensation insurance
products over time. 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.
Part I - Item 1A. Risk Factors
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 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 substances previously
considered to be safe and found to have latent exposure, 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
24
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.
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
Part I - Item 1A. Risk Factors
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 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
must 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, some of which are outside the Company's control,
including:
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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;
changes to the regulatory capital formulas; and
regulatory changes to 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 Generally Accepted
Accounting Principles ("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
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 liquidity
in a particular quarterly or annual period.
25
Part I - Item 1A. Risk Factors
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 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
26
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
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 losses 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 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.
Part I - Item 1A. Risk Factors
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 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 (such as ransomware and denial of service), 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
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-attacks and 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 in their processes or with relied upon
vendors, or if they 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.”
27
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 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 develop, retain and motivate our existing
employees. The loss of 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.
Part I - Item 1A. Risk Factors
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 may not be successful in keeping our businesses
cost efficient. 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 by 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. 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.
28
Part I - Item 1A. Risk Factors
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, including expansion of the role of the Federal
Insurance Office ("FIO") or repeal of the McCarran-Ferguson
Act, could have unanticipated consequences for the Company
and its businesses. It is unclear whether and to what extent
Congress will continue to pursue these types of reforms, 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 and the
Insurance Authority in Hong Kong. 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.
There is continued uncertainty as to whether and how the U.K.
might continue to access the E.U. Single Market now that the
U.K. has left the E.U. following the conclusion of the Trade and
Cooperation Agreement on December 30, 2020. There is the
prospect of "equivalence" decisions to provide the U.K. with
access, but these would be designed to cover a limited range of
financial services activity and not offer permanent market
access.
29
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 response to climate change, regulators at the federal, state
and international level could impose new regulations requiring
disclosure of underwriting or investment in certain industry
sectors or could take other actions such as implementing a
temporary moratorium on cancellation of policies within
catastrophe prone areas. Specifically, the U.S. Securities and
Exchange Commission (“SEC”) is considering new rules to
require climate-related risk disclosures in public filings and the
FIO continues to analyze the potential for climate change to
affect insurance and reinsurance coverage, which could result in
increased data collection and reporting. Regulators may also
impose new requirements affecting our operations such as
enforcing compliance with reductions in greenhouse gas
emissions (GHGe) and increasing the targeted reductions in the
future.
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 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.
Part I - Item 1A. Risk Factors
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 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 by increasing the Company's
overall tax and compliance burdens. 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 tax reform in
30
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.
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
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.
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 17, 2022, the Company had approximately 9,679
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.
Repurchases of common stock by the Company during the
quarter ended December 31, 2021 are set forth below. During
the period from January 1, 2022 through February 17, 2022, the
Company repurchased 3.8 million shares for $274.
Repurchases of Common Stock by the Issuer for the Three Months Ended December 31, 2021
Period
Total Number
of Shares
Purchased
Average Price
Paid Per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares that May Yet
Be
Purchased Under
the Plans or Programs [1]
(in millions)
October 1, 2021 - October 31, 2021
November 1, 2021 - November 30, 2021
December 1, 2021 - December 31, 2021
Total
1,618,168 $
3,165,842 $
2,328,073 $
7,112,083 $
72.42
71.02
67.86
70.31
1,618,168 $
3,165,842 $
2,328,073 $
7,112,083
1,681
1,456
1,298
[1]On December 17, 2020, the Board of Directors authorized a new equity repurchase plan for $1.5 billion for the period commencing January 1, 2021 through
December 31, 2022. The Board of Directors increased this authorization by $1 billion on April 22, 2021 and by $500 on October 28, 2021, bringing the aggregate
repurchase authorization to $3.0 billion through December 31, 2022. The timing of any repurchases of shares under the remaining equity repurchase authorization
is dependent upon several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any
repurchases on the Company's financial strength or credit ratings, the Company's blackout periods, and other considerations.
|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
2017
2018
2019
2020
2021
The Hartford Financial Services Group, Inc.
S&P 500 Index
S&P Insurance Composite Index
20.25%
21.83%
16.19%
(19.24%)
(4.38%)
(11.21%)
39.71%
31.49%
29.38%
(16.98%)
18.40%
(0.44%)
44.27%
28.71%
32.12%
31
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
2016
For the years ended
2017
2018
2019
2020
2021
$
$
$
100 $
120.25 $
97.11 $
135.68 $
112.64 $
162.51
100 $
121.83 $ 116.49 $
153.18 $
181.36 $
233.43
100 $
116.19 $ 103.17 $
133.48 $
132.89 $
175.57
32
The Hartford Financial Services Group, Inc.S&P 500 IndexS&P Insurance Composite IndexDec 2016Dec 2017Dec 2018Dec 2019Dec 2020Dec 2021$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)
The Hartford provides projections and other forward-looking
information in the following discussions, which contain many
forward-looking statements, particularly relating to the
Company’s future financial performance. These forward-looking
statements are estimates based on information currently
available to the Company, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995
and are subject to the cautionary statements set forth on pages
4 and 5 of this 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 December 29, 2021, the Company completed the sale of all
of the issued and outstanding equity of Navigators Holdings
(Europe) N.V., a Belgium holding company, and its subsidiaries,
Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances
Contintales Contintale Verzekeringen N.V. (“ASCO”),
(collectively referred to as "Continental Europe Operations").
For discussion of reclassifications, acquisitions, and
dispositions, see Note 1 - Basis of Presentation and Significant
Accounting Policies, Note 2 - Business Acquisitions and Note 22
- Business Dispositions 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 2020 Annual
Report.
Index
Description
Page
Key Performance Measures and Ratios
The Hartford's Operations
Financial Highlights
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
33
38
42
43
46
48
70
75
79
80
84
86
87
105
114
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 segments’s revenues and expenses are based
upon asset values. These revenues and expenses increase or
decrease with a rise or fall in AUM whether caused by changes
in the market or through net flows.
Book Value per Diluted Share excluding
accumulated other comprehensive income
("AOCI")- This is a non-GAAP per share measure that 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 enable investors to analyze the amount of the
Company's net worth that is primarily attributable to the
33
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Company's business operations. The Company believes that
excluding AOCI from the numerator is useful to investors
because it eliminates the effect of items that can fluctuate
significantly from period to period, primarily based on changes in
interest rates. Book value per diluted share is the most directly
comparable U.S. GAAP measure.
Combined Ratio- The sum of the loss and loss adjustment
expense ratio, the expense ratio and the policyholder dividend
ratio. This ratio is a relative measurement that describes the
related cost of losses and expenses for every $100 of earned
premiums. A combined ratio below 100 demonstrates
underwriting profit; a combined ratio above 100 demonstrates
underwriting losses.
Core Earnings- The Hartford uses the non-GAAP measure
core earnings as an important measure of the Company’s
operating performance. The Hartford believes that core earnings
provides investors with a valuable measure of the performance
of the Company’s ongoing businesses because it reveals trends
in our insurance and financial services businesses that may be
obscured by including the net effect of certain items. Therefore,
the following items are excluded from core earnings:
•
•
•
•
Certain realized gains and losses - Some realized gains
and losses are primarily driven by investment decisions and
external economic developments, the nature and timing of
which are unrelated to the insurance and underwriting
aspects of our business. Accordingly, core earnings
excludes the effect of all realized gains and losses that tend
to be highly variable from period to period based on capital
market conditions. The Hartford believes, however, that
some realized gains and losses are integrally related to our
insurance operations, so core earnings includes net
realized gains and losses such as net periodic settlements
on credit derivatives. These net realized gains and losses
are directly related to an offsetting item included in the
income statement such as net investment income.
Restructuring and other costs - Costs incurred as part of a
restructuring plan are not a recurring operating expense of
the business.
Loss on extinguishment of debt - Largely consisting of
make-whole payments or tender premiums upon paying
debt off before maturity, these losses are not a recurring
operating expense of the business.
Gains and losses on reinsurance transactions - Gains or
losses on reinsurance, such as those entered into upon
sale of a business or to reinsure loss reserves, are not a
recurring operating expense of the business.
•
•
•
•
•
Integration and other non-recurring M&A costs - These
costs, including transaction costs incurred in connection
with an acquired business, are incurred over a short period
of time and do not represent an ongoing operating expense
of the business.
Change in loss reserves upon acquisition of a business -
These changes in loss reserves are excluded from core
earnings because such changes could obscure the ability to
compare results in periods after the acquisition to results of
periods prior to the acquisition.
Deferred gain resulting from retroactive reinsurance and
subsequent changes in the deferred gain - Retroactive
reinsurance agreements economically transfer risk to the
reinsurers and including the full benefit from retroactive
reinsurance in core earnings provides greater insight into
the economics of the business.
Change in valuation allowance on deferred taxes related to
non-core components of before tax income - These
changes in valuation allowances are excluded from core
earnings because they relate to non-core components of
before tax income, such as tax attributes like capital loss
carryforwards.
Results of discontinued operations - These results are
excluded from core earnings for businesses sold or held for
sale because such results could obscure the ability to
compare period over period results for our ongoing
businesses.
In addition to the above components of net income available to
common stockholders that are excluded from core earnings,
preferred stock dividends declared, which are excluded from net
income available to common stockholders, are included in the
determination of core earnings. Preferred stock dividends are a
cost of financing more akin to interest expense on debt and are
expected to be a recurring expense as long as the preferred
stock is outstanding.
Net income (loss) and net income (loss) available to common
stockholders are the most directly comparable U.S. GAAP
measures to core earnings. Core earnings should not be
considered as a substitute for net income (loss) or net income
(loss) available to common stockholders and does not reflect the
overall profitability of the Company's business. Therefore, The
Hartford believes that it is useful for investors to evaluate net
income (loss), net income (loss) available to common
stockholders, and core earnings when reviewing the Company's
performance.
34
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 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
Integration and other non-recurring M&A costs, 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]
Core earnings
For the years ended December 31,
2021
2020
2019
$
2,365 $
1,737 $
2,085
21
21
21
$
2,344 $
1,716 $
2,064
(505)
1
—
—
58
—
18
104
—
—
51
—
246
312
34
(115)
(389)
—
90
91
91
97
16
2
$
2,178 $
2,086 $
2,062
[1] Primarily represents the federal income tax expense (benefit) related to before tax items not included in core earnings and includes the effect of changes in net
deferred taxes due to changes in enacted tax rates.
Core Earnings Margin- The Hartford uses the non-GAAP
measure core earnings margin to evaluate, and believes it is an
important measure of, the Group Benefits segment's operating
performance. Core earnings margin is calculated by dividing
core earnings by revenues, excluding buyouts and realized
gains (losses). Net income margin, calculated by dividing net
income by revenues, is the most directly comparable U.S.
GAAP measure. The Company believes that core earnings
margin provides investors with a valuable measure of the
performance of Group Benefits because it reveals trends in the
business that may be obscured by the effect of buyouts and
realized gains (losses) as well as other items excluded in the
calculation of core earnings. Core earnings margin should not
be considered as a substitute for net income margin and does
not reflect the overall profitability of Group Benefits. Therefore,
the Company believes it is important for investors to evaluate
both core earnings margin and net income margin when
reviewing performance. A reconciliation of net income margin to
core earnings margin is set forth in the Results of Operations
section within MD&A - Group Benefits.
Current Accident Year Catastrophe Ratio- A
component of the loss and loss adjustment expense ratio,
represents the ratio of catastrophe losses incurred in the current
accident year (net of reinsurance) to earned premiums. For U.S.
events, a catastrophe is an event that causes $25 or more in
industry insured property losses and affects a significant number
of property and casualty policyholders and insurers, as defined
by the Property Claim Services office of Verisk. For international
events, the Company's approach is similar, informed, in part, by
how Lloyd's of London defines catastrophes. Lloyd's of London
is an insurance market-place operating worldwide ("Lloyd's").
Lloyd's does not underwrite risks. The Company accepts risks
as the sole member of Lloyd's Syndicate 1221 ("Lloyd's
Syndicate"). The current accident year catastrophe ratio
includes the effect of catastrophe losses, but does not include
the effect of reinstatement premiums.
35
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 net inflows or
favorable market performance will have a favorable impact on
fee income. Conversely, either net outflows or unfavorable
market performance will reduce fee income.
Gross New Business Premium- Represents the
amount of premiums charged, before ceded reinsurance, for
policies issued to customers who were not insured with the
Company in the previous policy term. Gross new business
premium plus gross renewal written premium less ceded
reinsurance equals total written premium.
Loss and Loss Adjustment Expense Ratio- A
measure of the cost of claims incurred in the calendar year
divided by earned premium and includes losses and loss
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
adjustment expenses incurred for both the current and prior
accident years. Among other factors, the loss and loss
adjustment expense ratio needed for the Company to achieve
its targeted return on equity ("ROE") fluctuates from year to year
based on changes in the expected investment yield over the
claim settlement period, the timing of expected claim
settlements and the targeted returns set by management based
on the competitive environment.
The loss and loss adjustment expense ratio is affected by claim
frequency and claim severity, particularly for shorter-tail property
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.
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 and expenses
are based upon asset values. These revenues and expenses
increase or decrease with a rise or fall in AUM whether caused
by changes in the market or through net flows.
Net New Business Premium- Represents the amount of
premiums charged, after ceded reinsurance, for policies issued
to customers who were not insured with the Company in the
previous policy term. Net new business premium plus renewal
written premium equals total written premium.
Policy Count Retention- Represents the ratio of the
number of renewal policies issued during the current year period
divided by the number of policies issued in the previous
calendar period before considering policies cancelled
subsequent to renewal. Policy count retention is affected by a
number of factors, including the percentage of renewal policy
quotes accepted and decisions by the Company to non-renew
policies because of specific policy underwriting concerns or
because of a decision to reduce premium writings in certain
classes of business or states. Policy count retention is also
affected by advertising and rate actions taken by competitors.
Policy Count Retention, Net of Cancellations-
Represents the ratio of the number of renewal policies issued
net of cancellations during the current year period divided by the
number of policies issued net of cancellations in the previous
calendar period.
Policies in Force- Represents the number of policies with
coverage in effect as of the end of the period. The number of
policies in force is a growth measure used for Personal Lines
and standard commercial lines (small commercial and middle
market lines within middle & large commercial) within
Commercial Lines and is affected by both new business growth
and policy count retention.
Policyholder Dividend Ratio- The ratio of policyholder
dividends to earned premium.
Prior Accident Year Loss and Loss Adjustment
Expense Ratio- Represents the increase (decrease) in the
estimated cost of settling catastrophe and non-catastrophe
claims incurred in prior accident years as recorded in the current
calendar year divided by earned premiums.
Reinstatement Premiums- Represents additional ceded
premium paid for the reinstatement of the amount of reinsurance
coverage that was reduced as a result of the Company ceding
losses to reinsurers.
Renewal Earned Price Increase (Decrease)-
Written premiums are earned over the policy term, which is six
months for certain Personal Lines automobile business and
twelve months for substantially all of the remainder of the
Company’s Property and Casualty business. Since the
Company earns premiums over the six to twelve month term of
the policies, renewal earned price increases (decreases) lag
renewal written price increases (decreases) by six to
twelve months.
Renewal Written Price Increase (Decrease)- For
Commercial Lines, represents the combined effect of rate
changes, amount of insurance and individual risk pricing
decisions per unit of exposure on commercial lines policies that
renewed. For Personal Lines, renewal written price increases
represent the total change in premium per policy since the prior
year on those policies that renewed and includes the combined
effect of rate changes, amount of insurance and other changes
in exposure. For Personal Lines, other changes in exposure
include, but are not limited to, the effect of changes in number of
drivers, vehicles and incidents, as well as changes in customer
policy elections, such as deductibles and limits. The rate
36
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
component represents the change in rate filed with and
approved by state regulators during the period and the amount
of insurance represents the change in the value of the rating
base, such as model year/vehicle symbol for automobiles,
building replacement costs for property and wage inflation for
workers’ compensation. A number of factors affect renewal
written price increases (decreases) including expected loss
costs as projected by the Company’s pricing actuaries, rate
filings approved by state regulators, risk selection decisions
made by the Company’s underwriters and marketplace
competition. Renewal written price changes reflect the property
and casualty insurance market cycle. Prices tend to increase for
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.
37
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of Net Income to Underwriting Gain (Loss)
Net income
Adjustments to reconcile net income to underwriting gain (loss):
Commercial Lines
Net servicing income
Net investment income
Net realized 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 losses (gains)
Other expense
Income tax expense
Underwriting gain
Net Income
P&C Other Ops
Adjustments to reconcile net income to underwriting gain (loss):
Net investment income
Net realized 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 on a
pro rata basis over the policy period. Management believes that
written premium is a performance measure that is useful to
investors as it reflects current trends in the Company’s sale of
property and casualty insurance products. Written and earned
premium are recorded net of ceded reinsurance premium.
Traditional life and disability insurance type products, such as
those sold by Group Benefits, collect premiums from
policyholders in exchange for financial protection for the
policyholder from a specified insurable loss, such as death or
disability. These premiums, together with net investment income
earned, are used to pay the contractual obligations under these
insurance contracts.
Two major factors, new sales and persistency, impact premium
growth. Sales can increase or decrease in a given year based
on a number of factors including, but not limited to, customer
demand for the Company’s product offerings, pricing
competition, distribution channels and the Company’s reputation
38
For the years ended December 31,
2021
2020
2019
$
1,757 $
856 $
1,192
(13)
(4)
(2)
(1,502)
(1,160)
(1,129)
(260)
18
—
402
402 $
60
35
—
176
(37) $
(271)
38
91
270
189
385 $
718 $
318
(19)
(157)
(29)
—
95
275 $
(14)
(157)
5
1
184
737 $
(13)
(179)
(43)
1
76
160
(95) $
(168) $
61
(75)
(13)
1
(28)
(55)
1
(1)
(46)
(84)
(20)
—
12
$
$
$
$
$
(210) $
(269) $
(31)
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,
certain M&A costs, purchase accounting adjustments related to
goodwill and other expenses not allocated to the reporting
segments. Corporate also includes investment management
fees and expenses related to managing third party business,
including management of a portion of the invested assets of
Talcott Resolution Life, Inc. and its subsidiaries as well as
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
certain affiliates. In addition, up until June 30, 2021, Corporate
included a 9.7% ownership interest in Hopmeadow Holdings LP,
the legal entity that acquired Talcott Resolution in May 2018
(Hopmeadow Holdings, LP, Talcott Resolution Life Inc., and its
subsidiaries are collectively referred to as "Talcott Resolution").
The sale of Talcott Resolution to a new investor was completed
on June 30, 2021. The Company received a total of $217 in
connection with the sale of its 9.7% ownership interest, resulting
in a realized gain of $46 before tax in 2021.
The Company derives its revenues principally from:
(a) premiums earned for insurance coverage provided to
insureds; (b) management fees on mutual fund and ETP assets;
(c) net investment income; (d) fees earned for services provided
to third parties; and (e) net realized gains and losses. Premiums
charged for insurance coverage are earned principally on a pro
rata basis over the terms of the related policies in-force.
The profitability of the Company's property and casualty
insurance businesses over time is greatly influenced by the
Company’s underwriting discipline, which seeks to manage
exposure to loss through favorable risk selection and
diversification, its management of claims, its use of reinsurance,
the size of its in force block, actual mortality and morbidity
experience, and its ability to manage its expense ratio which it
accomplishes through economies of scale and its management
of acquisition costs and other underwriting expenses. Pricing
adequacy depends on a number of factors, including the ability
to obtain regulatory approval for rate changes, proper evaluation
of underwriting risks, the ability to project future loss cost
frequency and severity based on historical loss experience
adjusted for known trends, the Company’s response to rate
actions taken by competitors, its expense levels and
expectations about regulatory and legal developments. The
Company seeks to price its insurance policies such that
insurance premiums and future net investment income earned
on premiums received will cover underwriting expenses and the
ultimate cost of paying claims reported on the policies and
provide for a profit margin. For many of its insurance products,
the Company is required to obtain approval for its premium rates
from state insurance departments and the Lloyd's Syndicate's
ability to write business is subject to Lloyd's approval for its
premium capacity each year. Most of Personal Lines written
premium is associated with our exclusive licensing agreement
with AARP, which is effective through December 31, 2032. This
agreement provides an important competitive advantage given
the size of the 50 plus population and the strength of the AARP
brand.
Similar to property and casualty, profitability of the group
benefits business depends, in large part, on the ability to
evaluate and price risks appropriately and make reliable
estimates of mortality, morbidity, disability and longevity. To
manage the pricing risk, Group Benefits generally offers term
insurance policies, allowing for the adjustment of rates or policy
terms in order to minimize the adverse effect of market trends,
loss costs, declining interest rates and other factors. However,
as policies are typically sold with rate guarantees of up to three
years, pricing for the Company’s products could prove to be
inadequate if loss and expense trends emerge adversely during
the rate guarantee period or if investment returns are lower than
expected at the time the products were sold. For some of its
products, the Company is required to obtain approval for its
premium rates from state insurance departments. New and
renewal business for group benefits business, particularly for
long-term disability, 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 written and earned
premiums
Despite the rollout of vaccines and states largely lifting
restrictions allowing business to re-open, the COVID-19
pandemic continues to pose a threat to the economic recovery
of the U.S. and other countries in which we operate. As one of
the largest providers of small business insurance in the U.S., we
were negatively affected by economic effects of the pandemic
on small businesses beginning in March of 2020. An
39
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
improvement in economic conditions in 2021 has contributed to
an increase of 11% in our small commercial written premiums.
Our middle & large commercial business was also negatively
affected by COVID-19 and written premium has rebounded with
an increase of 12% in 2021. Overall, Commercial Lines written
premium increased $1,072, or 12%, in 2021 with growth in
workers' compensation, small commercial package business,
general liability, U.S. wholesale, U.S. financial lines and global
reinsurance.
Personal Lines written premium declined 1% in 2021 due to the
effect of non-renewed premium exceeding new business,
partially offset by the effect of premium credits given in the
second quarter of 2020.
In Group Benefits, fully insured ongoing premium increased 4%
in 2021, primarily due to higher in-force employer group
Excess mortality claims on group life
COVID-19 short-term disability claims [1]
Workers' compensation COVID-19 claims
Global specialty financial lines and other
Commercial property
Total direct COVID-19 and excess mortality claims
disability premiums and higher supplemental health product
premiums.
Impact to direct benefits, losses
and loss adjustment expenses from
COVID-19 claims
Total pandemic-related losses were higher in 2021 compared to
2020 driven by higher excess mortality in our group life business
and an increase in pandemic-related short-term disability claims,
partially offset by a reduction of P&C COVID-19 incurred losses.
For the year ended December 31,
2021
2020
$
$
583 $
31
20
11
—
645 $
239
(9)
66
71
141
508
[1]The year ended December 31, 2020 included both short-term disability and New York paid family leave claims related to COVID-19 and lower incurred losses due
to fewer elective procedures during the early stages of the pandemic more than offset direct COVID-19 incurred losses.
Excess mortality in the group life business includes both claims
where COVID-19 is specifically listed as the cause of death and
indirect impacts of the pandemic such as causes of death due to
patients deferring regular treatments of chronic conditions. The
incidence of excess mortality claims is subject to significant
uncertainty as it is dependent on a number of factors difficult to
predict including, among others, the ultimate vaccination rate of
the population, the potential spread of new COVID-19 variants,
the effectiveness of the vaccines against new variants, the
effectiveness of other treatments to prevent serious illness and
death, the percentage of those infected who are of working age
and the strain on the health care system preventing timely
treatment of chronic illnesses.
Within P&C, direct COVID-19 incurred losses in 2021 were
predominantly on workers' compensation claims incurred in the
first quarter. We incur COVID-19 workers’ compensation losses
when it is determined that workers were exposed to COVID-19
out of and in the course of their employment and in other cases
where states have passed laws providing for the presumption of
coverage for certain industry classes, including health care and
other essential workers.
Apart from COVID-19 workers' compensation claims, net of
favorable frequency, and incurred losses within financial lines,
P&C COVID-19 incurred losses in 2020 primarily included $141
for property claims. There were no COVID-19 P&C property
losses incurred in 2021. Nearly all of our property insurance
policies require direct physical loss or damage to property and
contain standard exclusions that we believe preclude coverage
for COVID-19 related claims, and the vast majority of such
policies contain exclusions for virus-related losses.
Other impacts from COVID-19
In Personal Lines automobile, miles driven and average claim
severity increased in 2021, which has increased automobile loss
costs. In addition, as the effects of favorable claim frequency
40
from lower miles driven during the pandemic have been factored
into rates, we have experienced lower earned pricing increases
resulting in a higher automobile loss ratio in 2021 than in 2020.
Refer to Personal Lines Results of Operations for discussion of
pricing and loss cost trends for the year ended December 31,
2021.
As we emerge from the pandemic, inflationary pressures in the
economy have resulted in increased claim severity in 2021 in
automobile and property lines of business in both Commercial
Lines and Personal Lines. As expectations of inflationary
pressures have increased, interest rates rose in 2021 and
higher interest rates reduce the fair value of our investments in
fixed maturity securities, available for sale ("AFS").
Aided by some improvement in the economy and the effect of
the government’s economic stimulus payments to our
customers, in 2021, we recorded a decrease of $47 in the
allowance for credit losses ("ACL") on premiums receivable,
reflecting a lower expectation of credit losses, though there
remains an elevated risk of uncollectible premiums receivable
relative to historical trends if economic conditions do not
improve further.
As we emerge from the pandemic, we expect travel costs and
certain employee benefits costs will increase relative to the
lower level of those costs we have incurred in 2020 and 2021.
For information about resources the Company has to manage
capital and liquidity, refer to the Capital Resources & Liquidity
section of MD&A.
For additional information about the potential economic impacts
to the Company of the COVID-19 pandemic, see the risk factor
"The pandemic caused by the spread of COVID-19 has
disrupted our operations and may have a material adverse
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
impact on our business results, financial condition, results of
operations and/or liquidity" in Item 1A of Part I.
Operational transformation and cost
reduction plan
In recognition of the need to become more cost efficient and
competitive along with enhancing the experience we provide to
agents and customers, on July 30, 2020, the Company
announced an operational transformation and cost reduction
plan it refers to as Hartford Next.Through reduction of its
headcount, IT investments to further enhance our capabilities,
and other activities, relative to 2019, the Company expects to
achieve a reduction in annual insurance operating costs and
other expenses of approximately $540 by 2022 and $625 by
2023.
To achieve those expected savings, we expect to incur
approximately $401 over the course of the program, with $217
expensed cumulatively through December 31, 2021, and
expected expenses of $89 in 2022, $38 in 2023 and $57 after
2023, with the expenses after 2023 consisting mostly of
amortization of internal use software and capitalized real estate
costs. Included in the estimated costs of $401, we expect to
incur restructuring costs of approximately $130, including $48 of
employee severance, and approximately $82 of other costs,
including consulting expenses, lease termination expenses and
the cost to retire certain IT applications. Restructuring costs are
reported as a charge to net income but not in core earnings.
The following table presents Hartford Next program costs
incurred, including restructuring costs, and expense savings
relative to 2019 realized in 2021 and expected annual costs and
expense savings relative to 2019 for the full year in 2022 and
2023:
Hartford Next Costs and Expense Savings
2020
2021
Estimate for
2022
Estimate for
2023
73 $
2
29
104
30
19
—
—
49
153
(25) $
9
17
1
46
17
—
—
63
64
— $
10
15
25
45
14
4
1
64
89
(106)
47 $
(423)
(359) $
(540)
(451) $
(57) $
104
47 $
(360) $
1
(359) $
(476) $
25
(451) $
—
—
—
—
22
6
9
1
38
38
(625)
(587)
(587)
—
(587)
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 $34 of IT asset amortization after 2023.
[2]Does not include approximately $19 of real estate amortization after 2023.
$
$
$
$
41
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Income Available to Common
Stockholders
2021 FINANCIAL HIGHLIGHTS
Net Income Available to Common
Stockholders per Diluted Share
Book Value per Diluted Share
Increased $628 or 37%
Ý
+ A change from net realized losses in the
2020 period to gains in the 2021 period
Ý
+ Increase in net income available to common
Increased $1.86 or 39%
Ý
+ Net income in excess of common stockholder
Increased $0.97 or 1.9%
stockholders
dividends and share repurchases
+ Increase in net investment income
+ Share repurchases
+ Decrease in dilutive shares from the prior
year
- Decrease in common stockholders' equity
largely due to decrease in AOCI, driven by a
decline in net unrealized gains on available
for sale securities
+ Decrease in P&C COVID-19 incurred losses
-
+ Higher earned premiums in Commercial
Lines and a lower P&C underlying loss ratio
before COVID-19
Increase in dilutive shares under stock-
based compensation largely due to an
increase in the quarterly average stock price
+ Lower restructuring costs
+ Increase in earnings from Hartford Funds
- Higher excess mortality losses in group life
and COVID-19 losses in group disability
- A change from net favorable to net
unfavorable P&C prior accident year reserve
development
- Higher current accident year catastrophes
- An increase in personal automobile claim
frequency and severity
- Lower income from the former Talcott
Resolution investment
Investment Yield, After Tax
Property & Casualty Combined
Ratio
Group Benefits Net Income Margin
Ý
+ Greater returns on limited partnerships and
Increased 50 bps
Þ
+ Decrease in COVID-19 incurred losses
Improved 0.1 points
Decreased 2.5 points
Þ
- Higher excess mortality in group life
other alternative investments
-
Lower reinvestment rates and lower yield
on variable rate securities
+
-
Lower current accident year loss ratio
before COVID-19 in global specialty and
workers' compensation
A change to unfavorable prior accident year
reserve development
-
-
A higher group disability loss ratio primarily
due to higher short-term and long-term
disability claim incidence
A higher expense ratio
+ Higher net investment income
- Higher current accident year catastrophes
+ Greater net realized gains
- Higher personal automobile claim frequency
and severity
-
An increase in underwriting expenses
42
$1,716$2,34420202021$4.76$6.6220202021$50.39$51.3612/31/202012/31/20213.0%3.5%2020202196.496.3202020216.4%3.9%20202021
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 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
2021
2020
2019
$ 17,999 $ 17,288 $ 16,923
1,488
1,277
1,301
2,313
1,846
1,951
509
81
(14)
126
395
170
22,390 20,523 20,740
12,729 11,805 11,472
1,680
1,706
1,622
4,779
4,480
4,580
—
—
234
71
1
—
—
236
72
104
90
91
259
66
—
Total benefits, losses and expenses
19,494 18,403 18,180
Income before income taxes
Income tax expense
Net income
Preferred stock dividends
2,896
2,120
2,560
531
383
475
2,365
1,737
2,085
21
21
21
Net income available to common stockholders
$ 2,344 $ 1,716 $ 2,064
Increase
(Decrease) From
2020 to 2021
Increase
(Decrease) From
2019 to 2020
4%
17%
25%
NM
(36%)
9%
8%
(2%)
7%
—%
—%
(1%)
(1%)
(99%)
6%
37%
39%
36%
—%
37%
2%
(2%)
(5%)
(104%)
(26%)
(1%)
3%
5%
(2%)
(100%)
(100%)
(9%)
9%
NM
1%
(17%)
(19%)
(17%)
—%
(17%)
Year ended December 31, 2021
compared to year ended
December 31, 2020
Net income available to common stockholders
increased by $628 primarily driven by:
•
•
•
•
•
A $523 before tax change from net realized losses in 2020
to net realized gains in 2021, primarily driven by changes in
valuation and sales of equity securities from losses in the
2020 period to gains in the 2021 period;
An increase in net investment income of $467 before tax
driven by higher returns on limited partnerships and other
alternative investments;
A $103 before tax decrease in restructuring costs related to
the Hartford Next operational transformation and cost
reduction plan;
An increase in earnings from Hartford Funds; and
An increase in P&C underwriting results of $36 before tax,
with a reduction in COVID-19 incurred losses, a lower
Commercial Lines underlying loss and loss adjustment
expense ratio before COVID-19 and the effect of earned
premium growth largely offset by a change to net
unfavorable prior accident year reserve development,
higher personal automobile loss costs and higher
underwriting expenses.
These increases were partially offset by:
•
•
A $384 before tax increase in excess mortality claims and
COVID-19 related impacts to short-term-disability losses;
and
Lower income from the Talcott Resolution investment,
which was divested on June 30, 2021.
For a discussion of the Company's operating results by
segment, see MD&A - Segment Operating Summaries. In
addition, for further discussion of impacts resulting from the
COVID-19 pandemic, refer to the Impact of COVID-19 on our
financial condition, results of operations and liquidity section of
this MD&A.
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.
Earned premiums increased primarily due to:
•
•
An increase in P&C reflecting a 7% increase in Commercial
Lines and a 2% decrease in Personal Lines. Contributing to
the increase in Commercial Lines was the effect of higher
audit and endorsement premiums as the result of higher
insured exposures given the economic recovery in 2021.
For Personal Lines, the effect of non-renewals outpacing
new business was partially offset by the effect of $81 in
COVID-related premium credits in the 2020 period; and
An increase in Group Benefits earned premium of 3% year
over year due to an increase in group disability and higher
supplemental health product premiums, partially offset by
the effect of buyout premium in the 2020 period.
Fee income increased, largely driven by Hartford Funds as a
result of higher daily average assets under management due to
an increase in equity market levels and net inflows.
Other revenues decreased by $45, primarily driven by lower
income of $53 before tax from the Talcott Resolution investment,
which was divested on June 30, 2021.
Net investment income increased primarily due to:
•
•
Greater income from limited partnerships and other
alternative investments primarily driven by higher valuations
and cash distributions within private equity funds and sales
of underlying investments within real estate funds;
A higher level of invested assets;
•
•
Greater income from non-routine income items, including
yield adjustments on prepayable securities; and
Higher yield from equity investments.
These increases were partially offset by:
•
A lower yield on fixed maturity investments resulting from
reinvesting at lower rates and a lower yield on floating rate
investments.
Net realized gains (losses) changed from net losses in
the 2020 period to net gains in the 2021 period, primarily driven
by:
•
•
•
•
•
Gains on equity securities in the 2021 period driven by
appreciation in value compared to losses on equity
securities in the 2020 period, partially offset by net realized
gains in the 2020 period upon termination of derivatives
used to hedge against a decline in equity market levels;
A net reduction in ACL on mortgage loans and fixed
maturities in the 2021 period due to an improved economic
outlook, compared to increases in the ACL on mortgage
loans and fixed maturities in the 2020 period;
A $46 before tax net realized gain in 2021 resulting from
sale of the Company's 9.7% previously owned interest in
Talcott Resolution;
A lower level of losses in 2021 than in 2020 related to the
sale of the Continental Europe Operations; and
Higher net realized gains on sales of fixed maturity
securities.
For further discussion of investment results, see MD&A -
Investment Results, Net Realized Gains and MD&A - Investment
Results, Net Investment Income.
44
$16,923$17,288$17,999$11,490$11,918$12,495$5,423$5,361$5,504Property & Casualty ("P&C")Group Benefits ("GB")Other [1]201920202021$0$5,000$10,000$15,000$20,000$1,951$1,846$2,313$1,719$1,624$1,581$232$222$732NII excluding limited partnerships and otheralternative investmentsLimited partnerships and otheralternative investments201920202021$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
P&C Losses and LAE Incurred
Group Benefits Losses and LAE Incurred
Benefits, losses and loss adjustment expenses
increased due to:
•
An increase in incurred losses for Property & Casualty of
$457 which was driven by:
•
An unfavorable change of $335 in P&C net prior
accident year reserve development. Prior accident year
reserve development in the 2021 period was a net
unfavorable $199 before tax, driven by reserve
increases for sexual molestation and sexual abuse
claims, primarily to reflect claims made against the Boy
Scouts of America ("BSA"), partially offset by reserve
decreases in workers' compensation, catastrophes,
package business, personal automobile, commercial
property, and bond. Prior accident year development in
the 2021 period also included adverse reserve
development ceded to NICO under an adverse
development cover ("ADC") of $155 before tax for A&E
reserves and $91 before tax for Navigators reserves
related to 2018 and prior accident years, both of which
the Company recognized a deferred gain under
retroactive reinsurance accounting. Prior accident year
reserve development in 2020 was a favorable $136
before tax, driven by $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 Corporation and Pacific Gas and
Electric Company (together, "PG&E"). Reserve
development in 2020 also included a $254 before tax
reserve increase for sexual molestation and abuse
claims, a $208 before tax increase in A&E reserves
and a $102 before tax of adverse development for
Navigators related to 2018 and prior accident years.
While $220 of A&E and $102 of Navigators’ reserve
development in 2020 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. For further discussion, see Note 12 -
Reserve for Unpaid Losses and Loss Adjustment
Expenses of Notes to Consolidated Financial
Statements;
An increase in current accident year catastrophe
losses of $58, before tax. Catastrophe losses in the
2021 period were principally from hurricane Ida and
February winter storms, as well as from tornado, wind
and hail events in Texas, the Midwest and Southeast.
Catastrophe losses in 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; and
An increase in P&C current accident year ("CAY") loss
and loss adjustment expenses before catastrophes
primarily due to the effect of higher earned premiums in
commercial lines, higher personal automobile claim
frequency and severity, and higher non-catastrophe
property losses partially offset by a $247 before tax
decrease in COVID-19 incurred losses and lower
current accident year loss ratios before COVID-19 in
global specialty, workers’ compensation and general
liability.
•
An increase in Group Benefits of $475 primarily driven by a
$344 before tax increase in excess mortality claims in group
life, the effect of an increase in earned premiums and
higher short-term and long-term disability claim incidence
especially compared to the favorable incidence levels
experienced during the early stages of the pandemic. The
increased claim incidence was partially offset by a higher
45
$7,398$7,653$8,1102019 YTD2020 YTD2021 YTD$0$2,000$4,000$6,000$8,000$4,055$4,137$4,6122019 YTD2020 YTD2021 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
favorable New York Paid Family Leave adjustment
recognized in the 2021 period.
For further discussion of impacts resulting from the COVID-19
pandemic, refer to the impact of COVID-19 on our financial
condition, results of operations and liquidity section of this
MD&A.
Amortization of deferred policy acquisition costs
decreased from the prior year period driven, in part, by a
decrease in Personal Lines due to lower earned premiums.
Insurance operating costs and other expenses
increased due to:
•
•
•
•
•
Higher variable costs of the Hartford Funds business due to
higher daily average assets under management;
Higher variable incentive compensation costs;
An increase in supplemental and contingent commissions;
Increased costs in Group Benefits to handle elevated claim
levels resulting from the pandemic, higher technology costs
and increased AARP direct marketing costs in Personal
Lines; and
Legal and consulting costs associated with the unsolicited
proposals from Chubb Limited (“Chubb”) to acquire the
Company.
INVESTMENT RESULTS
These increases were partially offset by:
•
•
Lower staffing and other costs driven by the Company’s
Hartford Next operational transformation and cost reduction
plan; and
A decrease in the ACL on uncollectible premiums
receivable in Property & Casualty and Group Benefits in the
2021 period compared to an increase in the 2020 period
due to the economic impacts of COVID-19.
Restructuring and other costs decreased as the prior
year period included severance costs related to the Company's
Hartford Next operational transformation and cost reduction
plan. For further discussion of impacts resulting from the
Hartford Next initiative, see MD&A - The Hartford's Operations,
The Hartford's Operations, Operational Transformation and Cost
Reduction Plan and Note 23 - Restructuring and Other Costs of
Notes to Consolidated Financial Statements.
Income tax expense increased primarily due to an
increase in income before tax.
For further discussion of income taxes, see Note 17 - Income
Taxes of Notes to Consolidated Financial Statements.
Composition of Invested Assets
December 31, 2021
December 31, 2020
Amount
Percent
Amount
Percent
Fixed maturities, available-for-sale ("AFS"), at fair value
$ 42,847
74.2 % $ 45,035
79.7 %
Equity securities, at fair value
Mortgage loans (net of ACL of $29 and $38)
Limited partnerships and other alternative investments
Other investments [1]
Short-term investments
Total investments
2,094
5,383
3,353
375
3,697
3.6 %
9.3 %
5.8 %
0.7 %
1,438
4,493
2,082
201
6.4 %
3,283
2.5 %
7.9 %
3.7 %
0.4 %
5.8 %
$ 57,749
100.0 % $ 56,532
100.0 %
[1] Primarily consists of fixed maturities, at fair value using the fair value option ("FVO"), equity fund investments, overseas deposits, consolidated investment funds
and derivative instruments which are carried at fair value.
December 31, 2021 compared to
December 31, 2020
Total investments increased primarily due to an increase
in limited partnerships and other alternative investments,
mortgage loans, and equity securities, partially offset by a
decrease in fixed maturities, AFS.
Limited partnerships and other alternative
investments increased primarily driven by increased
valuations and additional investments in real estate joint
ventures.
Mortgage loans increased largely due to funding of
industrial, multifamily, and retail commercial whole loans.
Equity securities increased due to net purchases and
appreciation in value due to higher equity market levels.
Fixed maturities, AFS decreased primarily due to a
decrease in valuations due to higher interest rates, partially
offset by tighter credit spreads. The decline was also due to the
reinvestment into other asset classes.
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
For the years ended December 31,
2021
2020
2019
Amount Yield [1] Amount Yield [1] Amount Yield [1]
$ 1,349
3.1 % $ 1,442
3.4 % $ 1,559
4.9 %
3.7 %
31.8 %
73
181
732
58
(80)
3.7 %
3.9 %
12.3 %
39
172
222
42
(71)
46
165
232
32
(83)
3.8 %
3.4 %
4.4 %
14.4 %
Total net investment income
$ 2,313
4.3 % $ 1,846
3.6 % $ 1,951
4.1 %
Total net investment income excluding limited partnerships and
other alternative investments
$ 1,581
3.1 % $ 1,624
3.3 % $ 1,719
3.7 %
[1]Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost, as applicable, excluding repurchase
agreement and securities lending collateral, if any, and derivatives book value.
[2]Includes net investment income on short-term investments.
[3]Primarily includes changes in fair value of certain equity fund investments and income from derivatives that qualify for hedge accounting and are used to hedge
fixed maturities.
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Total net investment income increased primarily due to:
•
•
•
•
Greater income from limited partnerships and other
alternative investments primarily driven by higher valuations
and cash distributions within private equity funds and sales
of underlying investments within real estate funds;
A higher level of invested assets;
Greater income from non-routine items, including yield
adjustments on prepayable securities; and
A higher yield from equity investments.
These increases were partially offset by a lower yield on fixed
maturities resulting from reinvesting at lower rates and a lower
yield on floating rate investments.
Annualized net investment income yield, excluding
limited partnerships and other alternative investments, was
down primarily due to lower reinvestment rates, partially offset
by greater income from non-routine income items and a higher
yield on equity securities.
Average reinvestment rate, on fixed maturities and
mortgage loans, excluding certain U.S. Treasury securities, for
the year-ended December 31, 2021, was 2.6% which was below
the average yield of sales and maturities of 3.0% for the same
period. Average reinvestment rate 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 2022 calendar year, we expect the annualized net
investment income yield, excluding limited partnerships and
other alternative investments, to be lower than the portfolio yield
earned in 2021 due to lower reinvestment rates. The estimated
impact on annualized net investment income yield is subject to
variability due to evolving market conditions, active portfolio
management, and the level of non-routine income items, such
as make-whole payments, prepayment penalties on mortgage
loans and yield adjustments on prepayable securities.
47
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Realized Gains (Losses)
(Before tax)
Gross gains on sales of fixed maturities
Gross losses on sales of fixed maturities
Equity securities [1]
Net credit losses on fixed maturities, AFS [2]
Change in ACL on mortgage loans [3]
Intent-to-sell impairments [2]
Net other-than-temporary impairment ("OTTI") losses recognized in earnings
Valuation allowances on mortgage loans
Other, net [4]
Net realized gains (losses)
For the years ended December 31,
2021
2020
2019
$
$
319 $
(89)
227
4
9
—
255 $
(50)
(214)
(28)
(19)
(5)
39
509 $
47
(14) $
234
(56)
254
—
(3)
1
(35)
395
[1]The net unrealized gains on equity securities still held as of the end of the period and included in net realized gains (losses) were $155, $53, and $164 for the
years ended December 31, 2021, 2020, and 2019, respectively.
[2]Due to the adoption of accounting guidance for credit losses on January 1, 2020, realized 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 and Intent-to-Sell Impairments 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]Includes gains (losses) on non-qualifying derivatives for 2021, 2020, and 2019 of $12, $104, and $(24), respectively, gains (losses) from transactional foreign
currency revaluation of $(1), $(1) and (9), respectively, and a loss of $21 and $48, respectively, on the sale of Continental Europe Operations for the years ended
December 31, 2021 and 2020. For the year-ended December 31, 2021, there was also a gain of $46 on the sale of the Company's previously owned interest in
Talcott Resolution.
Year ended December 31, 2021
Gross gains and losses on sales were primarily due
to net sales of corporate securities and tax-exempt municipals,
in addition to sales of U.S. treasuries for duration and risk
management.
Equity securities net gains were primarily driven by
appreciation in value due to higher equity market levels and
gains realized on exit of private equity direct investments.
Other, net gains and losses included a gain of $46 on the
sale of the Company's 9.7% retained interest in Talcott
Resolution, sold on June 30, 2021, and a loss of $21 related to
the sale of the Company's Continental Europe Operations,
which was completed on December 29, 2021. Also included
were gains of $7 on credit derivatives driven by a decrease in
credit spreads.
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 gains on certain 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
48
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.
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 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
In developing these estimates management makes subjective
and complex judgments that are inherently uncertain and
subject to material change as facts and circumstances develop.
Although variability is inherent in these estimates, management
believes the amounts provided are appropriate based upon the
facts available upon compilation of the financial statements.
Certain of these estimates are particularly sensitive to market
conditions, and deterioration and/or volatility in the worldwide
debt or equity markets could have a material impact on the
Consolidated Financial Statements.
|PROPERTY & CASUALTY INSURANCE PRODUCT RESERVES, NET OF
REINSURANCE
P&C Loss and Loss Adjustment Expense
Reserves, Net of Reinsurance, by Segment as of
December 31, 2021
Loss and LAE Reserves, Net of Reinsurance as of December 31, 2021
Workers’ compensation
$
11,259 $
Commercial
Lines
Personal Lines
Property &
Casualty
Other
Operations
Total Property
&
Casualty
Insurance
% Total
Reserves-
net
— $
11,259
44.4%
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
4,960
303
1,924
530
1,175
14
1,261
434
—
110
285
171
— $
—
—
—
—
1,390
40
—
—
364
10
—
3
22,426
4,480
1,807
37
—
—
—
—
—
—
—
—
—
604
96
435
1,135
1,564
4,960
19.5%
303
1,924
530
1.2%
7.6%
2.1%
2,565
10.1%
54
1,261
434
364
724
381
609
0.2%
5.0%
1.7%
1.4%
2.9%
1.5%
2.4%
25,368
100.0%
6,081
31,449
Total reserves-gross
$
26,906 $
1,844 $
2,699 $
[1]Commercial Lines policy packages that include property and general liability coverages are generally referred to as the package line of business.
49
Commercial Lines$22,42688%Personal Lines$1,8077%Property &Casualty OtherOperations$1,1354%
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 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
50
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 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 and specialty 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
losses 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 $96 as of December 31, 2021,
comprised of $42 related to Commercial Lines, $1 related to
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Personal Lines and $53 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.
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 losses 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 property, 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-
51
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
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, 2021 and 2020, 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, up to a $1.5 billion limit, and the
other covered adverse development on Navigators Insurers'
existing net loss and allocated loss adjustment reserves as of
December 31, 2018, up to a $300 limit. Under both agreements,
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
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 reviews and
often relies on 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
supplements the expected loss ratio method and paid and reported development methods with others such as
individual claim reviews and frequency and severity techniques.
General liability, bond
and large deductible
workers’
compensation
Workers’
compensation
Marine
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 and in some bond lines individual claim
reviews are used.
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.
Assumed reinsurance
and all other
Allocated loss
adjustment expenses
("ALAE")
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. Policy
quarter and policy year loss reserve estimates are then converted to an accident year basis.
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.
Unallocated loss
adjustment expenses
("ULAE")
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.
52
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The recorded reserve for losses and loss adjustment expenses
represents the Company's best estimate of the ultimate
settlement amount of unpaid losses and loss adjustment
expenses. In applying judgment, the best estimate is selected
after considering the estimates derived from a number of
actuarial methods, giving more weight to those methods
deemed more predictive of ultimate unpaid losses and loss
adjustment expenses. The Company does not produce a
statistical range or confidence interval of reserve estimates and,
since reserving methods with more credibility are given greater
weight, the selected best estimate may differ from the mid-point
of the various estimates produced by the actuarial methods
used.
Assumptions used in arriving at the selected actuarial
indications consider a number of factors, including the
immaturity of emerged claims in recent accident years,
emerging trends in the recent past, and the level of volatility
within each line of business.
Adjustments to reserves of prior accident years 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
2021, 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 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, per-and
polyfluoroalkyl substances ("PFAS"), 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. For additional
information related to the Company's settlement agreement with
the Boy Scouts of America, see Note 12 - Reserve for Unpaid
Losses and Loss Adjustment Expenses in the Notes to
Consolidated Financial Statements. 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 security class action suits
can result in reserve volatility for 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, such as due to inflation
in labor and materials because of supply chain disruptions
affecting repair costs. Changes in claim practices increase the
uncertainty in the interpretation of case reserve data, which
53
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 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 the "Impact
of COVID-19 on our financial condition, results of operations
and liquidity" section of this MD&A, the Company incurred $31
of COVID-19 claims in 2021 within P&C, including in workers'
compensation and financial lines. Under workers’ compensation,
we have experienced 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. Under financial lines, we have
experienced COVID-19 related claims under employment
practices liability insurance policies. These claims tend to be low
severity and we are monitoring emerging trends related to return
to work and vaccine mandates. We continue to monitor
exposure under director's and officer's insurance policies.
In addition to the direct impacts of COVID-19 mentioned above,
we are monitoring for indirect impacts as well. This past year we
have seen inflationary pressure on building material and labor
costs due to supply chain disruption because of the pandemic.
This has the potential to impact homeowners and commercial
property severity and lengthen reporting patterns due to claim
settlement delays. Supply chain disruption as a result of the
pandemic has also had an impact on the automobile industry
impacting physical damage severities.
Reserve estimates for COVID-19 claims are difficult to estimate.
In establishing reserves for COVID-19 incurred claims through
December 31, 2021, we have provided IBNR at a higher
percentage of ultimate estimated incurred losses than usual as
we expect longer claim reporting patterns given the 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
54
eventually submitted for workers' compensation coverage.
Reserve estimates for directors’ and officers’ (“D&O”), errors and
omissions ("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. Changes in the legal environment and
litigation process, including but not limited to court delays and
closings, may also have potential impacts on development
patterns for liability lines.
Catastrophes- Within Commercial Lines and Personal
Lines, the Company is exposed to incurred losses from
catastrophe events, primarily for damage to property. Reserves
for hurricanes, tropical storms, tornado/hail, wildfires,
earthquakes and other catastrophe events are subject to
significant uncertainty about the number and average severity of
claims arising from those events, particularly in cases where the
event occurs near the end of a financial reporting period when
there is limited information about the extent of damages. For
example, after a catastrophe event, it may take a period of time
before we are able to access the impacted areas limiting the
ability of our claims adjusting staff to inspect losses, make
estimates and determine the damages that are covered by the
policy. To estimate catastrophe losses, we consider information
from claim notices received to date, third party data, visual
images of the affected area where we have exposures and our
own historical experience of loss reporting patterns for similar
events.
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. The Company does not use
statistical loss distributions or confidence levels in the process of
determining its reserve estimate and, as a result, does not
disclose reserve ranges.
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., PFAS 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
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 potential reserve development 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. Moreover, the
variation discussed does not represent a complete statistical
range of potential reserve outcomes, and factors exist beyond
the key indicators considered which have the potential to drive
additional variation to the Company's reserves.
Reserves,
Net of
Reinsurance
December 31,
2021
$1.4 billion
Estimated
Range of
Potential
Reserve
Development
+/- $65
$1.2 billion
+/- $30
$11.3 billion
+/- $400
$5.0 billion
+/- $500
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
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
55
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.
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
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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, 2021
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 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, 2021
Beginning liabilities for unpaid losses and loss adjustment
expenses, gross
Reinsurance and other recoverables
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") [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
Prior accident year development (pts) [3]
Commercial
Lines
Personal
Lines
Property &
Casualty
Other
Operations
Total
Property &
Casualty
Insurance
$
25,058 $
1,836 $
2,728 $
29,622
4,271
28
1,426
5,725
20,787
1,808
1,302
23,897
5,407
496
141
6,044
1,840
168
(144)
1,864
(91)
—
(4,316)
(1,865)
2
—
—
—
202
202
(155)
(214)
—
22,426
4,480
1,807
37
1,135
1,564
7,247
664
199
8,110
(246)
(6,395)
2
25,368
6,081
26,906 $
1,844 $
2,699 $
31,449
9,575 $
2,986
45.1
63.4
1.5
62.5
63.1
(4.9)
$
$
[1]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADCs which, under retroactive
reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from 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.
[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.
56
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, 2021, Net of
Reinsurance
Commercial
Lines
Personal
Lines
Total
Wind and hail
Winter storms [1]
Hurricanes and Tropical Storms
Wildfires
Losses ceded to the aggregate catastrophe treaty [2]
Catastrophes before assumed reinsurance
Global assumed reinsurance business [3]
$
157 $
151
151
9
(29)
439
57
Total catastrophe losses
$
496 $
94 $
18
43
23
(10)
168
—
168 $
251
169
194
32
(39)
607
57
664
[1]Includes catastrophe losses from the February winter storms in Texas and other areas within Commercial Lines and Personal Lines of $206 and $24, respectively,
gross of reinsurance, and $151 and $18, respectively, net of reinsurance under the Company's per occurrence property catastrophe treaty covering events other
than earthquakes and named hurricanes and tropical storms. The reinsurance covers 70% of up to $250 of losses in excess of $100 from such events occurring
within a seven day time period, subject to a $50 annual aggregate deductible. These recoveries do not inure to the benefit of the aggregate property catastrophe
treaty reinsurers. For further information on the treaty, refer to Enterprise Risk Management — Insurance Risk section of this MD&A.
[2]For further information on the aggregate catastrophe treaty, refer to Enterprise Risk Management — Insurance Risk section of this MD&A.
[3]Catastrophe losses incurred on global assumed reinsurance business are not covered under the Company's aggregate property catastrophe treaty. For further
information on the treaty, refer to Enterprise Risk Management — Insurance Risk section of this MD&A.
Unfavorable (Favorable) Prior Accident Year Development for the Year Ended December 31, 2021
Commercial
Lines
Personal
Lines
Property &
Casualty Other
Operations
Total Property
& Casualty
Insurance
Workers’ compensation
$
(190) $
— $
— $
Workers’ compensation discount accretion
General liability
Marine
Package business
Commercial property
Professional liability
Bond
Assumed reinsurance
Automobile liability
Homeowners
Net asbestos and 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
454
1
(91)
(26)
(2)
(26)
(6)
9
—
—
(97)
(5)
(6)
50
91
141 $
—
—
—
—
—
—
—
—
(90)
3
—
(57)
—
—
(144)
—
(144) $
—
—
—
—
—
—
—
—
—
—
—
—
(1)
48
47
155
202 $
(190)
35
454
1
(91)
(26)
(2)
(26)
(6)
(81)
3
—
(154)
(6)
42
(47)
246
199
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, 2020
Beginning liabilities for unpaid losses and loss adjustment
expenses, gross
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 catastrophes
Prior accident year development [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
Prior accident year development (pts) [4]
$
$
Commercial
Lines
Personal
Lines
Property &
Casualty Other
Operations
Total Property
& Casualty
Insurance
$
23,363 $
4,029
2,201 $
68
2,697 $
1,178
28,261
5,275
19,334
2,133
1,519
22,986
—
—
258
258
(210)
(265)
—
—
1,302
1,426
7,188
606
(136)
7,658
(312)
(6,404)
(45)
14
23,897
5,725
2,728 $
29,622
5,493
397
44
1,695
209
(438)
5,934
1,466
(102)
(4,348)
(45)
14
20,787
4,271
25,058 $
8,940 $
48.6
66.5
0.5
—
(1,791)
—
—
1,808
28
1,836 $
3,042
58.9
48.7
(14.6)
[1]Includes a cumulative effect adjustment of $1 and $(1) for Commercial Lines and Property & Casualty Other Operations respectively, representing an adjustment
to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting
Policies of Notes to Consolidated Financial Statements 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 ADCs 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
397 $
97 $
—
51
61
—
209 $
264
105
147
82
8
606
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
58
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 and 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)
—
(438) $
—
—
—
—
—
—
—
—
—
—
(2)
—
(8)
58
48
210
258 $
(110)
35
237
3
(58)
(4)
(14)
(19)
(6)
(34)
7
(2)
(529)
(8)
54
(448)
312
(136)
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, 2019
Commercial
Lines
Personal
Lines
Property &
Casualty Other
Operations
Total Property
& Casualty
Insurance
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
Prior accident year development (pts) [3]
19,455 $
2,456 $
2,673 $
3,137
108
987
16,318
2,001
2,348
—
1,686
—
—
—
21
21
—
(187)
—
1,520
1,177
4,913
2,087
323
(44)
140
(42)
5,192
2,185
(16)
(4,161)
(1)
19,333
4,030
$
$
23,363 $
8,325 $
50.0
62.6
(0.5)
—
(2,400)
—
2,133
68
2,201 $
3,235
74.2
68.3
(1.3)
24,584
4,232
20,352
2,001
7,000
463
(65)
7,398
(16)
(6,748)
(1)
22,986
5,275
2,697 $
28,261
[1]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADCs which, under retroactive
reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from 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.
[2]The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums and fee income.
[3]“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.
Current Accident Year Catastrophe Losses for the Year Ended December 31, 2019, Net of Reinsurance
Wind and hail
Winter storms
Tropical storms
Hurricanes
Wildfires
Tornadoes
Typhoons
Other
Commercial
Lines
Personal
Lines
Total
$
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
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, 2019
Commercial
Lines
Personal
Lines
Property &
Casualty Other
Operations
Total Property
& Casualty
Insurance
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 and 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
$
For discussion of the factors contributing to unfavorable
(favorable) for the prior accident year reserve development
2021, 2020, and 2019 periods, refer to Note 12 - Reserve for
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)
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
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, 2021
Asbestos
Environmental
Total Run-off A&E
Gross
Direct
Assumed Reinsurance
Total
Ceded- other than NICO
Total net reserves, before ceded losses to NICO
Ceded - NICO A&E ADC "Run-off"[1]
Net
$
1,247 $
460
1,707
(444)
1,263
394 $
68
462
(68)
394
$
1,641
528
2,169
(512)
1,657
(1,053)
604
[1]Including $1,053 of ceded losses for Run-off A&E and a ($38) reduction in ceded losses for Commercial Lines and Personal Lines, cumulative net incurred losses
of $1,015 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
2021
Beginning net reserves before reinsurance recoverable from NICO
Losses and loss adjustment expenses incurred before ceding to NICO
A&E ADC
Losses and loss adjustment expenses paid
Reclassification of allowance for uncollectible reinsurance [1]
Ending net reserves before reinsurance recoverable from NICO
Reinsurance recoverable from NICO A&E ADC
Ending net reserves
2020
Beginning net reserves before reinsurance recoverable from NICO
Losses and loss adjustment expenses incurred before ceding to NICO
A&E ADC
Losses and loss adjustment expenses paid
Reclassification of allowance for uncollectible reinsurance [1]
Ending net reserves before reinsurance recoverable from NICO
Reinsurance recoverable from NICO A&E ADC
Ending net reserves
2019
Beginning net reserves before reinsurance recoverable from NICO
Losses and loss adjustment expenses incurred before ceding to NICO
A&E ADC
Losses and loss adjustment expenses paid
Reclassification of allowance for uncollectible reinsurance [1]
Ending net reserves before reinsurance recoverable from NICO
Reinsurance recoverable from NICO A&E ADC
Ending liability — net
Asbestos
Environmental
Total Run-off A&E
$
1,268 $
419 $
1,687
104
(112)
3
1,263
51
(76)
—
394
$
$
1,308 $
346 $
130
(172)
2
1,268
106
(33)
—
419
$
$
1,342 $
321 $
76
(111)
1
1,308
56
(32)
1
346
$
155
(188)
3
1,657
(1,053)
604
1,654
236
(205)
2
1,687
(898)
789
1,663
132
(143)
2
1,654
(660)
994
[1]Related to the reclassification of an allowance for uncollectible reinsurance from 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 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 results in an
offsetting reinsurance recoverable up to the $1.5 billion
limit. Cumulative ceded losses up to the $650 reinsurance
62
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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, 2021, the Company has incurred a
cumulative $1,015 in adverse development on A&E reserves
that have been ceded under the A&E ADC treaty with NICO,
including $1,053 for Run-off A&E reserves, partially offset by a
$38 reduction for A&E reserves in Commercial Lines and
Personal Lines. As such, $485 of coverage is available for future
adverse net reserve development, if any. As a result, the
Company has recorded a $365 deferred gain within other
liabilities, representing the difference between the reinsurance
recoverable of $1,015 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 attachment point of $1.7 billion which was based on the
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.
Net and Gross Survival Ratios
Asbestos Environmental
One year net survival ratio
Three year net survival ratio
One year gross survival ratio
Three year gross survival ratio
11.3
9.6
10.9
9.4
5.2
8.4
4.2
7.4
Run-off A&E Paid and Incurred Losses and LAE Development
Asbestos
Environmental
Total A&E
Paid Losses &
LAE
Incurred
Losses & LAE
Paid Losses &
LAE
Incurred
Losses & LAE
Paid Losses &
LAE
Incurred
Losses & LAE
2021
Gross
Ceded- other than NICO
Net - Gross of ADC
Ceded - NICO A&E ADC
Net
2020
Gross
Ceded- other than NICO
Net - Gross of ADC
Ceded - NICO A&E ADC
Net
2019
Gross
Ceded- other than NICO
Net - Gross of ADC
Ceded - NICO A&E ADC
Net
$
$
$
157 $
(45)
112
252 $
(80)
172
131 $
(20)
111
148 $
(44)
104
170 $
(40)
130
115 $
(39)
76
109 $
(33)
76
40 $
(7)
33
39 $
(7)
32
55 $
(4)
51
$
141 $
(35)
106
$
95 $
(39)
56
$
266 $
(78)
188
—
188 $
292 $
(87)
205
—
205 $
170 $
(27)
143
—
143 $
203
(48)
155
(155)
—
311
(75)
236
(238)
(2)
210
(78)
132
(132)
—
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
63
Lines and Personal Lines. As part of the evaluation of asbestos
and environmental reserves in the fourth quarter of 2021, the
Company reviewed all of its open direct domestic insurance
accounts exposed to asbestos and environmental liability, as
well as assumed reinsurance accounts.
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
2021 comprehensive annual reviews
As a result of the 2021 fourth quarter review, the Company
increased estimated asbestos reserves before NICO
reinsurance by $106, including $104 in P&C Other Operations,
primarily due to an increase in claim settlement rates, claim
settlement values, and defense costs, which more than offset
the impact of a decline in claim filing frequency. Also contributing
was an increase in the Company's estimated share of liability
under pending or potential cost sharing agreements and
settlements. The increase in asbestos reserves was offset by a
$106 reinsurance recoverable under the NICO treaty.
As a result of the 2021 fourth quarter review, the Company
increased estimated environmental reserves before NICO
reinsurance by $49, including $51 in P&C Other Operations,
primarily due to the settlement of a large coal ash remediation
claim, an increase in legal defense costs and higher site
remediation costs. The increase in environmental reserves was
offset by a $49 reinsurance recoverable under the NICO treaty.
The total $155 increase in asbestos and environmental reserves
in P&C Other Operations was offset by a $155 reinsurance
recoverable under the NICO treaty. Since cumulative losses
ceded to the A&E ADC exceed the $650 of ceded premium paid,
the Company recognized a $155 increase in deferred gain on
retroactive reinsurance, resulting in the Company recording a
charge to earnings of $155 in 2021.
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 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 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
64
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.
For information regarding the 2019 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 2020 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, 2021 compared to
approximately 71% as of December 31, 2020. 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, 2021 compared to
approximately 29% as of December 31, 2020.
Review of "All Other" Reserves in Property &
Casualty Other Operations
Prior year development on all other reserves resulted in
increases of $47, $50 and $21, respectively for calendar years
2021, 2020 and 2019. Included in the 2021 adverse reserve
development was the portion of the increase in reserve for
sexual molestation and sexual abuse claims recognized in P&C
Other Operations, principally on assumed reinsurance. Also
included in 2021 adverse development was an increase in
reserves for ULAE, primarily due to an increase in expected
aggregate claim handling costs associated with asbestos and
environmental claims. For more information on the increase in
reserves for sexual molestation and sexual abuse claims, see
Note 12 - Reserve for Unpaid Losses and Loss Adjustment
Expenses, of the Notes to Consolidated Financial Statements.
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,
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
and recent developments in commutation activity between
reinsurers and cedants. As of 2021, 2020, and 2019 the
allowance for uncollectible reinsurance for Property & Casualty
Other Operations totaled $53, $60 and $71, 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 & 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.
development cover reinsurance agreements with NICO that are
accounted for as a deferred gain on retroactive reinsurance. 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.
The table below shows the range of annual reserve re-estimates
experienced by The Hartford over the past ten years. The range
of prior accident year development shown in the table below is
net of losses ceded, including losses ceded under two adverse
Range of Prior Accident Year Unfavorable (Favorable) Development for the Ten Years Ended
December 31, 2021
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, 2021
(1.3%) - 0.6%
(20.5%) - 8.3%
0.9% - 9.8%
(1.9%) - 2.4%
[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 (1.9%) 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
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 has on net
reserve changes of asbestos and environmental reserves.
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, 2021. 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, 2021 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.
65
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Effect of Net Reserve Re-estimates on Calendar Year Operations
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
Calendar Year
By Accident Year
2011 & Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
Increase (decrease) in net reserves [1]
Change in deferred gain on retroactive
reinsurance included in other liabilities
Total unfavorable (favorable) prior
accident year development
$
(4) $ 173 $ 326 $ 362 $ 310 $ 93 $
(26) $ 19 $ 277 $ 569 $ 2,099
19 —
(55)
(35)
(12)
(15)
(15)
(25)
(14)
(152)
(98)
(43)
(29)
(33)
(2)
(26)
(15)
(35)
(281)
(14)
20
(19)
(54)
(29)
(28)
(59)
(183)
191
(41)
(93)
19
(16)
(70)
(10)
(29)
14
9
(11)
(116)
78
(38)
(204)
(307)
(92)
(4) 192 228 250 457
(41)
(167)
(81)
(448)
(83)
(111)
(96)
(47)
(101)
(147)
(422)
(325)
(139)
(101)
(47) 339
16 312 246
$
(65) $ (136) $ 199
[1]Increase (decrease) in net reserves by accident year in the above table is net of losses ceded, including losses ceded under two adverse development cover
reinsurance agreements with NICO accounted for as a deferred gain on retroactive reinsurance. One agreement covers substantially all A&E reserve development
for 2016 and prior accident years (the “A&E ADC”) up to an aggregate limit of $1.5 billion and the other covered substantially all reserve development of Navigators
Insurance Company and certain of its affiliates for 2018 and prior accident years (“Navigators ADC”) up to an aggregate limit of $300. For calendar years before
2017, the 2011 and prior accident year development includes adverse development for A&E reserves. 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.
The commentary below explains, by accident year, the total prior
accident year development recognized over the past 10 years.
Accident year 2011 and Prior
The net increases in estimates of ultimate losses for accident
years 2011 and prior were 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. Also contributing was an
increase in workers' compensation and commercial automobile
liability, offset by favorable development in personal automobile
liability.
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, was 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 favorable frequency and
medical severity trends for workers' compensation, partially
offset by unfavorable frequency and severity trends for personal
and commercial automobile liability and increased severity of
liability claims on package business.
Accident year 2016
Estimates of ultimate losses were decreased for the 2016
accident year largely due to reserve decreases on workers'
compensation and personal automobile liability due to lower
estimated severity, partially 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, partially offset by 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.
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 partially offset by increases in commercial automobile
liability and general liability. Commercial automobile liability
reserve increases were related to higher estimated severity on
middle & large commercial claims. Increases in general liability
reserves for middle market and complex liability claims were
also largely due to higher than previously expected severity.
66
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Accident year 2019
Ultimate loss estimates were decreased for the 2019 accident
year mainly due to favorable emergence of property lines of
business, primarily related to catastrophes. In addition, reduced
reserve estimates for personal automobile liability were largely
offset by higher reserve estimates for commercial automobile
liability.
Accident year 2020
Ultimate loss estimates were decreased for the 2020 accident
year mainly due to favorable emergence of property lines of
business, inclusive of catastrophes. Reserve estimates were
also reduced, to a lesser extent, for personal automobile liability
due to lower estimated severity and for general liability.
|GROUP BENEFIT 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 $6,437 and $6,494 of
LTD unpaid losses and loss adjustment expenses, net of
reinsurance, as of December 31, 2021 and 2020, 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 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 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
67
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 long-term disability, which is the
largest reserve within Group Benefits, 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 3.3% and 3.4% in 2021 and 2020, respectively.
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
$28, before tax, as of December 31, 2021.
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 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 10 years, claim
termination rates for a single incurral year have generally
increased and have ranged from 5% below to 8% above current
assumptions over that time period. For a single recent incurral
year (such as 2021), a one percent decrease in our assumption
for LTD claim termination rates would increase our reserves by
$10. For all incurral years combined, as of December 31, 2021,
a one percent decrease in our assumption for our LTD claim
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
termination rates would increase our Group Benefits unpaid
losses and loss adjustment expense reserves by $23.
Impact of COVID-19 on 2021 Results
of Operations
Within Group Benefits, the Company experienced excess
mortality in its group life business of $583 in 2021, primarily
caused by direct and indirect impacts of COVID-19. Within the
group disability business, in 2021 the Company recognized $31
of COVID-19 related losses from short-term disability claims.
Current Trends Contributing to
Reserve Uncertainty
While we have not seen a significant change in claim recovery
patterns to date due to COVID-19, we have observed delays in
the Social Security Administration’s processing of disability
claims. Other potential pandemic-related risks, such as delays in
medical care or return-to-work and the emerging risk of long-
COVID symptoms are being monitored. Also, due to the effects
on the economy, we could experience an increase in claim
incidence on long-term disability claims.
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 2021 incurral
year is down slightly from that of the 2020 incurral year.
|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. The recognition and measurement of goodwill
impairment is 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 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,
2021 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, 2021, and resulted in no write-
downs of goodwill for the year ended December 31, 2021. All
reporting units passed the annual impairment test with a
significant margin. For information regarding the 2021 and 2020
impairment tests see Note 11 - Goodwill & Other Intangible
Assets of Notes to Consolidated Financial Statements.
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.
|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 is 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
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
68
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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, 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.
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
69
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
SEGMENT OPERATING SUMMARIES
|COMMERCIAL LINES - RESULTS OF OPERATIONS
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
Dividends to policyholders
Underwriting gain (loss)
Net servicing income
Net investment income [2]
Net realized gains (losses) [2]
Loss on reinsurance transaction
Other (expenses)
Income before income taxes
Income tax expense [3]
Net income
2021
2020
2019
$ 10,041 $ 8,969 $ 8,452
500
59
162
9,541
8,910
8,290
34
30
35
5,407
5,488
4,913
496
141
397
44
323
(44)
6,044
5,929
5,192
1,398
1,397
1,296
1,678
1,594
1,600
29
24
402
13
28
29
(37)
4
18
30
189
2
1,502
1,160
1,129
260
—
(18)
2,159
402
$ 1,757 $
(60)
—
271
(91)
(35)
1,032
(38)
1,462
176
270
856 $ 1,192
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
12%
NM
7%
13%
(1%)
25%
NM
2%
—%
5%
4%
(17%)
NM
NM
29%
NM
—%
49%
109%
128%
105%
6%
(64%)
7%
(14%)
12%
23%
NM
14%
8%
—%
56%
(3%)
(120%)
100%
3%
(122%)
100%
8%
(29%)
(35%)
(28%)
[1]For additional information on current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property and
Casualty Insurance Product Reserves Development, Net of Reinsurance and Note 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.
70
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Premium Measures
Small Commercial:
Net new business premium
Policy count retention [1]
Policy count retention, net of cancellations [1]
Renewal written price increases
Renewal earned price increases
2021
2020
2019
$
673
$
557
$
646
84 %
87 %
3.0 %
2.6 %
83 %
84 %
2.0 %
2.1 %
82 %
83 %
1.7 %
1.9 %
Policies in-force as of end of period (in thousands)
1,366
1,283
1,291
Middle Market [2]:
Net new business premium
Policy count retention [1]
Policy count retention, net of cancellations [1]
Renewal written price increases
Renewal earned price increases
Global Specialty:
Global specialty gross new business premium [3]
U.S. global specialty renewal written price increases
U.S. global specialty renewal earned price increases
International global specialty renewal written price increases [4]
International global specialty renewal earned price increases [4]
$
532
$
479
$
584
81 %
81 %
3.9 %
2.8 %
82 %
83 %
6.0 %
7.3 %
$
912
$
11.5 %
16.6 %
19.6 %
42.8 %
78 %
78 %
7.7 %
6.5 %
752
17.3 %
13.0 %
41.8 %
41.3 %
[1]Policy count retention represents the ratio of the number of renewal policies issued during the current year period divided by the number of policies issued in the
previous calendar year period before considering policies cancelled subsequent to renewal. Policy count retention, net of cancellations, represents the ratio of the
number of renewal policies issued net of cancellations during the current year period divided by the number of policies issued net of cancellations in the previous
calendar year period.
[2]Except for net new business premium, metrics for middle market exclude loss sensitive and programs businesses.
[3]Excludes Global Re and Continental Europe Operations and is before ceded reinsurance.
[4]Excludes offshore energy policies, political violence and terrorism policies, and any business under which the managing agent of our Lloyd's Syndicate delegates
underwriting authority to coverholders and other third parties.
Underwriting Ratios
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
Impact of current accident year catastrophes and prior year
development
Impact of current accident year change in loss reserves upon
acquisition of a business [1]
Underlying combined ratio
2021
2020
2019
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
56.7
61.6
59.3
5.2
1.5
4.5
0.5
3.9
(0.5)
63.3
66.5
62.6
32.2
33.5
34.7
0.3
0.3
0.4
95.8 100.4
97.7
(6.7)
(5.0)
(3.4)
—
—
(0.3)
89.1
95.5
94.0
(4.9)
0.7
1.0
(3.2)
(1.3)
—
(4.6)
(1.7)
—
(6.4)
2.3
0.6
1.0
3.9
(1.2)
(0.1)
2.7
(1.6)
0.3
1.5
[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 $29 of current accident year reserve increases which were excluded for the purposes of the underlying combined ratio calculation.
71
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Income
Earned Premiums
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net income increased primarily due to a change from an
underwriting loss to an underwriting gain, higher net investment
income and a change from net realized losses to net realized
gains. For further discussion of investment results, see MD&A -
Investment Results.
Underwriting Gain (Loss)
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Underwriting gain in 2021 compared with an
underwriting loss in 2020 with the improvement primarily due to
lower current accident year losses before catastrophes, partially
offset by higher net unfavorable prior accident year development
and higher current accident year catastrophes. The decrease in
current accident year losses before catastrophes was primarily
driven by $278 before tax of COVID-19 incurred losses in 2020
compared with $31 before tax of COVID-19 incurred losses in
2021, partially offset by the impact of higher earned premium on
incurred losses. Underwriting expenses increased due to higher
contingent and supplemental commissions, incentive
compensation, technology costs and marketing expenses,
partially offset by a decrease in the allowance for credit losses
on premiums receivable in the 2021 period compared to an
increase in the 2020 period and savings from Hartford Next
initiatives.
[1]Other of $42, $43 and $43 for 2019, 2020 and 2021, respectively, is
included in the total.
Written Premiums
[1]Other written premiums of $41, $41 and $43 for the year ended
December 31, 2019, 2020 and 2021, respectively, is included in the total.
72
$1,192$856$1,757201920202021$0$500$1,000$1,500$2,000$189$(37)$402201920202021$-200$0$200$400$600$8,290$8,910$9,541$1,547$2,241$2,368$2,983$2,976$3,200$3,718$3,650$3,930Global SpecialtyMiddle & Large CommercialSmall CommercialOther [1]201920202021$0$2,000$4,000$6,000$8,000$10,000$8,452$8,969$10,041$1,602$2,301$2,608$3,061$2,976$3,323$3,748$3,651$4,067Global SpecialtyMiddle & Large CommercialSmall CommercialOther [1]201920202021$0$2,000$4,000$6,000$8,000$10,000 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Current Accident Year Loss and LAE Ratio before
Catastrophes
Earned premiums increased in 2021 due to written
premium increases over the prior 12 months as well as due to
higher premiums from audits and endorsements, principally in
workers’ compensation due to an increasing exposure base
from higher payrolls as the economy recovers from the
pandemic.
Written premiums increased in 2021 driven by growth in
small commercial, middle & large commercial and global
specialty across most lines of business.
The Company recognized renewal written pricing increases in
all lines in 2021, with moderating price increases across most
lines in middle market and global specialty. In global specialty,
our U.S. wholesale book achieved an approximate 16% renewal
written price increase, led by excess casualty. Global specialty
international lines achieved a nearly 20% price increase, led by
D&O. In small commercial, renewal written price increases were
higher in 2021 than 2020, with workers' compensation pricing
slightly positive in 2021 due to rising wages, along with mid-
single digit increases in most other lines. In middle market, the
Company recognized high single-digit to low double-digit rate
increases in most middle market lines other than workers’
compensation, which experienced low single-digit written pricing
increases.
Written premium increased across all three lines of business.
•
Small commercial written premium increased in 2021 driven
by exposure growth from higher audit and endorsement
premium, higher policy count retention, renewal written
pricing increases in all lines as well as new business
growth. Written premium grew in all lines of business, with
the most significant growth in package business and
workers’ compensation.
• Middle & large commercial written premium increased in
2021 driven by exposure growth from higher audit and
endorsement premium, improved retention, renewal written
pricing increases in all lines as well as new business
growth. Written premium grew in most lines of business,
including general industries, national accounts, complex
liability solutions and specialized industries.
•
Global specialty written premium increased in 2021 driven
by continued strong written pricing increases, higher
retention and growth in gross new written premium. Written
premium grew in all lines except international, with the most
significant growth in U.S. wholesale, financial lines and
global reinsurance.
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Current Accident Year Loss and LAE ratio before
catastrophes decreased in 2021 primarily due to lower
COVID-19 incurred losses in 2021 as well as due to lower loss
ratios in global specialty and workers’ compensation. The lower
loss ratios in global specialty were largely the result of rate and
underwriting actions to improve profitability in those lines and
was driven by U.S. financial lines, global reinsurance, U.S.
wholesale and international.
2021 included COVID-19 incurred losses of $31 before tax,
including losses of $20 in workers’ compensation and $11 in
financial and other lines. 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 as well as a reserve of $40 for legal
defense costs. Workers’ compensation COVID-19 incurred
losses include claims in both states with presumptive coverage
and in other states where the claimant must prove their
COVID-19 illness was contracted at work. Financial lines
COVID-19 claims include exposures in D&O, E&O and
employment practices liability and the recessionary impacts on
the surety book of business.
73
59.361.656.7201920202021010203040506070 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
favorable development on prior year catastrophe reserves in
2020 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 both 2021 and 2020
included reserve increases related to Navigators Group on 2018
and prior accident years that was economically ceded to NICO
but for which the benefit was not recognized in earnings as it
has been recorded as a deferred gain on retroactive
reinsurance.
2022 Outlook
The Company expects Commercial Lines written premiums in
2022 to be 4% to 5% higher than 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. In middle & large commercial, we expect
written premium growth in our general industries book of
business driven by improved retention and new business
growth, as well as an increase in new business in specialized
industries. In global specialty, premium growth in 2022 is
expected primarily in wholesale and financial lines in the U.S.,
as well as in global reinsurance and international.
In 2022, management expects positive renewal written pricing in
most lines, though workers' compensation pricing is expected to
be flat to slightly negative. Across the rest of Commercial Lines,
mid single-digit rate increases are expected to continue in most
lines with written pricing increases in the high single-digits in
wholesale and ocean marine. Written pricing increases in 2022
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 90.0 to 92.0 in 2022, compared to 95.8 in 2021, primarily due
to lower current accident year catastrophe losses expected in
2022, and the effect of a prior accident year reserve increase
and COVID-19 incurred claims in 2021. Apart from lower
expected COVID-19 claims, we expect earned pricing increases
in excess of loss costs in most lines except workers’
compensation, while the expense ratio is expected to improve
driven, in part, by additional savings from Hartford Next
initiatives. The underlying combined ratio is expected to be 86.5
to 88.5 in 2022 compared to 89.1 in 2021.
Catastrophes and Unfavorable (Favorable) Prior
Accident Year Development
Year ended December 31, 2021 compared to the
year ended December 31, 2020
Current accident year catastrophe losses for 2021
included losses from tornado, wind and hail events, mostly
concentrated in the Midwest, Texas and Southeast as well as
hurricane Ida, and February winter storms primarily in the South.
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.
Prior accident year development was net unfavorable
for 2021. Reserve development in 2021 included an increase in
general liability that included a reserve increase related to the
settlement with Boy Scouts of America on sexual molestation
and sexual abuse claims, largely offset by reserve decreases for
workers' compensation, package business, catastrophes,
commercial property and bond.
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. Partially offsetting was
74
$323$397$496$(44)$44$141CAY CATsPYD201920202021$-100$0$100$200$300$400$500 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
| PERSONAL LINES - RESULTS OF OPERATIONS
Underwriting Summary
Written premiums
Change in unearned premium reserve
Earned premiums
Fee income
Losses and loss adjustment expenses
2021
2020
2019
$
2,908 $
2,936 $
3,131
(46)
(72)
(67)
2,954
3,008
3,198
32
34
37
Current accident year before catastrophes
1,840
1,695
2,087
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
Net servicing income [2]
Net investment income [3]
Net realized gains (losses) [3]
Other income (expenses)
Income before income taxes
Income tax expense [4]
Net income
168
(144)
209
(438)
140
(42)
1,864
1,466
2,185
230
615
2
275
19
157
29
—
480
244
591
4
737
14
157
(5)
(1)
902
95
385 $
184
718 $
$
259
625
6
160
13
179
43
(1)
394
76
318
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
(1%)
36%
(2%)
(6%)
9%
(20%)
67%
27%
(6%)
4%
(50%)
(63%)
36%
—%
NM
100%
(47%)
(48%)
(46%)
(6%)
(7%)
(6%)
(8%)
(19%)
49%
NM
(33%)
(6%)
(5%)
(33%)
NM
8%
(12%)
(112%)
—%
129%
142%
126%
[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 and Note 12 - Reserve for Unpaid Losses and Loss Adjustment Expenses.
[2]Includes servicing revenues of $80, $81, and $83 for 2021, 2020, and 2019, respectively and includes servicing expenses of $61, $67, and $70 for 2021, 2020,
and 2019, 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
2021
2020
2019
$
$
$
$
1,997 $
911
2,908 $
2,003 $
933
2,936 $
2,035 $
919
2,954 $
2,058 $
950
3,008 $
2,176
955
3,131
2,221
977
3,198
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
—%
(2%)
(1%)
(1%)
(3%)
(2%)
(8%)
(2%)
(6%)
(7%)
(3%)
(6%)
75
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Premium Measures
2021
2020
2019
Policies in-force end of period (in thousands)
Automobile
Homeowners
New business written premium
Automobile
Homeowners
Policy count retention [1]
Automobile
Homeowners
Policy count retention, net of cancellations [1]
Automobile
Homeowners
Renewal written price increase
Automobile
Homeowners
Renewal earned price increase
Automobile
Homeowners
1,317
773
1,369
826
$
$
219
60
$
$
223
63
$
$
84 %
85 %
84 %
84 %
2.2 %
8.5 %
2.1 %
8.1 %
84 %
84 %
86 %
86 %
2.4 %
6.4 %
3.4 %
5.7 %
1,422
877
220
73
83 %
83 %
85 %
85 %
4.6 %
6.5 %
5.5 %
8.4 %
[1]Policy count retention represents the ratio of the number of renewal policies issued during the current year period divided by the number of policies issued in the
previous calendar period before considering policies cancelled subsequent to renewal. Policy count retention, net of cancellations, represents the ratio of the
number of renewal policies issued net of cancellations during the current year period divided by the number of policies issued net of cancellations in the previous
calendar period.
Underwriting Ratios
2021
2020
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
62.3
5.7
(4.9)
63.1
27.6
90.7
(0.8)
89.9
56.3
6.9
(14.6)
48.7
26.8
75.5
7.7
83.1
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
65.3
4.4
(1.3)
68.3
26.7
95.0
(3.1)
91.9
6.0
(1.2)
9.7
14.4
0.8
15.2
(8.5)
6.8
(9.0)
2.5
(13.3)
(19.6)
0.1
(19.5)
10.8
(8.8)
Automobile
Combined ratio
Underlying combined ratio
Homeowners
Combined ratio
Underlying combined ratio
Product Combined Ratios
2021
2020
2019
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
85.5
88.0
54.2
72.5
96.6
97.9
91.7
78.3
7.4
7.9
32.6
4.0
(11.1)
(9.9)
(37.5)
(5.8)
92.9
95.9
86.8
76.5
76
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Income
Earned Premiums
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net income decreased in 2021, largely driven by a decrease
in underwriting gain, partially offset by a change from net
realized losses to net realized gains and an increase in net
servicing income.
Underwriting Gain
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Earned premiums decreased in 2021 due to the effect of a
decline in written premium over the prior twelve months in both
Agency channels and in AARP Direct due to non-renewals
exceeding new business. The decrease was partially offset by
the effect of $81 of premium credits given to automobile
policyholders in the second quarter of 2020 in recognition of
shelter-in-place guidelines that reduced miles driven in 2020.
Written Premiums
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Underwriting gain decreased in 2021, primarily due to a
decrease in favorable prior accident year catastrophe reserve
development and higher current accident year personal
automobile loss costs. Also contributing was an increase in
underwriting expenses and higher current accident year non-
catastrophe property losses, partially offset by lower current
accident year catastrophe losses. Contributing to the increase in
underwriting expenses in 2021 was higher costs for AARP direct
marketing, incentive compensation, and technology, partially
offset by cost savings from the Hartford Next initiative.
Written premiums decreased in automobile for 2021 due
to the effect of non-renewed premium exceeding new business,
partially offset by the effect of the premium credits given in the
2020 period. Written premium declined in homeowners due to
the effect of non-renewed premium exceeding new business.
For automobile and homeowners new business decreased in
2021 compared to the prior year.
Renewal written pricing increases were down modestly
in automobile for 2021 while renewal written pricing increases
for homeowners were higher in 2021 in response to recent loss
cost trends.
Policy count retention was flat for automobile and was up
slightly for homeowners.
Policies in-force decreased in the 2021 period in both
automobile and homeowners driven by not generating enough
new business to offset the loss of non-renewed policies.
77
$318$718$385201920202021$0$200$400$600$800$160$737$275201920202021$0$200$400$600$800$3,198$3,008$2,954$977$950$919$2,221$2,058$2,035HomeownersAutomobile201920202021$0$1,500$3,000$4,500$3,131$2,936$2,908955$933$9112,176$2,003$1,997HomeownersAutomobile201920202021$0$1,200$2,400$3,600 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Current Accident Year Loss and Loss
Adjustment Expense Ratio before Catastrophes
Current Accident Year Catastrophes and
Unfavorable (Favorable) Prior Accident Year
Development
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Current accident year loss and LAE ratio before
catastrophes increased in 2021 by 7.1 points in automobile
and 3.1 points in homeowners. The increase in automobile was
due to higher claim frequency, due to an increase in miles
driven, and an increase in average claim severity. For 2021, the
homeowners current accident year loss and LAE ratio before
catastrophes increased due to an increase in weather and non-
weather severity, partially offset by the effect of earned pricing
increases. Contributing to the increase in homeowners severity
was the effect of higher rebuilding costs and a greater number
of large losses.
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Current accident year catastrophe losses
decreased in 2021 compared to the prior year. Current accident
year catastrophe losses for 2021 included losses from hurricane
Ida, tropical storms, California wildfires, and February winter
storms as well as losses largely from tornado, wind and hail
events, mostly concentrated in Texas, the Southeast, Midwest
and Mountain West.
Current accident year catastrophe losses for 2020 were
primarily from Pacific Coast wildfires, tropical storm Isaias,
hurricane Laura, and various tornado, wind and hail events in
the South, Midwest and Central Plains.
Prior accident year development was less favorable in
2021, with the decrease largely due to lower reserve reductions
for prior year catastrophes. Prior accident year development
was favorable in 2021, with a reduction in personal automobile
liability and a decrease in catastrophe reserves, driven by
reductions in estimates for prior year hurricanes, tornado & hail
and wildfires, including the benefit of higher expected
subrogation recoveries related to the 2017 and 2018 California
wildfires. Prior accident year development was favorable in 2020
with reserve reductions in catastrophes and, to a lesser extent,
personal automobile liability. The reduction in catastrophe
reserves for 2020 was driven by lower estimated losses for the
2017 and 2018 California wildfires, including a $260 subrogation
benefit from PG&E, as well as a reduction in losses for various
2018 and 2019 wind and hail events.
78
65.356.362.3201920202021020406080$140$209$168$(42)$(438)$(144)CAY CATsPYD201920202021$-500$-400$-300$-200$-100$0$100$200$300 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
2022 Outlook
Written premium is expected to decrease in 2022 compared with
2021 as non-renewal of premium more than offsets new
business. While new business conversions are expected to
increase with the continued rollout of the Prevail automobile and
home product in additional states, new business premium is
expected to be lower despite expected higher conversion rates
as the Company transitions from 12-month automobile policies
to 6-month automobile policies for AARP members.
In 2022, the Company expects written pricing increases in
automobile to be in the low to mid-single digits throughout the
year as the effect of recent claim frequency and severity trends
are reflected in rate filings. Written pricing increases in
homeowners are expected to be in the mid-to-high single digits.
The Company expects the combined ratio for Personal Lines will
be 97.0 to 99.0 in 2022 compared to 90.7 in 2021 as 2021
benefited from claim frequency that was still below pre-
pandemic levels as well as from lower current accident year
catastrophe losses and favorable prior accident year
development. The underlying combined ratio for Personal Lines
is expected to be 90.0 to 92.0 in 2022 compared to 89.9 in 2021
due to an increase in the current accident year loss and loss
adjustment expense ratio before catastrophes in both
automobile and homeowners with supply chain disruptions
causing an increase in severity through 2022. For automobile,
we expect the underlying combined ratio to increase driven by
an increase in both claim frequency and severity. The underlying
combined ratio for homeowners is also expected to increase in
2022, 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.
| PROPERTY & CASUALTY OTHER OPERATIONS -
RESULTS OF OPERATIONS
Underwriting Summary
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 gains (losses) [2]
Other income (expenses)
Income (loss) before income taxes
Income tax expense (benefit) [3]
Net income (loss)
$
2021
2020
2019
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
— $
—
202
202
8
(210)
75
13
(1)
(123)
(28)
(95) $
— $
—
258
258
11
(269)
55
(1)
1
(214)
(46)
(168) $
(2)
2
21
21
12
(31)
84
20
—
73
12
61
—%
—%
(22%)
(22%)
(27%)
22%
36%
NM
NM
43%
39%
43%
100%
(100%)
NM
NM
(8%)
NM
(35%)
(105%)
NM
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 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.
79
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Income (Loss)
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net loss in 2021 decreased compared to 2020, primarily due
to lower unfavorable prior accident year reserve development,
higher net investment income and a change from net realized
losses to net realized gains.
Underwriting loss in 2021 decreased from 2020 primarily
due to a lower increase in A&E reserves. Unfavorable prior
accident year development in 2021 included a $155 increase in
A&E reserves, an increase in reserves for sexual molestation
and sexual abuse claims, primarily on assumed reinsurance,
and a $14 increase in ULAE reserves, partially offset by a
reduction in the allowance for uncollectible reinsurance.
Unfavorable prior accident year development in 2020 primarily
included a $208 increase in A&E reserves, and a $35 increase
in ULAE reserves. In both periods, the increase in ULAE
reserves was primarily driven by the higher estimate for A&E
claims.
Before NICO reinsurance in 2021, A&E reserves were increased
by $155 in P&C Other Operations, including $104 for asbestos
and $51 for environmental. Cumulative adverse A&E reserve
development on both ongoing operations and P&C Other
Operations totaled $1,015 through December 31, 2021 and
since this amount exceeds ceded premium paid for the A&E
ADC of $650, the Company has recognized a $365 deferred
gain on retroactive reinsurance as of December 31, 2021, within
other liabilities, including a $155 increase in deferred gain in
2021 recognized within P&C Other Operations.
Asbestos reserves prior accident year development in
2021 before NICO reinsurance of $104 was primarily due to an
increase in claim settlement rates, claim settlement values, and
defense costs, which more than offset the impact of a decline in
claim filing frequency. Also contributing was an increase in the
Company's estimated share of liability under pending or
potential cost sharing agreements and settlements.
Environmental reserves prior accident year development
in 2021 before NICO reinsurance of $51 was primarily due to
the settlement of a large coal ash remediation claim, an
increase in legal defense costs and higher site remediation
costs.
|GROUP BENEFITS - RESULTS OF OPERATIONS
Operating Summary
Premiums and other considerations
Net investment income [1]
Net realized gains [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
2021
2020
2019
$ 5,687 $
5,536 $
5,603
550
130
6,367
4,612
40
1,373
40
6,065
302
53
$ 249 $
448
22
6,006
4,137
50
1,308
40
5,535
471
88
383 $
486
34
6,123
4,055
54
1,311
41
5,461
662
126
536
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
3%
23%
NM
6%
11%
(20%)
5%
—%
10%
(36%)
(40%)
(35%)
(1%)
(8%)
(35%)
(2%)
2%
(7%)
—%
(2%)
1%
(29%)
(30%)
(29%)
[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.
80
$61$(168)$(95)201920202021$-200$-150$-100$-50$0$50$100
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Premiums and Other Considerations
Fully insured — ongoing premiums
Buyout premiums
Fee income
Total premiums and other considerations
Fully insured ongoing sales, excluding buyouts
2021
2020
2019
$
5,502 $
5,305 $
5,416
2
56
183
5,687 $
760 $
175
5,536 $
717 $
$
$
7
180
5,603
647
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
4%
(96%)
5%
3%
6%
(2%)
NM
(3%)
(1%)
11%
Group disability loss ratio
Group life loss ratio
Total loss ratio
Expense ratio [1]
Ratios, Excluding Buyouts
2021
2020
2019
68.2 %
101.9 %
81.1 %
25.5 %
66.1 %
87.5 %
74.5 %
25.2 %
67.3 %
79.5 %
72.3 %
24.5 %
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
2.1
14.4
6.6
0.3
(1.2)
8.0
2.2
0.7
[1]Integration and transaction costs related to the acquisition of Aetna's U.S. group life and disability business are not included in the expense ratio.
Margin
2021
2020
2019
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
Net income margin
3.9%
6.4%
8.8%
(2.5)
(2.4)
Adjustments to reconcile net income margin to core earnings
margin:
Net realized losses (gains) excluded from core earnings, before tax
Integration and other non-recurring M&A costs, before tax
Income tax benefit
Impact of excluding buyouts from denominator of core earnings
margin
Core earnings margin
(2.0%)
0.1%
0.5%
—%
2.5%
(0.4%)
0.3%
—%
0.1%
6.4%
(0.5%)
0.6%
—%
—%
8.9%
(1.6)
(0.2)
0.5
(0.1)
(3.9)
0.1
(0.3)
0.0
0.1
(2.5)
81
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Net Income
Fully Insured Ongoing Premiums
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net income decreased largely driven by higher excess
mortality and short-term disability losses and higher operating
expenses, partially offset by an increase in net realized gains,
an increase in net investment income and increased earned
premiums.
Insurance operating costs and other expenses
were higher year over year as an increase in incentive
compensation, technology costs and claim costs to handle
elevated claim levels resulting from the pandemic was partially
offset by lower staffing and other costs due to the Hartford Next
operational transformation and cost reduction program and a
decrease in integration costs.
In addition, 2021 included a decrease in the allowance for credit
losses on premiums receivable compared to an increase in the
allowance in the prior year.
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Fully insured ongoing premiums increased primarily
due to an increase in exposure on existing accounts as our
customers emerge from the pandemic, as well as strong
persistency and sales.
Fully insured ongoing sales, excluding buyouts
increased with increases in group disability and other partially
offset by a decrease in group life.
82
$536$383$249201920202021$0$100$200$300$400$500$600$5,416$5,305$5,502$2,647$2,630$2,799$2,515$2,405$2,387$254$270$316OtherGroup lifeGroup disability201920202021$0$1,000$2,000$3,000$4,000$5,000$6,000
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Ratios
2022 Outlook
The Company expects Group Benefits fully insured ongoing
premiums to increase approximately 2% in 2022 due to higher
book persistency and continued strong sales. We expect net
income in 2022 to benefit from lower excess mortality and
pandemic related short-term disability losses, partially offset by
the effects of downward pressure on pricing due to recent
historical favorable long-term disability claim incidence, an
expectation of higher claim incidence and less favorable
recoveries on long-term disability claims in 2022 and lower
expected investment yields. For 2022, we have assumed
excess mortality losses of $100 to $200 before tax and
COVID-19 short-term disability losses of approximately $25
before tax. The level of excess mortality losses is subject to
significant uncertainty as it is dependent on a number of factors
difficult to predict including, among others, the ultimate
vaccination rate of the population, the continued effectiveness of
the vaccines, the potential spread of new COVID-19 variants,
the percentage of those infected who are of working age and the
strain on the health care system preventing timely treatment of
chronic illnesses. Compared to the net income margin of 3.9%
in 2021, the net income margin in 2022 will largely depend on
the level of excess mortality claims and other COVID-19
impacts. Based on the assumed range of excess mortality and
COVID-19 short-term disability losses, the core earnings margin
is expected to be 3.1% to 5.4% in 2022 compared to the 2.5%
core earnings margin reported in 2021.
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Total loss ratio increased 6.6 points for 2021 reflecting a
higher group life loss ratio and higher group disability loss ratio.
The group life loss ratio increased 14.4 points driven by a 14.5
point increase in excess mortality claims compared to the twelve
month period ended December 31, 2020. For the twelve month
periods ended December 31, 2021 and 2020, excess mortality
losses were $583 and $239, respectively. The group disability
loss ratio increased 2.1 points over the twelve-month period
ended December 31, 2020. Both the short-term and long-term
disability loss ratios reflect increased claim incidence especially
compared to the favorable incidence levels experienced during
the early stages of the pandemic. The increased claim incidence
was partially offset by a higher favorable New York Paid Family
Leave adjustment recognized in the 2021 period.
Expense ratio increased 0.3 points in 2021 driven by an
increase in incentive compensation, technology costs and claim
costs to handle elevated claim levels resulting from the
pandemic, partially offset by lower staffing and other costs as a
result of the Hartford Next operational transformation and cost
reduction program, and higher earned premiums. Also included
was a decrease in the allowance for credit losses on premiums
receivable compared to an increase in the allowance in the prior
year period.
83
24.525.225.572.374.581.1Expense ratioLoss ratio201920202021020406080100 Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
|HARTFORD FUNDS - RESULTS OF OPERATIONS
Operating Summary
2021
2020
2019
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
Fee income and other revenue
Net investment income
Net realized gains
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:
$
1,189 $
5
4
1,198
12
913
925
273
56
217 $
989 $
4
8
1,001
14
773
787
214
44
170 $
999
7
5
1,011
12
813
825
186
37
$
149
$ 151,347 $ 120,908 $ 117,914
12.5
14.1
14.3
Effect of net realized gains, excluded from core earnings, before tax
Effect of income tax expense
Return on Assets ("ROA"), core earnings [2]
(0.3)
0.1
14.1
(0.7)
0.1
13.5
(0.3)
—
12.2
[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
20%
25%
(50%)
20%
(14%)
18%
18%
28%
27%
28%
25%
0.2
0.4
0.0
0.6
(1%)
(43%)
60%
(1%)
17%
(5%)
(5%)
15%
19%
14%
3%
1.6
(0.4)
0.1
1.3
2021
2020
2019
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
Mutual Fund and ETP AUM - beginning of period
$ 124,627 $ 112,533 $ 91,557
32,399
28,604
22,479
(28,653)
(31,412)
(23,624)
121
(276)
1,332
144%
3,867
(3,084)
187
14,138
15,178
20,789
11%
13%
9%
NM
(7%)
14%
3%
13%
23%
27%
(33%)
(121%)
NM
(27%)
11%
3%
10%
Sales - mutual fund
Redemptions - mutual fund
Net flows - ETP
Net Flows - mutual fund and ETP
Change in market value and other
Mutual Fund and ETP AUM - end of period
142,632 124,627 112,533
Talcott Resolution life and annuity separate account AUM [1]
15,263
14,809
14,425
Hartford Funds AUM - end of period
$ 157,895 $ 139,436 $ 126,958
[1]Represents AUM of the life and annuity business sold in May 2018 that is still managed by the Company's Hartford Funds segment.
84
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.
Net Income
2021
2020
2019
$ 95,703 $ 82,123 $ 71,629
20,113
17,034
16,130
23,610
22,645
21,332
3,206
2,825
3,442
$ 142,632 $ 124,627 $ 112,533
Increase
(Decrease)
From 2020 to
2021
Increase
(Decrease)
From 2019 to
2020
17%
18%
4%
13%
14%
15%
6%
6%
(18%)
11%
Hartford Funds AUM
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net income increased primarily due to higher fee income as
a result of an increase in daily average assets under
management, partially offset by higher variable costs and the
effect of a $12 reduction in contingent consideration payable
associated with the acquisition of Lattice that was recognized in
first quarter 2020.
December 31, 2021 compared to
December 31, 2020
Hartford Funds AUM increased primarily due to net
inflows and an increase in market values over the previous
twelve months. Net inflows on mutual fund and ETP of $3.9
billion in 2021 compared to net outflows of $3.1 billion for the
year ended December 31, 2020.
2022 Outlook
Assuming net inflows and continued growth in equity markets in
2022, the Company expects net income for Hartford Funds to
increase from 2021.
85
$149$170$217201920202021$0$50$100$150$200$250$126,958$139,436$157,89512/31/1912/31/2012/31/21$0$50,000$100,000$150,000
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
|CORPORATE - RESULTS OF OPERATIONS
Operating Summary
2021
2020
2019
Increase
(Decrease)
From 2020
to 2021
Increase
(Decrease)
From 2019
to 2020
Fee income [1]
Net investment income
Net realized gains
Other revenue
Total revenues
Benefits, losses and loss adjustment expenses [2]
Insurance operating costs and other expenses [1]
Loss on extinguishment of debt [3]
Interest expense [3]
Restructuring and other costs
Total benefits, losses and expenses
Loss before income taxes
Income tax benefit [4]
Net loss
Preferred stock dividends
$
50 $
49 $
24
73
(10)
137
7
90
—
234
1
332
(195)
(47)
(148)
21
(169) $
22
22
53
146
15
76
—
236
104
431
(285)
(63)
(222)
21
(243) $
50
66
22
96
234
19
83
90
259
—
451
(217)
(46)
(171)
21
(192)
2%
9%
NM
(119%)
(6%)
(53%)
18%
—%
(1%)
(99%)
(23%)
32%
25%
33%
—%
30%
(2%)
(67%)
—%
(45%)
(38%)
(21%)
(8%)
(100%)
(9%)
NM
(4%)
(31%)
(37%)
(30%)
—%
(27%)
Net loss available to common stockholders
$
[1]Includes investment management fees and expenses related to managing third party business, including management of a portion of the invested assets of Talcott
Resolution.
[2]Includes benefits expense on life and annuity business previously underwritten by the Company.
[3]For discussion of debt, see Note 14 - Debt of Notes to Consolidated Financial Statements.
[4]For discussion of income taxes, see Note 17 - Income Taxes of Notes to Consolidated Financial Statements.
Net Loss
Income (loss) from the Company’s previously owned equity
interest in Talcott Resolution was $(11) and $42, respectively, for
2021 and 2020. The increase in operating costs and other
expenses for 2021 was primarily driven by legal and consulting
costs associated with the unsolicited proposals from Chubb
Limited to acquire the Company, partially offset by lower
consulting fees. Net realized gains for 2021 included a $46 gain
on sale of the Company’s 9.7% retained equity interest in Talcott
Resolution.
Interest Expense
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net loss available to common stockholders decreased from
2020 primarily due to a decrease in restructuring and other
costs and greater net realized gains, partially offset by a change
from income to loss from the Company’s previously owned
equity interest in Talcott Resolution and higher insurance
operating costs and other expenses.
86
$(171)$(222)$(148)201920202021$-300$-200$-100$0$259$236$234201920202021$0$100$200$300
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Interest expense in 2021 was relatively consistent with
2020 due to the repayment of our 5.5% senior notes in March
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.
2020 offset by the issuance of the 2.9% senior notes in
September 2021.
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 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
ERCC
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.
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.
87
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
• 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.
88
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Risk
Natural
catastrophe
Definition
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.
Details and Company Limits
The Company generally limits its estimated before 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. The
Company generally limits its estimated before tax loss from an aggregation of multiple
natural catastrophe events for an all-peril annual aggregate 100-year event to less than
18% reported capital and surplus of the property and casualty insurance subsidiaries
after reinsurance. From time to time the estimated loss from natural catastrophes may
fluctuate above or below these limits due to changes in modeled loss estimates,
exposures or statutory surplus. [1]
The table below represents the estimated before tax catastrophe loss exceedance
probabilities, from an aggregate of all catastrophe events occurring in a one-year
timeframe before and after reinsurance and from a single hurricane or earthquake
occurrence.
Modeled Loss Gross and Net of Reinsurance [2]
Probability of Loss Exceedance [3]
Gross of
Reinsurance
Net of
Reinsurance
Aggregate annual all-peril (1-in-100) (1.0%)
Aggregate annual all-peril (1-in-250) (0.4%)
Hurricane single occurrence (1-in-100) (1.0%)
Hurricane single occurrence (1-in-250) (0.4%)
Earthquake single occurrence (1-in-100) (1.0%)
Earthquake single occurrence (1-in-250) (0.4%)
$
$
$
$
$
$
2,062 $
2,893 $
1,106 $
1,854 $
783 $
1,482 $
1,160
1,726
459
904
414
661
Terrorism
Pandemic
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”).
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.
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 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 before 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. [1]
[1]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.
[2]The loss estimates represent total property modeled losses for hurricane single occurrence events, property and workers' compensation modeled losses for
earthquake single occurrence events, and modeled aggregate annual losses for natural catastrophes from all perils (hurricane, flood, earthquake, hail, tornado,
wildfire and winter storms). 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.
[3]The modeled probability of loss exceedance represents the likelihood of a loss from single peril occurrence or from an aggregate of catastrophe events from all
perils to exceed the indicated amount in a one-year time frame.
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”), TRIPRA and
other reinsurance programs relating to particular risks or specific
lines of business.
Reinsurance for Catastrophes- The Company utilizes various
reinsurance programs to mitigate catastrophe losses including
excess of loss occurrence-based treaties covering property and
workers’ compensation, and an aggregate property catastrophe
treaty as well as individual risk agreements (including facultative
reinsurance) that reinsure losses from specific classes or lines
of business. The aggregate property catastrophe treaty covers
the aggregate of catastrophe events designated by the Property
89
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 earthquakes and named hurricanes and tropical
storms (subject to a $50 annual aggregate
deductible). Beginning with the January 1, 2021 renewal, our
per occurrence property catastrophe treaty and workers’
compensation catastrophe treaty incepting January 1, 2021 do
not cover pandemic losses, as most industry reinsurance
programs exclude communicable disease. The Company has
reinsurance in place to cover individual group life losses in
excess of $1 per person.
Primary Catastrophe Treaty Reinsurance Coverages as of January 1, 2022 [1]
Per Occurrence Property Catastrophe Treaty from 1/1/2022 to 12/31/2022 [1]
[2]
Losses of $0 to $100
Losses of $100 to $350 for earthquakes and named hurricanes and tropical storms
[3]
Losses of $100 to $350 from one event other than earthquakes and named
hurricanes and tropical storms (subject to a $50 Annual Aggregate Deductible
("AAD")) [3]
Losses of $350 to $500 from one event (all perils)
Losses of $500 to $1.1 billion from one event [4] (all perils)
Aggregate Property Catastrophe Treaty for 1/1/2022 to 12/31/2022 [5]
$0 to $700 of aggregate losses
$700 to $900 of aggregate losses
Workers' Compensation Catastrophe Treaty for 1/1/2022 to 12/31/2022
Losses of $0 to $100 from one event
Losses of $100 to $450 from one event [6]
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
80% of $350 in excess of
$100
100% retained
None
100% retained
20% co-participation
[1]These treaties do not cover the assumed reinsurance business which purchases its own retrocessional coverage.
[2]In addition to the Per Occurrence Property Catastrophe Treaty, for Florida wind events, The Hartford has purchased the mandatory FHCF reinsurance for the
annual period starting at June 1, 2021. Retention and coverage varies by writing company. The writing company with the largest coverage under FHCF is Hartford
Insurance Company of the Midwest, with coverage estimated at approximately 90% of $52 in per event losses in excess of a $21 retention (estimates are based
on best available information at this time and are periodically updated as information is made available by Florida).
[3]Named hurricanes and tropical storms are defined as any storm or storm system declared to be a hurricane or tropical storm by the US National Hurricane Center,
US Weather Prediction Center, or their successor organizations (being divisions of the US National Weather Service).
[4]Portions of this layer of coverage extend beyond a traditional one year term.
[5]The aggregate treaty is not limited to a single event; rather, it is designed to provide reinsurance protection for the aggregate of all catastrophe events (up to $350
per event), either designated by the Property Claim Services office of Verisk or, for international business, net losses arising from two or more risks involved in the
same loss occurrence totaling at least $500 thousand. All catastrophe losses, except assumed reinsurance business losses, apply toward satisfying the $700
attachment point under the aggregate treaty.
[6]In addition to the limits shown, the workers' compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of $30 in
per event losses in excess of a $20 retention.
In addition to the property catastrophe reinsurance coverage
described in the above table, the Company has other
reinsurance agreements that cover property catastrophe losses.
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
90
Homeland Security and the Attorney General, for losses that
exceed a threshold of industry losses of $200. Under the
program, in any one calendar year, the federal government will
pay a percentage of losses incurred from a certified act of
terrorism after an insurer's losses exceed 20% of the
Company's eligible direct commercial earned premiums of the
prior calendar year up to a combined annual aggregate limit for
the federal government and all insurers of $100 billion. The
percentage of losses paid by the federal government is 80% .
The Company's estimated deductible under the program is $1.7
billion for 2022. If an act of terrorism or acts of terrorism result in
covered losses exceeding the $100 billion annual industry
aggregate limit, Congress would be responsible for determining
how additional losses in excess of $100 billion will be paid.
Reinsurance for A&E and Navigators Group Reserve
Development - The Company has two ADC reinsurance
agreements in place, both of which are accounted for as
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
retroactive reinsurance. One agreement covers substantially all
A&E reserve development for 2016 and prior accident years (the
“A&E ADC”) up to an aggregate limit of $1.5 billion and the other
covered substantially all reserve development of Navigators
Insurance Company and certain of its affiliates for 2018 and
prior accident years (“Navigators ADC”) up to an aggregate limit
of $300. As the Company has ceded all of the $300 available
limit under the Navigators ADC, there is no remaining limit
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
contracts permit, the Company secures future claim obligations
with various forms of collateral or other credit enhancement,
available as of December 31, 2021. Any net adverse loss
development above the $300 limit is reflected in the Company's
results from operations. 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.
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 reporting segment and the allowance for
uncollectible reinsurance reported in the Commercial Lines and
Group Benefits reporting segments as well as the Corporate
category. For a discussion regarding the results of the
evaluation of older, long-term casualty liabilities reported in the
Property & Casualty Other Operations reporting segment, see
MD&A - Critical Accounting Estimates, Property and Casualty
Insurance Product Reserves, Net of Reinsurance. For a
discussion of the allowance for uncollectible reinsurance, see
Note 9 – Reinsurance of Notes to Consolidated Financial
Statements.
Reinsurance Recoverables as of December 31,
Property and
Casualty
Group Benefits
Corporate
Total
2021
2020
2021
2020
2021
2020
2021
2020
$
319 $
269 $
5 $
6 $
— $
— $
324 $
275
Paid loss and loss adjustment expenses
Unpaid loss and loss adjustment
expenses
5,774
5,297
Gross reinsurance recoverables
6,093
5,566
Allowance for uncollectible reinsurance
(96)
(105)
246
251
(1)
239
245
(1)
278
278
(2)
308
6,298
5,844
308
6,622
6,119
(2)
(99)
(108)
Net reinsurance recoverables
$ 5,997 $
5,461 $
250 $
244 $
276 $
306 $ 6,523 $ 6,011
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.
91
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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:
•
•
•
•
•
Establishing policies and monitoring risk tolerances and
exceptions;
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 continues to assess
evolving risks related to COVID-19 while monitoring guidance
and regulations to maintain certain practices in the interest of
the health and welfare of our employees and to reduce
operational risk. Among others, current practices include
enabling work from home and hybrid work arrangements,
mandating protocols that employees must follow when they are
in the office and established contact tracing processes for in-
office and customer facing individuals who have had exposure
to COVID-19. We also continue to work with vendors to ensure
they have business continuity plans in place.
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. The Hartford continually assesses cyber capabilities
and threat detection. Various cyber assurance methods,
including security metrics, third party security assessments,
external penetration testing, red team exercises, and cyber
incident response exercises are used to test the effectiveness of
the overall cybersecurity control environment. Additionally, The
Company collaborates with industry associations, government
authorities, peers and external advisors to monitor the threat
environment and to inform our security practices.
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
92
who may have material non-public information and to implement
blackout restrictions on trading the Company's securities during
the investigation and assessment of such cybersecurity
incidents.
From a governance perspective, senior members of our
Enterprise Risk Management, Information Protection and
Internal Audit functions provide detailed, regular reports on
cybersecurity matters 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 ("OTC") and exchange-traded derivatives
with counterparties meeting the appropriate regulatory and due
diligence requirements. Derivatives are utilized to achieve the
following Company-approved objectives: (1) hedging risk arising
from interest rate, equity market, commodity market, credit
spread and issuer default, price or currency exchange rate risk
or volatility; (2) managing liquidity; (3) controlling transaction
costs; and (4) engaging in income generation covered call
transactions and synthetic replication transactions. Derivative
activities are monitored and evaluated by the Company’s
compliance and risk management teams and reviewed by senior
management. The Company identifies different categories of
financial risk, including liquidity, credit, interest rate, equity, and
foreign currency exchange.
Liquidity Risk
Liquidity risk is the risk to current or prospective earnings or
capital arising from the Company's inability or perceived inability
to meet its contractual funding obligations as they come due.
Sources of Liquidity Risk Sources of liquidity risk
include funding risk, company-specific liquidity risk and market
liquidity risk resulting from differences in the amount and timing
of sources and uses of cash as well as company-specific and
general market conditions. Stressed market conditions may
impact the ability to sell assets or otherwise transact business
and may result in a significant loss in value.
Impact Inadequate capital resources and liquidity could
negatively affect the Company’s overall financial strength and its
ability to generate cash flows from its businesses, borrow funds
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
manage credit risk in aggregate and to limit potential losses in
accordance with the Company's credit risk management policy.
The Company manages its credit risk by managing
aggregations of risk, holding a diversified mix of issuers and
counterparties across its investment, reinsurance, and
insurance portfolios and limiting exposure to any specific
reinsurer or counterparty. Potential credit losses can be
mitigated through diversification (e.g., geographic regions, asset
types, industry sectors), hedging and the use of collateral to
reduce net credit exposure.
The Company manages credit risk through the use of various
surveillance, analyses and governance processes. The
investment and reinsurance areas have formal policies and
procedures for counterparty approvals and authorizations, which
establish criteria defining minimum levels of creditworthiness
and financial stability for eligible counterparties. Potential
investments are subject to underwriting reviews and private
securities are subject to management approval. Mitigation
strategies vary across the three sources of credit risk, but may
include:
•
•
•
•
•
•
•
Investing in a portfolio of high-quality and diverse securities;
Selling investments subject to credit risk;
Hedging through use of credit default swaps;
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, 2021, the Company had no investment
exposure to any credit concentration risk of a single issuer or
counterparty greater than 10% of the Company's stockholders'
equity, other than the U.S. government and certain U.S.
government agencies. For further discussion of concentration of
credit risk in the investment portfolio, see the Concentration of
Credit Risk section in Note 6 - Investments of Notes to
Consolidated Financial Statements.
at competitive rates, and raise new capital to meet operating
and growth needs.
Management The Company has defined ongoing
monitoring and reporting requirements to assess liquidity across
the enterprise under both current and stressed market
conditions. The Company measures and manages liquidity risk
exposures and funding needs within prescribed limits across
legal entities, taking into account legal, regulatory and
operational limitations to the transferability of liquid assets
among legal entities. The Company also monitors internal and
external conditions, and identifies material risk changes and
emerging risks that may impact operating cash flows or liquid
assets. The liquidity requirements of The Hartford Financial
Services Group, Inc. ("HFSG Holding Company") have been
and will continue to be met by the HFSG Holding Company's
fixed maturities, short-term investments and cash, and dividends
from its subsidiaries, principally its insurance operations, as well
as the issuance of common stock, debt or other capital
securities and borrowings from its credit facilities as needed.
The Company maintains multiple sources of contingent liquidity
including a revolving credit facility, an intercompany liquidity
agreement that allows for short-term advances of funds among
the HFSG Holding Company and certain affiliates, and access
to collateralized advances from the Federal Home Loan Bank of
Boston ("FHLBB") for certain affiliates. The Company's CFO has
primary responsibility for liquidity risk.
Refer to the Capital Resources & Liquidity section of MD&A for
the discussion of what the Company is doing to manage liquidity
during the COVID-19 pandemic.
Credit Risk and Counterparty Risk
Credit risk is the risk to earnings or capital due to uncertainty of
an obligor’s or counterparty’s ability or willingness to meet its
obligations in accordance with contractually agreed upon terms.
Credit risk is comprised of three major factors: the risk of
change in credit quality, or credit migration risk; the risk of
default; and the risk of a change in value due to changes in
credit spreads.
Sources of Credit Risk The majority of the Company’s
credit risk is concentrated in its investment holdings and use of
derivatives, but it is also present in the Company’s ceded
reinsurance activities and various insurance products.
Impact A decline in creditworthiness is typically reflected as
an increase in an investment’s credit spread and an associated
decline in the investment's fair value, potentially resulting in
recording an ACL and an increased probability of a realized loss
upon sale. In certain instances, counterparties may default on
their obligations and the Company may realize a loss on default.
Premiums receivable, including premiums for retrospectively
rated plans, reinsurance recoverable and deductible losses
recoverable are also subject to credit risk based on the
counterparty’s inability to pay.
For a discussion of impacts resulting from the COVID-19
pandemic, refer to the Impact of COVID-19 on our financial
condition, results of operations and liquidity section of this
MD&A.
Management The objective of the Company’s enterprise
credit risk management strategy is to identify, quantify, and
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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 2021, there were net credit
recoveries on fixed maturities, AFS and a decrease in the ACL
on mortgage loans of $4 and $9 respectively, primarily due to an
improved economic environment. In 2020, there were net credit
losses on fixed maturities, AFS and an increase in the ACL on
mortgage loans of $28 and $19 respectively, due primarily to the
negative economic impacts resulting from the pandemic. Refer
to 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 $6,523
and $6,011 as of December 31, 2021 and 2020 respectively.
Refer to 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
$4,445 and $4,268, as of December 31, 2021 and 2020,
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
94
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, 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, 2021 and 2020, the
notional amount related to credit derivatives that purchase credit
protection was $112 and $6, respectively, while the fair value
was $(2) and less than $(1), 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, 2021,
the Company did not hold credit default swaps that assume
credit risk. As of December 31, 2020, the notional amount
related to credit derivatives that assume credit risk was $675
and the fair value was $21. 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
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
is made. Retrospectively-rated policies are utilized primarily for
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 investments in fixed
maturities and commercial mortgage loans, issuances by the
Company of debt securities, preferred stock and similar
securities, discount rate assumptions associated with the
Company’s claim reserves and pension and other
postretirement benefit obligations, and assets that support the
Company's pension and other postretirement benefit plans.
Impact Changes in interest rates from current levels can
have both favorable and unfavorable effects for the Company.
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
Increase in the fair
value of the fixed
income investment
portfolio
Lower interest
expense on variable
rate debt obligations
•
•
•
•
Unfavorable Effects
Decrease in the fair
value of the fixed
income investment
portfolio
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
95
to protect the Company from the economic impact associated
with changes in interest rates by setting portfolio duration
targets that are aligned with the duration of the liabilities that
they support. The Company analyzes interest rate risk using
various models including parametric models and cash flow
simulation under various market scenarios of the liabilities and
their supporting investment portfolios. Key metrics that the
Company uses to quantify its exposure to interest rate risk
inherent in its invested assets and the associated liabilities
include duration, convexity and key rate duration.
The Company primarily utilizes interest rate swaps and, to a
lesser extent, futures to mitigate interest rate risk associated
with its investment portfolio or liabilities and to manage portfolio
duration. 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. As of
December 31, 2021 and 2020, notional amounts pertaining to
derivatives utilized to manage interest rate risk, including
offsetting positions, totaled $9.9 billion and $10.7 billion,
respectively, and primarily relate to hedging invested assets.
The fair value of these derivatives was $(46) and $(69) as of
December 31, 2021 and 2020, 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 $51.9 billion
and $52.8 billion at December 31, 2021 and 2020, respectively.
The weighted average duration of the portfolio, including
derivative instruments, was approximately 4.3 years and
4.9 years as of December 31, 2021 and 2020, 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.
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, 2021 and 2020, the Company
had $8,609 and $8,653, 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.
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Pension and other postretirement benefit
obligations The Company’s pension and other
postretirement 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.)
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 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,
2021
2020
Basis point shift
-100
+100
-100
+100
Increase (decrease) in
economic value, before tax
$ 101 $
(94) $ 137 $ (133)
The carrying value of assets related to the businesses included
in the table above was $11.3 billion and $12.1 billion, as of
December 31, 2021 and 2020, 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,
2021 and 2020. 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,
2021
2020
Basis point shift
-100 +100
-100
+100
Increase (decrease) in
fair value, before tax
$ 1,841 $ (1,730) $ 2,054 $ (1,906)
The carrying value of fixed maturities, commercial mortgage
loans and short-term investments related to the businesses
included in the table above was $40.6 billion and $40.7 billion as
of December 31, 2021 and 2020, respectively.
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 $732
and $670 as of December 31, 2021 and 2020, 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 $600 and
$551 as of December 31, 2021 and 2020, 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 Postretirement Plan Obligations
A 100 basis point parallel decrease in the yield curve would
96
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
house, will transition from LIBOR to SOFR or other market
alternative rates in line with new market standards.
•
The Company has issued $1.1 billion of junior subordinated
debentures that mature after June 30, 2023 with LIBOR
referenced floating interest rates. The Company expects to
call its $600 of 7.875% junior subordinated debentures at
par in April of 2022 and, for the $500 of 3 month LIBOR +
2.125% notes, is assessing options to manage the risk
associated with the transition away from LIBOR.
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 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 the reference rate. The FASB is deliberating
revised guidance which would extend the accounting relief for
contract modifications made and hedge relationships entered
into or evaluated through December 31, 2024, 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. For a discussion of risks
related to the discontinuance of LIBOR, see Part I, Item 1A, -
Risk Factors for the risk factor "The discontinuance of LIBOR
may adversely affect the value of certain investments we hold
and floating rate securities we have issued, and another other
assets or liabilities whose value may be tied to LIBOR."
Equity Risk
Equity risk is the risk of financial loss due to changes in the
value of global equities or equity indices.
Sources of Equity Risk
The Company has exposure to equity risk from invested assets,
assets that support the Company’s pension and other
postretirement benefit plans, and fee income derived from
Hartford Funds assets under management.
impact both the value of the underlying pension assets and the
value of the liabilities, resulting in an increase in the unfunded
liabilities (or decrease in asset) for pension and other
postretirement plan obligations of $36 and $196 as of
December 31, 2021 and 2020, 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 (or increase in
assets) for pension and other postretirement plan obligations of
$17 and $148 as of December 31, 2021 and 2020, respectively.
Gains or losses due to changes in interest rates on the pension
and postretirement 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 intended to stop persuading or compelling banks to
report information used to set LIBOR. On March 5, 2021, the
FCA announced that publication of certain LIBOR settings in
currencies other than U.S. dollars would cease immediately
after December 31, 2021, and that publication of U.S. dollar
LIBOR on a representative basis would cease for the one-week
and two-month settings immediately after December 31, 2021
and for the remaining U.S. dollar settings immediately after June
30, 2023. Although the most widely used settings of U.S. dollar
LIBOR continue to be published and used in existing
transactions, regulatory pressures and other factors have
resulted in a general decline in new U.S. dollar LIBOR-based
transactions. 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.
The Company has identified three principal types of outstanding
contracts that may be affected by the discontinuance 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 one class of junior subordinated
debentures that mature after June 30, 2023.
•
•
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, 2021 and that the
Company expects to be outstanding after June 2023 is $4
billion. The Company has performed a review of the LIBOR
replacement language on these assets and believes that
greater than 90% 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, 2021 with a floating rate component that
references LIBOR that the Company expects to be
outstanding after June 30, 2023, considering maturities, is
$8.1 billion, with $7.9 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
97
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Impact The investment portfolio is exposed to losses from
market declines affecting equity securities and derivatives,
which could negatively impact the Company's reported
earnings. In addition, investments in limited partnerships and
other alternative investments generally have a level of
correlation to domestic equity market levels and can expose the
Company to losses in earnings if valuations decline; however,
earnings impacts are recognized on a lag as results from private
equity investments and other funds are generally reported on a
three-month delay. For assets supporting pension and other
postretirement benefit plans, the Company may be required to
make additional plan contributions if equity investments in the
plan portfolios decline in value. Hartford Funds earnings are
also significantly influenced by the U.S. and other equity
markets. Generally, declines in equity markets will reduce the
value of average daily assets under management and the
amount of fee income generated from those assets. Increases in
equity markets will generally have the inverse impact.
Management The Company uses various approaches in
managing its equity exposure, including limits on the proportion
of assets invested in equities, diversification of the equity
portfolio, and, at times, hedging of changes in equity indices.
For assets supporting pension and other postretirement benefit
plans, the asset allocation mix is reviewed on a periodic basis.
In order to minimize risk, the pension plans maintain a listing of
permissible and prohibited investments and impose
concentration limits and investment quality requirements on
permissible investment options.
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 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
postretirement 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 postretirement 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 postretirement 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.
(Before tax)
Investment Portfolio
Assets supporting pension and other postretirement
benefit plans
Equity Sensitivity
As of December 31, 2021
As of December 31, 2020 [1]
Fair Value
Shock to S&P 500
-20%
+20%
Fair Value
Shock to S&P 500
-20%
+20%
$
$
5,447 $
641 $
(641) $
3,520 $
397 $
(397)
1,245 $
167 $
(167) $
1,573 $
240 $
(240)
[1]Table excludes the Company's investment in Hopmeadow Holdings LP which was reported in other assets on the Company's Consolidated Balance Sheets prior
to being sold on June 30, 2021.
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 $65 as of December 31, 2021.
98
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.
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 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 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 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, 2021 and 2020, the Company had pension plan
assets of $97 and $95, 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 and
reinsurance 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 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, 2021
Net assets (liabilities)
December 31, 2020
Net assets (liabilities)
Foreign Currency Sensitivity [1]
GBP
CAD
10%
Unfavorable
Change
287 $
132 $
(38)
296 $
189 $
(44)
$
$
[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.
99
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, an increase in interest rates, or a decline
in equity market levels, may result in a decrease in statutory
surplus and RBC ratios;
A decline in investment yields may reduce our net
investment income, which may result in a decrease in
statutory surplus and RBC ratios;
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
•
•
Decreases in the value of certain derivative instruments that
do not get hedge accounting, may reduce statutory surplus
and RBC ratios; and
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.
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, 2021
December 31, 2020
Amortized
Cost
Fair
Value
Percent of
Total Fair Value
Amortized
Cost
Fair
Value
Percent of
Total Fair Value
United States Government/Government agencies
$
5,706 $ 5,881
13.7 % $
4,872 $ 5,214
AAA
AA
A
BBB
BB & below
5,917
6,133
7,279
7,718
14.3 %
6,482
6,848
18.0 %
7,840
8,453
10,277 10,962
25.6 %
10,500 11,595
9,196
9,708
2,413
2,445
22.7 %
9,831 10,856
5.7 %
2,036
2,069
11.6 %
15.2 %
18.8 %
25.7 %
24.1 %
4.6 %
Total fixed maturities, AFS
$ 40,788 $ 42,847
100.0 % $ 41,561 $ 45,035
100.0 %
The fair value of fixed maturities, AFS decreased as compared
to December 31, 2020, primarily due a decrease in valuations
due to higher interest rates, partially offset by tighter credit
spreads. The decline was also due to the reinvestment into
other asset classes.
Fixed maturities, FVO, included within other investments on the
Consolidated Balance Sheets, are not included in the preceding
table. For further discussion on FVO securities, see Note 5 -
Fair Value Measurements of Notes to Consolidated Financial
Statements.
100
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Fixed Maturities, AFS by Type
December 31, 2021
December 31, 2020
Amortized
Cost
ACL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Percent
of Total
Fair
Value
Amortized
Cost
ACL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Percent
of Total
Fair
Value
Asset-backed
securities ("ABS")
Consumer loans
$
959 $ — $
11 $
(2) $ 968
2.3 % $
1,396 $ — $
35 $
— $ 1,431
3.2 %
Other
166 —
2
(1)
167
0.4 %
129 —
4
—
133
0.3 %
Collateralized
loan obligations
("CLOs")
Commercial
Mortgage-Backed
Securities
("CMBS")
Agency [1]
Bonds
Interest only
Corporate
Basic industry
Capital goods
Consumer
cyclical
Consumer non-
cyclical
Energy
Financial
services
Tech./comm.
Transportation
Utilities
Other
Foreign govt./
govt. agencies
Municipal bonds
Taxable
Tax-exempt
Residential
Mortgage-Backed
Securities
("RMBS")
Agency
Non-agency
Alt-A
Sub-prime
U.S. Treasuries
Total fixed
maturities, AFS
Fixed maturities,
FVO [2]
3,019 —
8
(2) 3,025
7.1 %
2,780 —
7
(7) 2,780
6.2 %
1,390 —
2,327 —
238 —
761 —
1,442 —
1,161
(1)
2,473 —
1,405 —
4,648 —
2,658 —
744 —
1,917 —
535 —
75
92
12
34
84
50
134
99
214
216
43
141
23
(5) 1,460
3.4 %
1,779 —
(9) 2,410
5.6 %
2,160 —
(1)
249
0.6 %
280 —
(5)
790
1.8 %
727 —
(9) 1,517
3.5 %
1,488 —
117
159
10
69
148
(6) 1,890
4.2 %
(13) 2,306
5.1 %
(2)
288
0.6 %
(1)
795
1.8 %
(11) 1,625
3.6 %
(5) 1,205
2.8 %
1,434
(1)
108
(1) 1,540
3.4 %
(8) 2,599
6.1 %
2,878 —
(2) 1,502
3.5 %
1,474
(1)
(20) 4,842
11.3 %
4,523 (21)
(11) 2,863
6.7 %
2,651 —
(3)
784
1.8 %
747 —
(8) 2,050
4.8 %
1,999 —
(3)
555
1.3 %
480 —
314
147
398
370
85
250
37
(4) 3,188
7.1 %
(4) 1,616
3.6 %
(4) 4,896
10.9 %
(3) 3,018
6.7 %
(3)
829
1.8 %
— 2,249
5.0 %
—
517
1.1 %
883 —
33
(6)
910
2.1 %
842 —
77
—
919
2.0 %
1,079 —
6,394 —
83
704
(2) 1,160
2.7 %
1,084 —
(1) 7,097
16.6 %
7,480 —
109
831
(1) 1,192
2.6 %
— 8,311
18.5 %
1,337 —
2,101 —
12 —
160 —
2,979 —
44
11
1
4
86
(11) 1,370
3.2 %
1,829 —
(16) 2,096
4.9 %
1,755 —
—
—
13
— %
27 —
164
0.4 %
355 —
92
41
2
9
(2) 1,919
4.3 %
(1) 1,795
4.0 %
—
—
29
0.1 %
364
0.8 %
(14) 3,051
7.1 %
1,264 —
141
— 1,405
3.1 %
$ 40,788 $ (1) $
2,204 $
(144) $ 42,847 100.0 % $ 41,561 $ (23) $
3,560 $
(63) $ 45,035 100.0 %
$ 160
$ —
[1]Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government..
[2]Included within other investments on the Consolidated Balance Sheets.
The fair value of fixed maturities, AFS decreased as compared
with December 31, 2020, primarily due to a decrease in
valuations due to higher interest rates, partially offset by tighter
credit spreads. The decline was also due to the reinvestment
into other asset classes.The Company primarily decreased
holdings of tax-exempt municipal bonds, agency and sub-prime
101
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
RMBS, consumer cyclical and non-cyclical corporate bonds,
consumer loans, and agency CMBS, while primarily increasing
holdings in U.S. treasuries, non-agency RMBS, CLOs, and
CMBS bonds.
Commercial & Residential Real Estate
The following table presents the Company’s exposure to CMBS
and RMBS by credit quality included in the preceding Fixed
Maturities, AFS by Type table.
Exposure to CMBS and RMBS as of December 31, 2021
AAA
AA
A
BBB
BB and Below
Total
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
CMBS
Agency [1]
$ 1,380 $ 1,450 $
10 $
10 $
— $ — $
— $ — $
— $ — $ 1,390 $ 1,460
Bonds
950
995
571
593
439
453
182
186
185
183
2,327 2,410
Interest Only
134
141
92
96
1
1
10
10
1
1
238
249
Total CMBS
2,464 2,586
673
699
440
454
192
196
186
184
3,955 4,119
RMBS
Agency
1,315 1,347
22
23
— —
— —
— —
1,337 1,370
Non-Agency
840
845
554
552
477
473
199
196
— —
— —
— —
— —
6
7
34
35
47
48
24
24
2,161 2,199
610
610
524
521
223
220
31
12
49
92
30
13
50
93
2,101 2,096
12
13
160
164
3,610 3,643
$ 4,625 $ 4,785 $ 1,283 $ 1,309 $
964 $ 975 $
415 $ 416 $
278 $ 277 $ 7,565 $ 7,762
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
Alt-A
Sub-Prime
Total RMBS
Total CMBS &
RMBS
CMBS
Agency [1]
$ 1,771 $ 1,882 $
8 $
8 $
— $ — $
— $ — $
— $ — $ 1,779 $ 1,890
Bonds
1,009 1,101
541
582
423
430
170
179
Interest Only
177
183
90
93
8
7
4
4
Total CMBS
2,957 3,166
639
683
431
437
174
183
17
1
18
14
2,160 2,306
1
280
288
15
4,219 4,484
RMBS
Agency
1,807 1,894
22
25
— —
— —
— —
1,829 1,919
Non-Agency
1,034 1,063
371
380
313
315
— —
1
1
3
25
3
26
2
2
36
2
36
2
1
20
1
1,755 1,795
22
27
29
114
116
102
105
113
116
355
364
2,842 2,958
421
434
429
433
140
143
134
139
3,966 4,107
$ 5,799 $ 6,124 $ 1,060 $ 1,117 $
860 $ 870 $
314 $ 326 $
152 $ 154 $ 8,185 $ 8,591
Alt-A
Sub-Prime
Total RMBS
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.
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, 2021, mortgage loans had an amortized
cost of $5.4 billion and carrying value of $5.4 billion, with an ACL
of $29. As of December 31, 2020, mortgage loans had an
amortized cost of $4.5 billion and carrying value of $4.5 billion,
with an ACL of $38. The decrease in the allowance is primarily
attributable to improved economic scenarios, partially offset by
an increase driven by net additions of new loans.
The Company funded $1.3 billion of commercial mortgage loans
with a weighted average loan-to-value (“LTV”) ratio of 57% and
a weighted average yield of 2.9% during the twelve months
102
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
ended December 31, 2021. The Company continues to originate
commercial mortgage loans in high growth markets across the
country focusing primarily on institutional-quality industrial, multi-
family, and retail properties with strong LTV ratios. There were
no mortgage loans held for sale as of December 31, 2021 or
December 31, 2020.
Municipal Bonds
The following table presents the Company’s exposure to
municipal bonds by type and weighted average credit quality
included in the preceding Securities by Type table.
Available For Sale Investments in Municipal Bonds
General Obligation
Pre-refunded [1]
Revenue
Transportation
Health Care
Leasing [2]
Education
Water & Sewer
Sales Tax
Power
Housing
Other
Total Revenue
Total Municipal
December 31, 2021
December 31, 2020
Amortized
Cost
Fair Value
Weighted
Average
Credit
Quality
Amortized
Cost
Fair Value
Weighted
Average
Credit
Quality
$
910 $
487
1,404
1,274
813
670
504
370
317
98
626
1,031
519
1,579
1,397
874
748
538
436
357
103
675
6,076
$
7,473 $
6,707
8,257
AA+
AAA
A+
A+
AA-
AA
AA
AA
A+
AA
AA-
AA-
AA-
$
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
$
8,564 $
7,331
9,503
AA+
AAA
A+
A+
AA-
AA
AA
AA
A+
AA+
A+
AA-
AA-
[1]Pre-refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the
remaining payments of principal and interest.
[2]Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes
are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual
appropriation by the municipality or the municipality may be obligated to appropriate general tax revenues to make lease payments.
As of December 31, 2021, the largest issuer concentrations
were the New York State Dormitory Authority, the State of
California, and the Pennsylvania State Turnpike Commission,
which each comprised less than 3% of the municipal bond
portfolio and were primarily comprised of general obligation and
revenue bonds. As of December 31, 2020, the largest issuer
concentrations were the New York State Dormitory Authority, the
Commonwealth of Massachusetts, and the New York City
Municipal Water Finance Authority, which each comprised less
than 3% of the municipal bond portfolio and were primarily
comprised of general obligation and revenue bonds. In total,
municipal bonds make up 14% of the fair value of the
Company's investment portfolio. While COVID-19 has had an
impact on many municipal issuers, credit fundamentals in this
sector have broadly stabilized due to an unprecedented influx of
federal relief funds and a strong economic recovery.
Limited Partnerships and Other Alternative
Investments
The following table presents the Company’s investments in
limited partnerships and other alternative investments which
include hedge funds, real estate funds, and private equity funds.
Real estate funds consist of investments primarily in real estate
joint ventures and, to a lesser extent, equity funds. Private
equity funds primarily consist of investments in funds whose
assets typically consist of a diversified pool of investments in
small to mid-sized non-public businesses with high growth
potential and strong owner sponsorship, as well as limited
exposure to public markets.
Income or losses on investments in limited partnerships and
other alternative investments are recognized on a lag as results
from private equity investments and other funds are generally
reported on a three-month delay.
103
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
Hedge funds
Real estate funds
Private equity funds
Other alternative investments [2]
Total
Year Ended December 31,
2020
Amount Yield [1]
2021
Amount Yield [1]
$
33
149
456
94
732
17.7% $
18.4%
51.3%
22.6%
31.8% $
9
85
106
22
222
$
2019
Amount Yield [1]
7.2%
17.0%
16.6%
8.2%
14.4%
5
70
126
31
232
7.1 % $
20.3 %
12.4 %
5.4 %
12.3 % $
[1]Yields calculated using annualized net investment income divided by the monthly average invested assets.
[2]Consists of an insurer-owned life insurance policy which is primarily invested in fixed income, private equity, and hedge funds.
Investments in Limited Partnerships and Other Alternative Investments
Hedge funds
Real estate funds
Private equity and other funds
Other alternative investments [1]
Total
December 31, 2021
December 31, 2020
Amount
Percent
Amount
Percent
$
$
274
1,315
1,256
508
3,353
8.2 % $
39.2 %
37.5 %
15.1 %
100.0 % $
158
563
944
417
2,082
7.6 %
27.0 %
45.4 %
20.0 %
100.0 %
[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 $144 as of
December 31, 2021, and have increased $81 from
December 31, 2020, primarily due to higher interest rates,
partially offset by tighter credit spreads. As of December 31,
2021, $141 of the gross unrealized losses were associated with
fixed maturities, AFS depressed less than 20% of amortized
cost. The remaining $3 of gross unrealized losses were
associated with fixed maturities, AFS depressed greater than
20%. The fixed maturities, AFS depressed more than 20%,
primarily related to commercial real estate securities that were
purchased at tighter credit spreads.
As part of the Company’s ongoing investment monitoring
process, the Company has reviewed its fixed maturities, AFS in
an unrealized loss position and concluded that these fixed
maturities are temporarily depressed and are expected to
recover in value as the investments approach maturity or as
market spreads tighten. For these fixed maturities in an
unrealized loss position where an ACL has not been recorded,
the Company’s best estimate of expected future cash flows are
sufficient to recover the amortized cost basis of the investment.
Furthermore, the Company neither has an intention to sell nor
does it expect to be required to sell these investments. For
further information regarding the Company’s ACL analysis, see
the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell
Impairments section below.
Consecutive Months
Three months or less
Unrealized Loss Aging for Fixed Maturities, AFS
December 31, 2021
December 31, 2020
Items
Amortized
Cost
ACL
Unrealized
Loss
Fair
Value
Items
Amortized
Cost
ACL
Unrealized
Loss
Fair
Value
640 $
6,193 $ — $
(32) $ 6,161
102 $
625 $ — $
Greater than three to six months
Greater than six to nine months
404
3,249 —
(55) 3,194
101
571 —
(5)
566
46
8
367 —
6 —
Greater than nine to eleven months
171
1,041 —
(29) 1,012
186
1,275
(1)
(27) 1,247
Twelve months or more
184
631 —
(23)
608
205
994 —
(27)
967
Total
1,500 $ 11,685 $ — $
(144) $ 11,541
547 $
3,267 $ (1) $
(63) $ 3,203
104
(3) $
(5)
(1)
622
362
5
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 six to nine months
Greater than nine to eleven months
Twelve months or more
Total
December 31, 2021
December 31, 2020
Items
Amortized
Cost
Unrealized
Loss
Fair
Value
Items
Amortized
Cost
Unrealized
Loss
Fair
Value
— $
— $
— $ —
—
—
20
20 $
—
—
5
—
—
(3)
5 $
(3) $
—
—
2
2
2 $
1
2
24
29 $
2 $
46
5
5
(1) $
(10)
(1)
(2)
1
36
4
3
58 $
(14) $
44
Credit Losses on Fixed Maturities,
AFS and Intent-to-Sell Impairments
For the year ended December 31, 2021
The Company recorded a net decrease in the ACL of $4, driven
by increases in the fair value of corporate issuers that had an
ACL in prior periods, partially offset by credit losses on a media/
entertainment company. Unrealized losses on securities with an
ACL recognized in other comprehensive income were less than
$1. For further information, refer to Note 6 - Investments of
Notes to Consolidated Financial Statements.
There were no intent-to-sell impairments.
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 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.
Intent-to-sell impairments of $5 were primarily related to one
corporate issuer in the energy sector and one issuer with
exposure to India.
ACL on Mortgage Loans
For the year ended December 31, 2021
The Company reviews mortgage loans on a quarterly basis to
estimate the ACL with changes in the ACL recorded in net
realized gains and losses. Apart from an ACL recorded on
individual mortgage loans where the borrower is experiencing
financial difficulties, the Company records an ACL on the pool of
mortgage loans based on lifetime expected credit losses. For
further information, refer to Note 6 - Investments of Notes to
Consolidated Financial Statements.
105
The Company recorded a decrease in the ACL on mortgage
loans of $9. The decrease was primarily the result of improved
economic scenarios, partially offset by an increase driven by net
additions of new loans. The Company did not record an ACL on
any individual mortgage loans.
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. 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.
|SUMMARY OF CAPITAL
RESOURCES AND LIQUIDITY
Capital available to the holding company as
of December 31, 2021:
•
$1.9 billion in fixed maturities, short-term investments,
investment sales receivable and cash at the HFSG Holding
Company.
•
•
A senior unsecured revolving credit facility that provides for
borrowing capacity up to $750 of unsecured credit through
October 27, 2026. As of December 31, 2021, 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, 2021, there were no borrowings outstanding.
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
2022 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 $2.0 billion
for 2022, with $1.3 to $1.4 billion of net dividends expected
in 2022.
Group Benefits - HLA has dividend capacity of $241 in
2022 with $175 to $200 of dividends expected in 2022.
Hartford Funds - HFSG Holding Company expects to
receive $175 to $200 in dividends from Hartford Funds in
2022.
Expected liquidity requirements for the next
twelve months as of December 31, 2021:
•
$210 of interest on debt;
•
•
•
$21 dividends on preferred stock, subject to the discretion
of the Board of Directors;
$525 of common stockholders' dividends, subject to the
discretion of the Board of Directors and before share
repurchases; and
$600 of 7.875% junior subordinated debentures expected to
be called at par in April of 2022.
Expected liquidity requirements for beyond
the next twelve months as of December 31,
2021:
•
Interest on debt and debt repayments, see Note 14 - Debt
of Notes to Consolidated Financial Statements.
•
Preferred stock and common stock dividends, subject to the
discretion of the Board of Directors.
Equity repurchase program:
Authorization for equity repurchases of up to $3.0 billion
effective through December 31, 2022. Under the program, the
Company repurchased 25.9 million shares during the period
from January 1, 2021 to December 31, 2021 for $1.7 billion with
$1.3 billion of authorization remaining as of December 31, 2021.
|LIQUIDITY REQUIREMENTS AND
SOURCES OF CAPITAL
The Hartford Financial Services
Group, Inc. ("HFSG Holding
Company")
The liquidity requirements of the holding company of The
Hartford Financial Services Group, Inc. will primarily be met by
HFSG Holding Company’s fixed maturities; short-term
investments and cash; and dividends from its subsidiaries,
principally its insurance operations.
The Company maintains sufficient liquidity and has a variety of
contingent liquidity resources to manage liquidity across a range
of economic scenarios. We continue to expect to successfully
manage our liquidity throughout the pandemic.
The HFSG Holding Company expects to continue to receive
dividends from its operating subsidiaries in the future and
manages capital in its operating subsidiaries to be sufficient
under significant economic stress scenarios. Dividends from
subsidiaries and other sources of funds at the holding company
may be used to repurchase shares under the authorized share
repurchase program at the discretion of management.
Under significant economic stress scenarios, the Company has
the ability to meet short-term cash requirements, if needed, by
borrowing under its revolving credit facility or by having its
insurance subsidiaries take collateralized advances under a
facility with the FHLBB. The Company could also choose to
have its insurance subsidiaries sell certain highly liquid, high
quality fixed maturities or the Company could issue debt in the
public markets under its shelf registration.
Debt
On September 21, 2021, The Hartford issued $600 of 2.9%
senior notes (“2.9% Notes”) due September 15, 2051 for net
proceeds of approximately $588, after deducting underwriting
discounts and expenses from the offering. Interest is payable
semi-annually in arrears on March 15 and September 15,
commencing March 15, 2022. The Hartford, at its option, can
redeem the 2.9% Notes at any time, in whole or part, at a
redemption price equal to the greater of 100% of the principal
amount being redeemed or a make-whole amount based on a
comparable maturity US Treasury plus 20 basis points, plus any
accrued and unpaid interest, except the 2.9% Notes may be
redeemed at par within six months of maturity. The Hartford
intends to use the net proceeds along with other available
resources to repay The Hartford's $600 7.875% junior
subordinated debentures (“7.875% Notes”), which are
redeemable at par on or after April 15, 2022. The Hartford
expects to recognize a loss on extinguishment of debt of $9,
before tax, on redemption.
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
106
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 authorization was increased by the Board of Directors to
$2.5 billion in April 2021 and then further increased to $3.0
billion in October 2021. During the period from January 1, 2022
through February 17, 2022, the Company repurchased 3.8
million shares for $274 and has $1.0 billion of authorization
remaining as of February 17, 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, the
Company's blackout periods, and other considerations.
Under The Hartford's previous $1.0 billion share repurchase
program authorized by its Board of Directors in February 2019
and which expired on 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.
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, 2021:
Common Stock Dividends
Declared
Record
Payable
Amount
per
share
October 28, 2021 December 1, 2021
January 4, 2022 $
0.385
February 16, 2022
March 1, 2022
April 4, 2022 $
0.385
Preferred Stock Dividends
Declared
Record
Payable
Amount
per
share
December 15, 2021 February 1, 2022 February 15, 2022 $ 375.00
February 16, 2022
May 2, 2022
May 16, 2022 $ 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. The
Company’s principal insurance subsidiaries are domiciled in the
United States and the United Kingdom.
The payment of dividends by Connecticut-domiciled insurers is
limited under the insurance holding company laws of
Connecticut. These laws require notice to and approval by the
state insurance commissioner for the declaration or payment of
any dividend, which, together with other dividends or
distributions made within the preceding twelve months, exceeds
the greater of (i) 10% of the insurer’s statutory policyholder
surplus as of December 31 of the preceding year or (ii) net
income (or net gain from operations, if such company is a life
insurance company) for the preceding year, in each case
determined under statutory insurance accounting principles. In
addition, if any dividend of a Connecticut-domiciled insurer
exceeds the insurer’s earned surplus, it requires the prior
approval of the Connecticut Insurance Commissioner.
Property casualty insurers domiciled in New York, including
Navigators Insurance Company ("NIC") and Navigators
Specialty Insurance Company ("NSIC"), generally may not,
without notice to and approval by the state insurance
commissioner, pay dividends out of earned surplus in any
twelve‑month period that exceeds the lesser of (i) 10% of the
insurer’s statutory policyholders’ surplus as of the most recent
financial statement on file, or (ii) 100% of its adjusted net
investment income, as defined, for the same twelve month
period.
The insurance holding company laws of the other jurisdictions in
which The Hartford’s insurance subsidiaries are incorporated (or
deemed commercially domiciled) generally contain similar
(although in certain instances more restrictive) limitations on the
payment of dividends. In addition to statutory limitations on
paying dividends, the Company also takes other items into
consideration when determining dividends from subsidiaries.
These considerations include, but are not limited to, expected
earnings and capitalization of the subsidiaries, regulatory capital
requirements and liquidity requirements of the individual
operating company.
Corporate members of Lloyd's syndicates may pay dividends to
its parent to the extent of available profits that have been
distributed from the syndicate in excess of the FAL capital
requirement and subject to restrictions imposed under UK
Company Law. The FAL is determined based on the SCR under
the Solvency II capital adequacy model, the current regulatory
framework governing UK domiciled insurers, plus a Lloyd’s
specific economic capital assessment.
Insurers domiciled in the United Kingdom may pay dividends to
their parent out of their statutory profits subject to restrictions
imposed under U.K. Company law and Solvency II.
In 2021, HFSG Holding Company received $295 of dividends
from HLA and $165 from Hartford Funds. In addition, HFSG
Holding Company received $1.1 billion of net dividends from
P&C subsidiaries in 2021 which excludes $150 of P&C
dividends that were subsequently contributed to P&C
subsidiaries and $50 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
107
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
provides financial and operational flexibility to its insurance
subsidiaries, ratings that support its competitive position in the
financial services marketplace (see the "Ratings" section below
for further discussion), and stockholder returns. As a result, the
Company may from time to time raise capital from the issuance
of debt, common equity, preferred stock, equity-related debt or
other capital securities and is continuously evaluating strategic
opportunities. The issuance of debt, common equity, equity-
related debt or other capital securities could result in the dilution
of stockholder interests or reduced net income to common
stockholders due to additional interest expense or preferred
stock dividends.
Shelf Registrations
The Hartford filed an automatic shelf registration statement with
the Securities and Exchange Commission ("the SEC") on 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 Facility
In 2018, The Hartford entered into a senior unsecured revolving
credit facility (the "Credit Facility") that provides up to $750 of
unsecured credit with an expiration date of March 29, 2023. On
October 27, 2021, The Hartford amended and restated the
Credit Facility and extended it through October 27, 2026. As of
December 31, 2021, no borrowings were outstanding and no
letters of credit were issued under the Credit Facility and The
Hartford was in compliance with all financial covenants. For
further information regarding the Credit Facility, see Note 14–
Debt of Notes to Consolidated Financial Statements.
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, 2021, there were no amounts outstanding
at the HFSG Holding Company.
Collateralized Advances with Federal Home Loan
Bank of Boston
The Company’s subsidiaries, Hartford Fire Insurance Company
(“Hartford Fire”) and Hartford Life and Accident Insurance
Company ("HLA"), are members of the FHLBB. Membership
allows these subsidiaries access to collateralized advances,
which may be short- or long-term with fixed or variable rates.
Advances may be used to support general corporate purposes,
which would be presented as short- or long-term debt, or to earn
incremental investment income, which would be presented in
other liabilities consistent with other collateralized financing
transactions. As of December 31, 2021, there were no advances
outstanding. The CTDOI permits Hartford Fire and HLA to
pledge up to $1.3 billion and $0.6 billion in qualifying assets,
respectively, without prior approval, to secure FHLBB advances
in 2022. 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
The Hartford has entered into a committed credit facility
agreement with a syndicate of lenders (the "Club Facility") as
well as a non-committed $25 credit facility with a lender (the
"Bilateral Facility"). The Club Facility has two tranches with one
tranche extending a $104 commitment and the other tranche
extending a £85 million ($115 as of December 31, 2021)
commitment. As of December 31, 2021, letters of credit with an
aggregate face amount of $104 and £68 million, or $92, were
outstanding under the Club Facility and no letters of credit were
outstanding under the Bilateral Facility.
Among other covenants, the Club Facility and Bilateral Facility
contain financial covenants regarding The Hartford's
consolidated net worth and financial leverage and that limit the
amount of letters of credit that can support Funds and Lloyd's,
consistent with Lloyd's requirements. As of December 31, 2021,
The Hartford was in compliance with all financial covenants of
both facilities.
For further information regarding the Club Facility and the
Bilateral Facility, see Note 14– Debt of Notes to Consolidated
Financial Statements.
Other Sources and Uses of Capital
As part of the sale of the former retained interest in Talcott
Resolution, which was completed on June 30, 2021, the
Company received $217 of proceeds.
In May 2021, the Company contributed €15 million ($18) to
Navigators Holdings (Europe) N.V., a Belgium holding company.
On December 29, 2021, the Company received approximately
$20, before $9 of transaction costs, related to the sale of its
Continental Europe Operations.
|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 did not make
any contributions to the U. S. qualified defined benefit pension
plan in 2021, and made contributions to this pension plan of
approximately $70 in both 2020 and 2019. No contributions
were made to the other postretirement plans in 2021, 2020 and
2019. The Company’s 2021, 2020 and 2019 required minimum
funding contributions were immaterial. The Company does not
have a 2022 required minimum funding contribution for the U.S.
qualified defined benefit pension plan and the funding
requirements for all pension plans are expected to be
immaterial. The Company has not determined whether, and to
what extent, contributions may be made to the U.S. qualified
defined benefit pension plan in 2022. The Company will monitor
the funded status of the U.S. qualified defined benefit pension
108
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
plan during 2022 to make this determination. As of December
31, 2021, the U.S. qualified defined benefit pension plan is fully
funded and in an asset position. For further discussion of
pension and other postretirement benefit obligations, see Note
19 - Employee Benefit Plans of Notes to Consolidated Financial
Statements.
|DERIVATIVE COMMITMENTS
Certain of the Company’s derivative agreements contain
provisions that are tied to the financial strength ratings, as set by
nationally recognized statistical rating agencies, of the individual
legal entity that entered into the derivative agreement. If the
legal entity’s financial strength were to fall below certain ratings,
the counterparties to the derivative agreements could terminate
agreements and demand immediate settlement of the
outstanding net derivative positions transacted under each
agreement. For further information, refer to Note 15 -
Commitments and Contingencies of Notes to Consolidated
Financial Statements.
As of December 31, 2021, no derivative positions would be
subject to immediate termination in the event of a downgrade of
one level below the current financial strength ratings. This could
change as a result of changes in our hedging activities or to the
extent changes in contractual terms are negotiated.
|INSURANCE OPERATIONS
While subject to variability period to period, underwriting and
investment cash flows continue to provide sufficient liquidity to
meet anticipated demands. 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.
The principal sources of operating funds are premiums, fees
earned from insurance and administrative service agreements,
and investment income, while investing cash flows primarily
originate from maturities and sales of invested assets.
The Company’s insurance operations consist of property and
casualty insurance products (collectively referred to as
“Property & Casualty Operations”) and Group Benefits.
The Company's insurance operations hold fixed maturity
securities including a significant short-term investment position
(securities with maturities of one year or less at the time of
purchase) to meet liquidity needs. Liquidity requirements that
are unable to be funded by the Company's insurance
operations' short-term investments would be satisfied with
current operating funds, including premiums or investing cash
flows, which includes proceeds received through the sale of
invested assets. A sale of invested assets could result in
significant realized losses.
The following tables represent the fixed maturity holdings,
including the aforementioned cash and short-term investments
available to meet liquidity needs, for each of the Company’s
insurance operations.
Property & Casualty
Fixed maturities
Short-term investments
Cash
Less: Derivative collateral
Total
As of
December 31, 2021
$
$
33,143
1,332
176
36
34,615
Property & Casualty operations invested assets also include
$1.4 billion in equity securities, $3.9 billion in mortgage loans
and $2.7 billion in limited partnerships and other alternative
investments.
Group Benefits Operations
Fixed maturities
Short-term investments
Cash
Less: Derivative collateral
Total
As of
December 31, 2021
$
$
9,487
352
15
18
9,836
Group Benefits operations invested assets also include $338 in
equity securities, $1.5 billion in mortgage loans and $664 in
limited partnerships and other alternative investments.
The primary uses of funds are to pay claims, claim adjustment
expenses, commissions and other underwriting and insurance
operating costs, to pay taxes, to purchase new investments and
to make dividend payments to the HFSG Holding Company.
Property & Casualty reserves for unpaid losses and loss
adjustment expenses as of December 31, 2021 were $31.4
billion. Reserves for Property & Casualty unpaid losses and loss
adjustment expenses include case reserves and IBNR. The
ultimate amount to be paid to settle both case reserves and
IBNR is an estimate, subject to significant uncertainty. The
actual amount to be paid is not finally determined until the
Company reaches a settlement with the claimant. Final claim
settlements may vary significantly from the present estimates,
particularly since many claims will not be settled until well into
the future. For a discussion of The Hartford’s judgment in
estimating reserves for Property & Casualty see Part II, Item 7,
MD&A - Critical Accounting Estimates, Property & Casualty
Insurance Product Reserves, and for historical payments by
reserve line net of reinsurance, see Note 12 – Reserve for
Unpaid Losses and Loss Adjustment Expenses of Notes to
Consolidated Financial Statements. The timing of future
payments for the next twelve months and for beyond twelve
months could vary materially from historical payment patterns
due to, among other things, changes in claim reporting and
payment patterns and large unanticipated settlements. In
particular, there is significant uncertainty over the claim payment
patterns of asbestos and environmental claims.
Group Benefits reserves as of December 31, 2021 were $9.0
billion. Estimated group life and disability obligations are based
on assumptions comparable with the Company’s historical
experience, modified for recent observed trends. For a
discussion of The Hartford’s judgment in estimating reserves for
109
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Group Benefits see Part II, Item 7, MD&A - Critical Accounting
Estimates, Group Benefit LTD Reserves, Net of Reinsurance,
for further discussion on future policy benefits, see Note 13
Reserve for Future Policy Benefits and for historical payments
by reserve line, net of reinsurance, see Note 12 – Reserve for
Unpaid Losses and Loss Adjustment Expenses of Notes to
Consolidated Financial Statements. Due to the significance of
the assumptions used, payments for the next twelve months and
beyond twelve months could materially differ from historical
patterns.
Corporate includes retained reserves of $458 as of December
31, 2021 related to retained run-off liabilities of its former life and
annuity business. For further discussion on future policy
benefits, see Note 13 Reserve for Future Policy Benefits.
Hartford Funds
Hartford Funds principal sources of operating funds are fees
earned from basis points on assets under management with
uses primarily for payments to subadvisors and other general
operating expenses. As of December 31, 2021, Hartford Funds
cash and short-term investments were $254.
|CAPITALIZATION
|PURCHASE AND OTHER
OBLIGATIONS
The Hartford’s unfunded commitments to purchase investments
in limited partnerships and other alternative investments, private
placements, and mortgage loans are disclosed in Note 15 -
Commitments and Contingencies of Notes to Consolidated
Financial Statements. It is anticipated that these unfunded
commitments will be funded through the Company’s normal
operating and investing activities.
In the normal course of business, the Company enters into
contractual commitments to purchase various goods and
services such as maintenance, human resources, and
information technology. The Company’s operating lease
commitments are disclosed in Note 21 - Leases of Notes to
Consolidated Financial Statements. It is anticipated that these
purchase commitments and operating lease obligations will be
funded through the Company’s normal operating and investing
activities.
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
Capital Structure
December 31,
2021
December 31,
2020
Change
$
4,944
$
4,944
17,337
334
172
$
$
17,843
22,787
$
$
4,352
4,352
17,052
334
1,170
18,556
22,908
28%
22%
23%
19%
14%
14%
2%
—%
(85)%
(4%)
(1%)
Total capitalization decreased $121, or 1%, as of December 31,
2021 compared to December 31, 2020 primarily due to share
repurchases in the period and a decrease in AOCI, partially
offset by net income in excess of stockholder dividends and an
increase in long-term debt due to the issuance of the 2.9%
Notes.
For additional information on AOCI, net of tax, including
unrealized gains from securities, see Note 18 - Changes in and
Reclassifications From Accumulated Other Comprehensive
Income and Note 6 - Investments of Notes to Consolidated
Financial Statements. For additional information on debt, see
Note 14 - Debt of Notes to Consolidated Financial Statements.
|CASH FLOW[1]
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Cash and restricted cash— end of year
2021
2020
2019
$
$
$
$
4,093 $
(2,466) $
(1,581) $
337 $
3,871 $
(2,066) $
(1,778) $
239 $
3,489
(2,148)
(1,191)
262
[1]Cash activities in 2021 and 2020 include cash flows related to Continental Europe Operations classified as held for sale beginning in the third quarter of 2020 and
sold on December 29, 2021. See Note 22 - Business Dispositions of Notes to Consolidated Financial Statements for discussion of this transaction.
110
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Year ended December 31, 2021 compared to
the year ended December 31, 2020
Net cash provided by operating activities increased
in 2021 as compared to the prior year period primarily driven by
an increase in Commercial Lines and Group Benefits premiums
received, greater cash distributions from limited partnerships,
lower payroll and employee related expenditures, a decrease in
restructuring costs and the impact of Personal Lines premium
refunds in the 2020 period. Positive cash flow impacts were
partially offset by an increase in income taxes paid and an
increase in Group Benefits loss and loss adjustment expenses
paid.
Cash used for investing activities increased in 2021
as compared to the prior year as a result of a decrease from net
proceeds to net payments for equity securities, an increase in
net payments for partnerships, an increase in net payments for
mortgage loans, an increase in net payments for other investing
activities and a decrease from net proceeds to net payments for
derivatives, partially offset by an increase from net payments to
net proceeds for fixed maturities and consideration received
from the sale of the Company's equity interest in Talcott
Resolution.
Cash used for financing activities decreased primarily
due to proceeds from the issuance of debt in 2021, debt
repayments in the 2020 period, and a decrease in cash used for
securities lending transactions, partially offset by an increase in
share repurchases in 2021.
Operating cash flows for the year ended December 31,
2021 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 July 21, 2021, Moody's upgraded the insurance financial
strength rating of HLA to A1 from A2. The upgrade reflects HLA’s
leading market position in the group life and disability business,
its distribution capabilities and consistent profitability, as well as
implicit support from The Hartford.
Insurance Financial Strength Ratings as of
February 17, 2022
A.M.
Best
Standard
& Poor's Moody's
A+
A+
A+
A+
A+
A
A1
A1
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
withdrawn at any time at the discretion of the rating
organization. Each agency’s rating should be evaluated
independently of any other agency’s rating. The system and the
number of rating categories can vary across rating agencies.
Among other factors, rating agencies consider the level of
statutory capital and surplus of our U.S. insurance subsidiaries
as well as the level of a measure of GAAP capital held by the
Company in determining the Company's financial strength and
credit ratings. Rating agencies may implement changes to their
capital formulas that have the effect of increasing the amount of
capital we must hold in order to maintain our current ratings.
See 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.”
111
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, 2021
$
Statutory income
Dividends to parent
Other items
Net change to U.S. statutory capital
U.S. statutory capital at December 31, 2021
$
10,795 $
1,774
(1,105)
450
1,119
11,914 $
2,601 $
32
(295)
72
(191)
2,410 $
13,396
1,806
(1,400)
522
928
14,324
[1]The statutory capital for property and casualty insurance subsidiaries in this table does not include the value of an intercompany note owed by HHI to Hartford Fire
Insurance Company.
[2]Excludes insurance operations in the U.K. and Continental Europe.
.
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.
|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
•
•
•
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.
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
112
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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
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 lawmakers continue to propose legislation and
regulation to address the effects of the COVID-19 pandemic and
to promote recovery from the pandemic. There have been
proposals to impose retroactive coverage of COVID-19 claims
under existing business interruption coverage provisions. If such
proposals were enacted, they could represent a material
exposure for the Company. Further, some states have adopted,
or are considering incorporating, a presumption that if certain
workers become infected with COVID-19, such infection would
constitute an occupational disease triggering workers’
compensation coverage. In addition, state insurance regulators,
including California, New Jersey and New York, have
encouraged (and in some cases required) insurers to offer
immediate relief to policyholders. As the COVID-19 global
pandemic continues, regulators may require us or we may elect
to provide additional consumer and/or business financial relief.
We may also see this manifest in the review and approval of
new rate filings, with regulators applying heightened scrutiny
even when rate reductions are proposed. The duration and
scope of such regulatory/Company actions are uncertain, and
113
the impacts of such actions could adversely affect the
Company’s insurance business.
Proposals have been introduced in Congress to enact a
pandemic risk insurance coverage through a risk sharing
mechanism between insurers and the federal government for
future pandemics. Timing for any Congressional action with
respect to these proposals is uncertain at this time. If such a
program were to be enacted, it could represent a significant
obligation for the Company in terms of deductible and co-share
obligations.
Biden Administration Build Back Better Agenda
During 2021, the Biden Administration called for Congressional
action on the President’s Build Back Better Agenda, which
outlined funding across traditional infrastructure and human
infrastructure in the U.S.
On November 15, 2021, President Biden signed the bipartisan
“Infrastructure Investment and Jobs Act” into law, which
provided funding for traditional infrastructure such as roads,
bridges and highways.
The second phase of Build Back Better proposes funding for a
national paid family and medical leave program, clean energy
initiatives, affordable childcare and more in the Build Back
Better Act.
Notably, a national paid family and medical leave program could
affect existing state-based disability and paid leave programs or
other products and services that the Company provides through
its Group Benefits business.
If enacted, the effect of new proposals from the Build Back
Better agenda on the Company’s operations, including the
ability to attract new business and retain existing customers is
unclear. While Congress is considering partisan action on the
Build Back Better agenda, the nature and timing of such action
is unclear.
Patient Protection and Affordable Care Act of
2010 (the "Affordable Care Act")
It is unclear whether the Administration, Congress or the courts
will seek to reverse, amend or alter the ongoing operation of the
Affordable Care Act ("ACA"). If such actions were to occur, they
might have an impact on various aspects of our businesses,
including our insurance businesses. 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 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. The potential effect on
The Hartford as an employer would be consistent with other
large employers.
Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
US Tax Reform
As Congress debates action on various spending initiatives, it
may consider a variety of proposals to fund the cost of new
spending with revenue raising measures. Proposals from the
Build Back Better agenda, as well as the Biden Administration
commitment to the OECD global minimum tax, could be drivers
of tax policy changes, including a possible increase in the
corporate tax rate, creation of a corporate minimum tax and
other changes to taxes owed on income earned outside of the
U.S. These and other tax proposals and regulatory initiatives
that may be considered by Congress and/or the U.S. Treasury
Department could have a material effect on the Company and
its insurance businesses. The nature and timing of any
Congressional or regulatory action with respect to any such
efforts is unclear.
Post-Brexit UK Regulatory Reforms
The UK Prudential Regulation Authority (“PRA”) is reviewing the
Solvency II regime, introduced across the EU during 2016 to
align insurance entities’ risk frameworks for managing capital
adequacy and risk management practices, as well as increased
transparency and enhanced regulatory supervision.
The PRA also recognizes that climate change presents a
material financial risk to insurers and the financial system and
for 2022 the PRA will incorporate the financial risks posed by
supervision into its core supervisory approach.
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.
114
The Hartford's management assessed its internal controls over
financial reporting as of December 31, 2021 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, 2021.
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 2021 that have materially affected, or are
reasonably likely to materially affect, the Company's internal
control over financial reporting.
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.
Part II - Item 9A. Controls and Procedures
Item 9A.
CONTROLS AND PROCEDURES
EVALUATION OF
DISCLOSURE CONTROLS
AND PROCEDURES
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, 2021.
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.
115
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, 2021, 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, 2021, 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, 2021, of the Company and our report dated February
18, 2022, 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 18, 2022
116
Part III - Item 10. Directors, Executive Officers ad 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 2022 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.
EXECUTIVE OFFICERS
OF THE HARTFORD
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.
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.
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 17,
2022:
Name
Age
Position with The Hartford and Business Experience For the Past Five Years
Jonathan R.
Bennett
Claire H. Burns
57 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)
53 Chief Marketing and Communications Officer (September 2021-present); Chief Marketing and Strategy
Officer, Prudential International (February 2018-July 2021); Senior Vice President and Chief Customer
Officer, MetLife (November 2012-January 2018)
Beth A. Costello
54 Executive Vice President and Chief Financial Officer (July 2014-present)
Douglas G. Elliot
61 President (July 2014-present)
John J. Kinney
50 Executive Vice President, Head of Claims & Operations (August 2021-present); Chief Claims Officer
Scott R. Lewis
59 Senior Vice President and Controller (May 2013-present)
(April 2013-August 2021)
Robert W. Paiano
60 Executive Vice President and Chief Risk Officer (June 2017-present); Senior Vice President &
Treasurer (July 2010-May 2017)
David C. Robinson
56 Executive Vice President and General Counsel (June 2015-present)
Lori A. Rodden
51 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-October 2019) and Vice President and Lead Human Resources for
Middle Market, Large Commercial, Sales & Distribution and underwriting (November 2014-April 2016)
Deepa Soni
52 Executive Vice President, Head of Technology, Data, Analytics & Information Security (August 2021-
present); Chief Information Officer (September 2019-August 2021); U.S. Chief Information Officer,
BMO Financial Group (April 2016-September 2019)
Amy M.
Stepnowski
53 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)
117
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 [1]
FINANCIAL STATEMENTS
Consolidated Statements of Operations — For the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income — For the Years Ended December 31, 2021, 2020 and 2019
Consolidated Balance Sheets — As of December 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity — For the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows — For the Years Ended December 31, 2021, 2020 and 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Business Acquisitions
Note 3 - Earnings Per Common Share
Note 4 - Segment Information
Note 5 - Fair Value Measurements
Note 6 - Investments
Note 7 - Derivatives
Note 8 - Premiums Receivable and Agents' Balances
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, Net of Tax
Note 19 - Employee Benefit Plans
Note 20 - Stock Compensation Plans
Note 21 - Leases
Note 22 - Business Dispositions
Note 23 - Restructuring and Other Costs
[1] Deloitte & Touche LLP (PCAOB ID No. 34) is our principal accountant and an independent registered public accounting firm.
PAGE
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118
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, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in
stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2021, 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, 2021, 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 18, 2022, 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 our especially challenging, subjective, or complex 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,
2021, 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:
119
•
•
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, 2021, 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 18, 2022
We have served as the Company’s auditor since 2002.
120
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Operations
For the years ended December 31,
2021
2020
2019
$
17,999 $
17,288 $
16,923
1,488
2,313
509
81
1,277
1,846
(14)
126
1,301
1,951
395
170
22,390
20,523
20,740
12,729
11,805
11,472
1,680
4,779
—
—
234
71
1
1,706
4,480
—
—
236
72
104
1,622
4,580
90
91
259
66
—
19,494
18,403
18,180
2,896
531
2,365
21
2,120
383
1,737
21
2,344 $
1,716 $
2,560
475
2,085
21
2,064
6.71 $
6.62 $
4.79 $
4.76 $
5.72
5.66
(in millions, except for per share data)
Revenues
Earned premiums
Fee income
Net investment income
Net realized 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 before income taxes
Income tax expense
Net income
Preferred stock dividends
Net income available to common stockholders
Net income available to common stockholders per common share
Basic
Diluted
$
$
$
See Notes to Consolidated Financial Statements.
121
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Comprehensive Income
(in millions)
Net income
Other comprehensive income (loss) (“OCI”):
Change in net unrealized gain on fixed maturities
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
For the years ended December 31,
2021
2020
2019
$
2,365 $
1,737 $
2,085
(1,218)
1,150
1,660
—
1
(6)
(2)
228
(998)
3
9
(45)
1,118
$
1,367 $
2,855 $
1
14
4
(48)
1,631
3,716
See Notes to Consolidated Financial Statements
122
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Balance Sheets
(in millions, except for share and per share data)
Assets
Investments:
As of December 31,
2021
2020
Fixed maturities, available-for-sale, at fair value (amortized cost of $40,788 and $41,561, and ACL of $1 and
$23)
$ 42,847 $ 45,035
Equity securities, at fair value
Mortgage loans (net of ACL of $29 and $38)
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 $105 and $152)
Reinsurance recoverables (net of allowance for uncollectible reinsurance of $99 and $108)
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
Long-term debt
Other liabilities
Liabilities held for sale
Total liabilities
Commitments and Contingencies (Note 15)
Stockholders’ Equity
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 13,800 shares issued at December 31,
2021 and December 31, 2020, aggregate liquidation preference of $345
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 366,960,228 shares issued at
December 31, 2021 and 384,923,222 shares issued at December 31, 2020
Additional paid-in capital
Retained earnings
Treasury stock, at cost — 32,034,244 and 26,434,682 shares
Accumulated other comprehensive income, net of tax
Total stockholders' equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements.
123
2,094
5,383
3,353
375
1,438
4,493
2,082
201
3,697
3,283
57,749
56,532
205
132
4,445
6,523
881
270
1,911
1,027
858
151
88
4,268
6,011
789
46
1,911
1,122
950
2,577
2,066
—
177
$ 76,578 $ 74,111
$ 39,659 $ 37,855
596
687
7,194
4,944
5,655
—
638
701
6,629
4,352
5,222
158
58,735
55,555
334
334
4
4
3,309
4,322
15,764
13,918
(1,740)
(1,192)
172
1,170
17,843
18,556
$ 76,578 $ 74,111
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(in millions, except for share and per share data)
Preferred Stock
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
Treasury stock retired
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
Treasury stock retired
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
Total other comprehensive income (loss)
Accumulated Other Comprehensive Income, net of tax, end of period
Total Stockholders’ Equity
Preferred Shares Outstanding
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
For the years ended December 31,
2021
2020
2019
$
334 $
334 $
4
4
334
4
4,322
4,312
4,378
(90)
116
—
(1,039)
(96)
106
—
—
(100)
114
(80)
—
3,309
4,322
4,312
13,918
12,685
11,055
—
(18)
—
13,918
12,667
11,055
2,365
1,737
2,085
(21)
(498)
(21)
(465)
(21)
(434)
15,764
13,918
12,685
(1,192)
(1,117)
(1,091)
(1,702)
1,039
146
(31)
—
(150)
(200)
—
112
(37)
—
—
135
(41)
80
(1,740)
(1,192)
(1,117)
1,170
(998)
172
52
(1,579)
1,118
1,170
1,631
52
$
17,843 $
18,556 $
16,270
13,800
13,800
13,800
358,489
359,570
359,151
(25,878)
(2,661)
(3,412)
2,902
2,298
2,906
(587)
—
(718)
(796)
—
1,721
334,926
358,489
359,570
$
1.44 $
1.30 $
1.20
$ 1,500.00 $ 1,500.00 $ 1,500.00
See Notes to Consolidated Financial Statements.
124
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Cash Flows
(in millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Net realized gains
Amortization of deferred policy acquisition costs
Additions to deferred policy acquisition costs
Depreciation and amortization
Loss on extinguishment of debt
Loss 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) 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 decrease in securities loaned or sold under agreements to repurchase
Repayment of debt
Proceeds from the issuance of debt
Net issuance (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 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 paid (received)
Interest paid
See Notes to Consolidated Financial Statements.
For the years ended December 31,
2021
2020
2019
$
2,365 $
1,737 $
2,085
(530)
1,680
(1,751)
680
—
21
(133)
(582)
85
2,416
(158)
4,093
22,457
626
1,506
537
(21,754)
(1,420)
(2,386)
(1,317)
(7)
(133)
(417)
(169)
11
—
(2,466)
89
(75)
—
—
588
25
(1,702)
(21)
(485)
(1,581)
(6)
40
(58)
98
239
(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
337 $
239 $
(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
262
496 $
214 $
(71) $
232 $
(396)
261
$
$
$
125
Note 1 - Basis of Presentation and Significant Accounting Policies
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, and other international locations
(collectively, “The Hartford”, the “Company”, “we” or “our”).
On December 29, 2021, the Company completed the sale of 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.
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. For further discussion of these
transactions, see Note 2 - Business Acquisitions and Note 22 -
Business Dispositions.
The Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (“U.S. Generally Accepted Accounting
Principles”) 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.
Use of Estimates
The preparation of financial statements in conformity with U.S.
Generally Accepted Accounting Principles ("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.
Reclassifications
Certain reclassifications have been made to prior year financial
information to conform to the current year presentation.
Adoption of New Accounting
Standards
Goodwill
On January 1, 2020, the Company adopted the Financial
Accounting Standards Board's ("FASB") 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, available-for-sale ("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
126
Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
Other liabilities
— $
(19)
(19)
4,215
(19)
4,196
4,529
4,529
(145)
23
(122)
4,384
23
4,407
5,641
5,641
(114)
(2)
(116)
5,527
(2)
5,525
299
(5,157)
5
304
(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 London Inter-Bank Offered Rate ("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 effect of adoption on its financial
position, cash flows or net income because the guidance
127
Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
provides relief from accounting for the effects of the change to a
replacement rate.
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 $596 and
$638 as of December 31, 2021 and 2020, respectively. 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 and mortality) 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 retrospectively to January
1, 2021 (the “transition date”). The Company will not early adopt
the updated guidance and will apply a modified retrospective
transition method.
The Company’s implementation activities are ongoing and
include reviewing and validating methodologies, data and
assumptions used to estimate the reserve for future policy
benefits and developing disclosures as required by the new
guidance. The Company expects the adoption of the new
guidance to result in an increase to the reserve for future policy
benefits and a corresponding decrease to accumulated other
comprehensive income ("AOCI") as of the transition date
because market upper-medium grade (low-credit-risk) fixed-
income investment yields were lower as of the transition date
than the locked in rates that were previously used to discount
the reserves. The adoption is not expected to have a material
effect on the Company’s total liabilities, stockholders’ equity or
results of operations.
Significant Accounting Policies
The Company’s significant accounting policies are as follows:
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 beginning 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
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Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
recorded in the period in which the services are provided and
are collected monthly. 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 a portion 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.
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%, 7% and 9% of total net
written premiums for the years ended December 31, 2021, 2020
and 2019, respectively. Participating dividends to property and
casualty policyholders were $24, $29 and $30 for the years
ended December 31, 2021, 2020 and 2019, 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, and 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. Equity securities
are measured at fair value with any changes in valuation
reported in net income. 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
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, 2021,
2020, and 2019 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, equity fund investments, and certain
investments for which the Company has elected the fair value
option ("FVO"). These investments are carried at fair value and
changes in value are recorded in net realized gains and losses.
Net Realized Gains and Losses
Net realized gains and losses from investment sales are
reported as a component of revenues and are determined on a
specific identification basis. Net realized gains and losses also
result from fair value changes in equity securities, fixed
maturities, FVO, 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 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 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 gains and losses. For fixed
maturities with an ACL, net investment income is recognized at
129
Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the original effective rate and accretion of the ACL is recognized
through net realized gains and 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, 2021, 2020 and
2019.
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 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
130
Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 management
purposes are reported in current period earnings as net realized
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 may purchase 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 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
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 deposit
transactions. As of December 31, 2021, the Company's deposit
liability was $99 reported in other liabilities.
Premiums, benefits, losses and loss adjustment expenses
reflect the net effects of ceded and assumed reinsurance
131
Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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, which are a reduction of incurred 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 $1.3 billion and $1.1 billion,
and the deferred gain liability reported in other liabilities was
$574 and $328, as of December 31, 2021 and 2020,
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
$246, $312 and $16 before tax for the years ended December
31, 2021, 2020, and 2019 respectively.
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. Goodwill is tested for impairment by comparing
the fair value of a reporting unit to its carrying value. Goodwill is
impaired up to the amount that the carrying value of the
reporting unit exceeds the fair 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.
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
been a change in the length of time that an intangible asset will
132
Note 1 - Basis of Presentation and Significant Accounting Policies
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $2.3 billion
and $2.1 billion as of December 31, 2021 and 2020,
respectively. Depreciation expense was $342, $313, and $283
for the years ended December 31, 2021, 2020 and 2019,
respectively.
Leases
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.
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 not yet been reported, 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 net
realized gains (losses) in the period in which they occur
133
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 - Business Acquisitions
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
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 - Business Acquisitions
Intangible Assets Recorded in Connection with
the Acquisition
yield. This debt was paid off in August 2019. For further
discussion of this transaction, see Note 14 - Debt.
Asset
Amount
Weighted
Average
Expected Life
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
$
180
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
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.
For information about the Navigators ADC after the acquisition
date, refer to Note 12 - Reserve for Unpaid Losses and Loss
Adjustment Expenses.
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). For further discussion of the Navigators ADC, see
Note 12 - Reserve for Unpaid Losses and Loss Adjustment
Expenses.
The Company recognized $17 of acquisition related costs for
the twelve months ended December 31, 2019. These costs are
135
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2 - Business Acquisitions
included in insurance operating costs and other expenses in the
Consolidated Statement of Operations.
Pro Forma Results for the Year Ended December
31
The following table presents supplemental unaudited pro forma
amounts of revenue and net income for the year ended
December 31, 2019 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.
2019 Supplemental (unaudited)
combined pro forma
Revenue
Earnings
$
21,416 $
2,080
3. EARNINGS PER COMMON SHARE
Computation of Basic and Diluted Earnings per Common Share
(In millions, except for per share data)
Earnings
Net income
Less: Preferred stock dividends
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]
Net income available to common stockholders per common share
Basic
Diluted
For the years ended December 31,
2021
2020
2019
$
$
2,365 $
21
2,344 $
1,737 $
21
1,716 $
349.1
—
5.0
358.3
—
2.3
2,085
21
2,064
360.9
0.5
3.5
354.1
360.6
364.9
$
$
6.71 $
6.62 $
4.79 $
4.76 $
5.72
5.66
[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 of Notes to Consolidated Financial Statements.
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.
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.
Under the treasury stock method, for warrants and stock-based
awards, shares are assumed to be issued and then reduced for
4. SEGMENT INFORMATION
The Company conducts business principally in five reporting
segments comprising 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:
136
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
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Segment Information
strength of the AARP brand, and is in place 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 and associations 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,
distribution 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 reserves for
run-off structured settlement and terminal funding agreement
liabilities, restructuring costs, capital raising activities (including
equity financing, debt financing and related interest expense),
transaction expenses incurred in connection with an acquisition,
certain M&A costs, purchase accounting adjustments related to
goodwill and other expenses not allocated to the reporting
segments. Corporate also includes investment management
fees and expenses related to managing third party business,
including management a portion of the invested assets of Talcott
Resolution Life, Inc. and its subsidiaries as well certain affiliates.
In addition, up until June 30, 2021, Corporate included a 9.7%
ownership interest in Hopmeadow Holdings LP, the legal entity
that acquired Talcott Resolution in May 2018 (Hopmeadow
Holdings, LP, Talcott Resolution Life Inc., and its subsidiaries
are collectively referred to as "Talcott Resolution"). Refer to Note
6 - Investments for additional information.
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 income is unaffected by
such transactions.
Revenues
For the years ended
December 31,
2021
2020
2019
Earned premiums and fee
income:
Commercial Lines
Workers’ compensation
$ 3,172 $ 3,034 $ 3,314
Liability
Marine
1,622 1,401 1,064
228
251
147
Package business
1,665 1,540 1,471
Property
Professional liability
Bond
Assumed reinsurance
Automobile
829
793
655
595
287
274
328
298
789
754
728
447
261
180
713
Total Commercial Lines
9,575 8,940 8,325
Personal Lines
Automobile
Homeowners
2,059 2,081 2,248
927
961
987
Total Personal Lines [1]
2,986 3,042 3,235
Property & Casualty Other
Operations
—
—
2
Group Benefits
Group disability
Group life
Other
2,983 2,832 2,828
2,388 2,434 2,521
316
270
254
Total Group Benefits
5,687 5,536 5,603
Hartford Funds
Mutual fund and Exchange-
Traded Products ("ETP")
Talcott Resolution life and
annuity separate accounts [2]
1,094
903
907
95
86
92
Total Hartford Funds
1,189
989
999
Corporate
50
58
60
Total earned premiums and fee
income
19,487 18,565 18,224
Total net investment income
2,313 1,846 1,951
Net realized gains (losses)
Other revenues
509
(14)
81
126
395
170
Total revenues
$ 22,390 $ 20,523 $ 20,740
[1]For 2021, 2020 and 2019, AARP members accounted for earned
premiums of $2.7 billion, $2.8 billion and $2.9 billion, respectively.
[2]Represents revenues earned on the life and annuity separate account
assets under management ("AUM") sold in May 2018 that is still managed
by the Company's Hartford Funds segment.
137
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Income (Loss)
Amortization of Other Intangible Assets
Note 4 - Segment Information
Commercial Lines
Personal Lines
Property & Casualty Other
Operations
Group Benefits
Hartford Funds
Corporate
Net income
For the years ended
December 31,
2021
2020
2019
$ 1,757 $
856 $ 1,192
385
718
318
(95)
(168)
249
383
217
170
61
536
149
(148)
(222)
(171)
2,365 1,737 2,085
For the years ended
December 31,
2021
2020
2019
Commercial Lines
$
29 $
28 $
Personal Lines
Group Benefits
Corporate
2
40
—
4
40
—
18
6
41
1
Total amortization of other
intangible assets
$
71 $
72 $
66
Income Tax Expense (Benefit)
Preferred stock dividends
21
21
21
Net income available to
common stockholders
$ 2,344 $ 1,716 $ 2,064
Net Investment Income
For the years ended
December 31,
2021
2020
2019
Commercial Lines
$ 1,502 $ 1,160 $ 1,129
Personal Lines
Property & Casualty Other
Operations
Group Benefits
Hartford Funds
Corporate
157
157
179
75
55
84
550
448
486
5
24
4
22
7
66
Net investment income
$ 2,313 $ 1,846 $ 1,951
Amortization of DAC
For the years ended
December 31,
2021
2020
2019
Commercial Lines
$ 1,398 $ 1,397 $ 1,296
Personal Lines
Group Benefits
Hartford Funds
Corporate
230
244
259
40
12
—
50
14
1
54
12
1
Total amortization of DAC
$ 1,680 $ 1,706 $ 1,622
For the years ended
December 31,
2021
2020
2019
$
402 $
95
176 $
184
270
76
(28)
53
56
(47)
531 $
(46)
88
44
(63)
383 $
12
126
37
(46)
475
As of December 31,
2021
2020
$
48,234 $
45,482
5,587
5,969
3,792
3,505
14,442
14,732
720
3,803
76,578 $
662
3,761
74,111
$
Commercial Lines
Personal Lines
Property & Casualty Other
Operations
Group Benefits
Hartford Funds
Corporate
Total income tax expense
$
Assets
Commercial Lines
Personal Lines
Property & Casualty Other
Operations
Group Benefits
Hartford Funds
Corporate
Total assets
138
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue from Non-Insurance Contracts with Customers
Note 4 - Segment Information
Revenue Line Item
2021
2020
2019
For the years ended December 31,
Fee income
$
34 $
30 $
Fee income
Other revenues
32
80
34
81
35
37
83
Fee income
183
175
180
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
Fee income
Fee income
Fee income
Other revenues
1,086
103
50
1
901
88
49
2
911
88
50
20
Total non-insurance revenues with customers
$
1,569 $
1,360 $
1,404
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.
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.
Level 3
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.
139
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Fair Value Measurements
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2021
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
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]
Fixed maturities, at fair value using the fair value option ("FVO") [2]
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
Foreign exchange derivatives
Interest rate derivatives
Total derivative liabilities [3]
Total liabilities accounted for at fair value on a recurring basis
$
$
$
$
1,135 $
3,025
4,119
18,707
910
8,257
3,643
3,051
42,847
2,094
2
6
(1)
7
160
3,697
48,805 $
(4) $
—
(45)
(49)
(49) $
— $
—
—
—
—
—
—
882
882
1,453
—
—
—
—
—
1,627
3,962 $
— $
—
—
—
— $
1,135 $
2,768
3,923
17,089
905
8,257
3,315
2,169
39,561
577
2
5
(1)
6
—
1,990
42,134 $
(4) $
1
(45)
(48)
(48) $
—
257
196
1,618
5
—
328
—
2,404
64
—
1
—
1
160
80
2,709
—
(1)
—
(1)
(1)
140
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Fair Value Measurements
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2020
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
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
Credit derivatives
Foreign exchange 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
$
Foreign exchange derivatives
Interest rate derivatives
Total derivative liabilities [3]
Total liabilities accounted for at fair value on a recurring basis $
$
(14) $
(70)
(84)
(84) $
$
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
3,283
49,779 $
—
—
—
—
—
—
529
529
872
—
—
—
—
2,663
4,064 $
— $
—
—
— $
2,420
4,407
19,392
913
9,503
3,726
876
42,801
496
21
1
1
23
590
43,910 $
(14) $
(70)
(84)
(84) $
—
360
77
881
6
—
381
—
1,705
70
—
—
—
—
30
1,805
—
—
—
—
[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 by agreements and applicable law. See footnote 3 to this table for derivative liabilities.
[2]Included within other investments on the Consolidated Balance Sheets.
[3]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.
The Company has overseas deposits included in other
investments of $65 and $54 as of December 31, 2021 and
December 31, 2020, 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 used in pricing the securities are
observable. However, some securities that are less liquid or
trade less actively are classified as Level 3. Additionally,
141
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Fair Value Measurements
•
•
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 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 sector, 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 index prices, and daily OTC derivative market valuations
to counterparty valuations. The Company has a dedicated
pricing group that works with trading and investment
professionals to challenge prices 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 derivative instruments.
142
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
Note 5 - Fair Value Measurements
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
Derivatives
Credit derivatives
• Swap yield curve
• Credit default swap curves
Foreign exchange derivatives
• Swap yield curve
• Currency spot and forward rates
• Cross currency basis curves
Interest rate derivatives
• Swap yield curve
• 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
Not applicable
• Independent broker quotes
• Independent broker quotes
• Interest rate volatility
143
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Significant Unobservable Inputs for Level 3 - Securities
Note 5 - Fair Value Measurements
Assets accounted
for at fair value on
a recurring basis
Fair
Value
Predominant
Valuation
Technique
Significant Unobservable Input Minimum Maximum
As of December 31, 2021
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]
$ 211 Discounted
cash flows
Spread
234 bps
258 bps
257 bps
Decrease
$ 192 Discounted
cash flows
Spread (encompasses prepayment,
default risk and loss severity)
203 bps
468 bps
266 bps
Decrease
$ 1,532 Discounted
cash flows
$ 266 Discounted
cash flows
Spread
96 bps
1,227 bps
298 bps
Decrease
Spread [6]
48 bps
229 bps
89 bps
Decrease
Constant prepayment rate [6]
Constant default rate [6]
Loss severity [6]
As of December 31, 2020
Spread
$ 340 Discounted
cash flows
$ 20 Discounted
cash flows
Spread (encompasses prepayment,
default risk and loss severity)
$ 749 Discounted
cash flows
$ 364 Discounted
cash flows
Spread
Spread [6]
Constant prepayment rate [6]
Constant default rate [6]
Loss severity [6]
2%
1%
—%
16%
6%
100%
7%
3%
63%
Decrease
[5]
Decrease
Decrease
304 bps
305 bps
304 bps
255 bps
975 bps
688 bps
110 bps
692 bps
293 bps
Decrease
Decrease
Decrease
Decrease
7 bps
—%
2%
—%
937 bps
10%
119 bps
5%
Decrease [5]
6%
100%
3%
84%
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.
As of December 31, 2021 and 2020, the fair values of the
Company's level 3 derivatives were less than $1 for both
periods.
The table above excludes 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
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
the year ended December 31, 2021, no significant adjustments
were made by the Company to broker prices received.
144
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Fair Value Measurements
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 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 outflows 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.
For disclosure of contingent consideration related to the sale of
Continental Europe Operations, refer to Note 22 - Business
Dispositions.
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.
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Year Ended
December 31, 2021
Total realized/
unrealized gains
(losses)
Fair value
as of
January 1,
2021
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, 2021
Assets
Fixed Maturities, AFS
ABS
CLOs
CMBS
Corporate
Foreign Govt./Govt. Agencies
RMBS
360
77
881
6
381
Total Fixed Maturities, AFS
1,705
Equity Securities, at fair value
Fixed maturities, FVO [4]
Short-term investments
70
—
30
$
— $
— $
— $
42 $
— $
(3) $
— $
(39) $
—
—
14
—
—
14
42
(6)
—
(1)
1
(34)
—
(4)
471
166
828
5
369
(38)
1,881
—
—
—
6
160
98
(124)
(4)
(154)
—
(193)
(475)
(53)
6
(48)
—
(1)
(47)
(6)
(14)
(71)
(1)
—
—
—
5
172
—
—
(449)
(48)
(42)
—
(211)
—
257
196
1,618
5
328
177
(789)
2,404
—
—
—
—
—
—
64
160
80
Total Assets
$
1,805 $
50 $
(38) $
2,145 $
(570) $
(72) $
177 $
(789) $
2,708
145
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Fair Value Measurements
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
$
15 $
— $
(1) $
43 $
— $
— $
— $
(57) $
95
9
732
3
—
560
1,414
73
15
—
—
(31)
—
(3)
—
(34)
(10)
—
1
3
31
—
2
(11)
25
—
—
389
79
272
6
—
66
855
6
30
(43)
(5)
—
—
—
13
(82)
(22)
(143)
(36)
486
(430)
—
—
(182)
(373)
—
(15)
—
(6)
(7)
(49)
—
—
—
7
—
(3)
—
(45)
506
(639)
1,705
1
—
—
—
70
30
—
360
77
881
6
—
381
$
1,502 $
(44) $
25 $
891 $
(388) $
(49) $
507 $
(639) $
1,805
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 [5]
Equity
Total Derivatives, net [5]
Contingent Considerations
Total Liabilities
$
(37) $
48 $
— $
$
(15) $
36 $
— $
(15)
(22)
36
12
—
—
— $
—
—
— $
(21) $
— $
(21)
10
—
—
(11) $
— $
— $
—
—
— $
— $
—
—
— $
—
—
—
—
[1]Amounts in these columns are generally reported in net realized 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.
[4]Included within other investments on the Consolidated Balance Sheets.
[5]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.
146
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Fair Value Measurements
Changes in Unrealized Gains (Losses) for Financial Instruments Classified as Level 3 Still Held at
Year End
Assets
Fixed Maturities, AFS
CLOs
CMBS
Corporate
RMBS
Total Fixed Maturities, AFS
Equity Securities, at fair value
Fixed Maturities, FVO [4]
Total Assets
Liabilities
Contingent Consideration
Total Liabilities
December 31, 2021
December 31, 2020
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]
$
$
$
$
— $
—
—
—
—
4
(6)
(2) $
— $
— $
(1) $
1
(32)
(4)
(36)
—
—
(36) $
— $
— $
— $
—
(21)
—
(21)
(9)
—
(30) $
12 $
12 $
1
4
24
(10)
19
—
—
19
—
—
[1]All amounts in these rows are reported in net 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.
[4]Included within other investments on the Consolidated Balance Sheets.
FAIR VALUE OPTION
The Company has elected the fair value option for certain
investments in residual interests of securitizations in order to
reflect changes in fair value in earnings. These instruments are
included within other investments on the Consolidated Balance
Sheets and changes in the fair value of these securities are
reported in net realized gains and losses.
As of December 31, 2021, the fair value of assets using the fair
value option was $160. As of December 31, 2020, the Company
did not have any assets using the fair value option.
For the year ended December 31, 2021 realized losses related
to the change in fair value of assets using the fair value option
were $6. For the years ended December 31, 2020 and 2019,
there were no realized gains (losses) related to the change in
fair value of assets using the fair value option.
FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE
Financial Assets and Liabilities Not Carried at Fair Value
Assets
Mortgage loans
Liabilities
December 31, 2021
December 31, 2020
Fair Value
Hierarchy
Level
Carrying
Amount [1] Fair Value
Fair Value
Hierarchy
Level
Carrying
Amount [1] Fair Value
Level 3 $
5,383 $
5,576
Level 3 $
4,493 $
4,792
Other policyholder funds and benefits payable
Senior notes [2]
Junior subordinated debentures [2]
Level 3 $
687 $
Level 2 $
3,854 $
Level 2 $
1,090 $
689
4,725
1,086
Level 3 $
701 $
Level 2 $
3,262 $
Level 2 $
1,090 $
703
4,363
1,107
[1] As of December 31, 2021 and December 31, 2020, carrying amount of mortgage loans is net of ACL of $29 and $38 respectively
[2] Included in long-term debt in the Consolidated Balance Sheets, except for any current maturities, which are included in short-term debt when applicable.
147
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
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,
2021
2020
2019
$
1,349 $
1,442 $
73
181
732
58
(80)
39
172
222
42
(71)
1,559
46
165
232
32
(83)
1,951
Total net investment income
$
2,313 $
1,846 $
[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.
(Before tax)
Net Realized Gains (Losses)
For the years ended December 31,
2021
2020
2019
Gross gains on sales of fixed maturities
$
Gross losses on sales of fixed maturities
Equity securities [1]
Net realized gains (losses) on sales of equity securities
Change in net unrealized gains (losses) of equity securities
Net realized and unrealized gains (losses) on equity securities
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 gains (losses)
$
319 $
(89)
81
146
227
4
9
—
39
509 $
255 $
(50)
(118)
(96)
(214)
(28)
(19)
(5)
47
(14) $
234
(56)
78
176
254
—
(3)
1
(35)
395
[1]The net unrealized gains on equity securities still held as of the end of the period and included in net realized gains (losses) were $155, $53, and $164 for the years
ended December 31, 2021, 2020, and 2019, respectively.
[2]Due to the adoption of accounting guidance for credit losses on January 1, 2020, realized 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 2021, 2020, and 2019 of $12, $104, and $(24), respectively, gains (losses) from transactional foreign
currency revaluation of $(1), $(1) and $(9), respectively, and a loss of $21 and $48, respectively, on the sale of the Continental Europe Operations for the years
ended December 31, 2021 and 2020. For the year ended December 31, 2021, there was also a gain of $46 on the sale of the Company's previously owned interest
in Talcott Resolution.
Proceeds from the sales of fixed maturities, AFS totaled $15.9
billion, $15.1 billion, and $14.4 billion for the years ended
December 31, 2021, 2020, and 2019, respectively. Sales of AFS
securities in 2021 were primarily a result of tactical changes to
the portfolio driven by changing market conditions, in addition to
duration and liquidity management.
Accrued Interest Receivable on
Fixed Maturities, AFS and Mortgage
Loans
As of December 31, 2021 and December 31, 2020, the
Company reported accrued interest receivable related to fixed
maturities, AFS of $299 and $327, respectively, and accrued
interest receivable related to mortgage loans of $16 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
148
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
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 gains and losses.
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 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 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 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
For the years ended December 31,
2021
2020
Corporate
Total
Corporate Municipal
Total
$
23 $
23 $
— $
— $
2
(18)
(6)
1 $
2
(18)
(6)
1 $
36
(4)
(9)
23 $
3
(3)
—
— $
—
39
(7)
(9)
23
(Before tax)
Balance as of beginning of period
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
$
149
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
Reductions for credit impairments previously recognized on:
Fixed maturities that matured or were sold during the period
Balance as of end of period
Note 6 - Investments
For the year ended
December 31, 2019
$
$
(19)
(3)
3
(19)
[1]These additions are included in the net OTTI losses recognized in earnings in the Consolidated Statements of Operations.
Fixed Maturities, AFS
ABS
CLOs
CMBS
Corporate
Foreign govt./govt.
agencies
Municipal
RMBS
U.S. Treasuries
Total fixed maturities,
AFS
Fixed Maturities, AFS, by Type
December 31, 2021
December 31, 2020
Amortized
Cost
ACL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
ACL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
1,125 $ — $
13 $
(3) $ 1,135 $
1,525 $ — $
39 $
— $ 1,564
3,019 —
3,955 —
8
179
(2) 3,025
2,780 —
(15) 4,119
4,219 —
7
286
(7) 2,780
(21) 4,484
17,744
(1)
1,038
(74) 18,707
18,401
(23)
1,926
(31) 20,273
883 —
7,473 —
3,610 —
2,979 —
33
787
60
86
(6)
910
842 —
(3) 8,257
8,564 —
(27) 3,643
3,966 —
(14) 3,051
1,264 —
77
940
144
141
—
919
(1) 9,503
(3) 4,107
— 1,405
$ 40,788 $
(1) $
2,204 $
(144) $ 42,847 $ 41,561 $ (23) $
3,560 $
(63) $ 45,035
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.
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 the
150
December 31, 2021
December 31, 2020
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$
1,400 $
1,419 $
1,411 $
8,615
8,303
10,761
29,079
11,709
8,894
8,633
11,979
30,925
11,922
7,832
7,622
12,206
29,071
12,490
$
40,788 $
42,847 $
41,561 $
1,432
8,286
8,354
14,028
32,100
12,935
45,035
Company's stockholders' equity as of December 31, 2021 or
December 31, 2020, other than the U.S. government and certain
U.S. government agencies.
As of December 31, 2021, other than U.S. government and
certain U.S. government agencies, the Company’s three largest
exposures by issuer were the Government of Canada, Apple
Inc., and the IBM Corporation each of which comprised less than
1% of total invested assets. 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
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
assets. The Company’s three largest exposures by sector as of
December 31, 2021 were the municipal sector, the financial
services sector, and the CMBS sector which comprised
approximately 14%, 8%, and 7%, respectively, 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 CMBS sector which comprised
approximately 17%, 9%, and 8%, respectively, of total invested
assets.
Unrealized Losses on Fixed Maturities, AFS
Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2021
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
$
396 $
1,434
594
3,698
340
301
1,869
2,301
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(3) $
(2)
(7)
(65)
(5)
(3)
(23)
(13)
— $
147
82
234
16
12
94
23
— $
—
(8)
(9)
(1)
—
(4)
(1)
396 $
1,581
676
3,932
356
313
1,963
2,324
(3)
(2)
(15)
(74)
(6)
(3)
(27)
(14)
$
10,933 $
(121) $
608 $
(23) $
11,541 $
(144)
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
Total
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
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)
—
—
—
—
44 $
1,473
429
678
24
34
482
39
—
(7)
(21)
(31)
—
(1)
(3)
—
(63)
$
2,236 $
(36) $
967 $
(27) $
3,203 $
As of December 31, 2021, fixed maturities, AFS in an unrealized
loss position consisted of 1,500 instruments, primarily in the
corporate sectors, most notably financial services and
technology and communications, as well as RMBS, CMBS, and
U.S. Treasuries which were depressed largely due to higher
interest rates and/or wider credit spreads since the purchase
date. As of December 31, 2021, 99% of these fixed maturities
were depressed less than 20% of cost or amortized cost. The
increase in gross unrealized losses during 2021 was primarily
attributable to higher interest rates, partially offset by tighter
credit spreads.
Most of the fixed maturities depressed for twelve months or more
relate to the corporate and CMBS sectors which were primarily
depressed because current market spreads are wider than at the
respective purchase dates. Additionally, certain corporate fixed
maturities were 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.
151
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
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 losses.
ACL on Mortgage Loans
For the years ended
December 31,
2021
2020
2019
ACL as of beginning of period
$
38 $ — $
1
Cumulative effect of accounting
changes [1]
Adjusted beginning ACL
Current period provision (release)
19
19
19
1
(1)
38
(9)
ACL as of December 31,
$
29 $
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.
The decrease in the allowance for the year ended December 31,
2021, is the result of improved economic scenarios, including
improved GDP growth and unemployment, and higher property
valuations as compared to the prior periods, partially offset by an
increase driven by net additions of new loans. We continue to
monitor the impact on our mortgage loan portfolio from borrower
behavior in response to the economic stress caused by the
pandemic. 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. During 2020, the Company increased the
estimate of the ACL in response to significant economic stress
experienced as a result of the COVID-19 pandemic.
The weighted-average LTV ratio of the Company’s mortgage
loan portfolio was 51% as of December 31, 2021, 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.
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 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
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.
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, 2021, the Company did not have any
mortgage loans for which an ACL was established on an
individual basis.
There were no mortgage loans held-for-sale as of December 31,
2021 or December 31, 2020. In addition, as of December 31,
2021 and 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.
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
152
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
Mortgage Loans LTV & DSCR by Origination Year as of December 31, 2021
2016 & Prior
2019
2018
2017
2021
2020
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
Loan-to-value
65% - 80%
$
Less than 65% 1,481 2.70x
7 2.37x $
50 2.63x $
91 1.57x $
645 2.78x
722 2.78x
100 1.00x $
472 2.23x
45 1.37x $
390 1.61x
417 1.91x 1,285 2.45x 5,022 2.55x
97 1.80x $
Total
mortgage
loans
$ 1,488 2.70x $
695 2.77x $
813 2.64x $
572 2.02x $
462 1.86x $ 1,382 2.41x $ 5,412 2.48x
[1] Amortized cost of mortgage loans excludes ACL of $29.
Loan-to-value
65% - 80%
Mortgage Loans LTV & DSCR by Origination Year as of December 31, 2020
2015 & Prior
2018
2017
2016
2020
2019
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 $
Less than 65%
659 2.56x
243 1.58x $
676 2.85x
212 1.33x $
410 2.25x
45 2.02x $
446 1.89x
51 1.92x $
694 1.59x
235 2.99x 1,411 3.01x 3,837 2.69x
115 1.74x $
Total
mortgage
loans
$
687 2.52x $
919 2.51x $
622 1.94x $
491 1.90x $
286 2.80x $ 1,526 2.92x $ 4,531 2.52x
[1] Amortized cost of mortgage loans excludes ACL of $38.
Mortgage Loans by Region
December 31,
2021
December 31,
2020
Amortized
Cost
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 [1]
284
303
450
393
5.2 % $
5.6 %
8.3 %
7.3 %
290
291
254
397
6.4 %
6.4 %
5.6 %
8.8 %
1,245
23.0 %
1,001
22.1 %
1,556
28.8 %
1,038
22.9 %
85
424
672
1.6 %
7.8 %
12.4 %
44
433
783
1.0 %
9.5 %
17.3 %
$ 5,412
100.0 % $ 4,531
Total mortgage
loans
ACL
Total mortgage
loans, net of ACL $ 5,383
[1]Primarily represents loans collateralized by multiple properties in various
$ 4,493
(29)
(38)
100.0 %
regions.
Mortgage Loans by Property Type
December 31,
2021
December 31,
2020
Amortized
Cost
Percent
of Total
Amortized
Cost
Percent
of Total
Commercial
Industrial
Multifamily
Office
Retail [1]
Single Family
Other
$ 1,931
1,833
627
951
30
40
35.7 % $ 1,339
1,498
33.9 %
774
11.6 %
788
17.6 %
92
0.5 %
40
0.7 %
29.5 %
33.1 %
17.1 %
17.4 %
2.0 %
0.9 %
$ 5,412
Total mortgage
loans
ACL
Total mortgage
loans, net of ACL $ 5,383
(29)
100.0 % $ 4,531
100.0 %
(38)
$ 4,493
[1] Primarily comprised of grocery-anchored retail centers, with no exposure
to regional shopping malls.
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, 2021 and December 31, 2020, 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, 2021, under this program, the
Company serviced mortgage loans with a total outstanding
principal of $8.2 billion, of which $3.9 billion was serviced on
153
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
behalf of third parties and $4.3 billion was retained and reported
in total investments on the Company's Consolidated Balance
Sheets. As of December 31, 2020, the Company serviced
mortgage loans with a total outstanding principal balance 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.
Servicing rights are carried at the lower of cost or fair value and
were $0 as of December 31, 2021 and December 31, 2020,
because servicing fees were market-level fees at origination and
remain adequate to compensate the Company for servicing the
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 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, 2021 and 2020, 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, 2021 and 2020
is limited to the total carrying value of $1.9 billion and $1.3
billion, respectively, which are a portion of the investments in
limited partnerships and other alternative investments in the
Company's Consolidated Balance Sheets that are primarily
recorded using the equity method of accounting. As of
December 31, 2021 and 2020, the Company has outstanding
commitments totaling $1.4 billion and $768, 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, AFS,
and, for assets where the Company has elected the fair value
option, in other investments. 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
Company’s inability to direct the activities that most significantly
impact the economic performance of the VIEs, and, where
applicable, the level of credit subordination which reduces the
Company’s obligation to absorb losses or right to receive
benefits. The Company’s maximum exposure to loss on these
investments is limited to the amount of the Company’s
investment.
Securities Lending, Reverse
Repurchase Agreements, Other
Collateral Transactions and
Restricted Investments
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. While the
Company had securities on loan as part of a securities lending
program during 2020, as of December 31, 2021 and
December 31, 2020, the Company did not have any securities
on loan as part of a securities lending program.
Reverse Repurchase Agreements
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
154
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Investments
(collectively referred to as "Talcott Resolution"), which was
accounted for under the equity method of accounting and was
reported in other assets on the Company's Consolidated
Balance Sheets. On June 30, 2021, the Company sold its 9.7%
ownership interest in Talcott Resolution and received a total
$217 in connection with the sale, resulting in a realized gain on
sale of $46 before tax during 2021.
The Company recognized total equity method income of $630,
$244, and $267 for the years ended December 31, 2021, 2020
and 2019, 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, 2021 is limited to the total carrying value of $2.9
billion. In addition, the Company has outstanding commitments
totaling $1.6 billion to fund limited partnership investments as of
December 31, 2021. 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 2021, aggregate investment income from investments
accounted for under the equity method exceeded 10% of the
Company’s before 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 $249.8 billion and $339.6 billion as of
December 31, 2021 and 2020, respectively. Aggregate total
liabilities of the investees totaled $41.0 billion and $181.5 billion
as of December 31, 2021 and 2020, respectively. Aggregate net
investment income of the investees totaled $2.1 billion, $954,
and $618 for the periods ended December 31, 2021, 2020 and
2019, respectively. Aggregate net income excluding net
investment income of the investees totaled $46.7 billion, $7.4
billion and $13.4 billion for the periods ended December 31,
2021, 2020 and 2019, respectively. As of, and for the period
ended, December 31, 2021, the aggregated summarized
financial data reflects the latest available financial information.
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. As of December 31,
2021 and December 31, 2020, the Company reported $30 and
$30, respectively, within short-term investments on the
Consolidated Balance Sheets representing a receivable for the
amount of cash transferred to purchase the securities.
Other Collateral Transactions
As of December 31, 2021 and December 31, 2020, the
Company pledged collateral of $9 and $34, respectively, of U.S.
government securities or cash primarily related to certain bank
loan participations committed to through a limited partnership
agreement. 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. In addition, the Company is required to hold fixed
maturities and short-term investments in trust for the benefit of
syndicate policyholders, hold fixed maturities in a Lloyd's of
London ("Lloyd's") trust account to provide a portion of the
required capital, and maintain other investments primarily
consisting of overseas deposits in various countries with Lloyd's
to support underwriting activities in those countries. Lloyd's is an
insurance market-place operating worldwide. Lloyd's does not
underwrite risks. The Company accepts risks as the sole
member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate").
The following table presents the components of the Company’s
exposure to other restricted investments.
December
December
31, 2021
31, 2020
Fair Value Fair Value
$
Securities on deposit with government
agencies
Fixed maturities in trust for benefit of
syndicate policyholders
Short-term investments in trust for
benefit of syndicate policyholders
Fixed maturities in Lloyd's's trust
account
Other investments
Total Other Restricted Investments $
2,376 $
2,600
712
661
7
26
160
65
3,320 $
175
54
3,516
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
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. Prior to June 30, 2021, the Company also
had a retained 9.7% investment in Hopmeadow Holdings LP, the
legal entity that acquired Talcott Resolution in May 2018
155
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Derivatives
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 hedges of interest
rate, foreign currency and equity risk of certain fixed maturities
and equities. In addition, hedging and replication strategies that
utilize credit default swaps 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
against default risk and credit-related changes in the value of
156
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. The Company also
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 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, 2021 and
December 31, 2020, the notional amount of interest rate swaps
in offsetting relationships was $7.2 billion and $7.6 billion,
respectively.
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.
Equity Index Options
The Company has previously entered into equity index options to
hedge the impact of a decline in the equity markets on the
investment portfolio. The Company has also entered 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.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Balance Sheet Presentation
Note 7 - Derivatives
Net Derivatives
Asset
Derivatives
Liability
Derivatives
Notional Amount
Dec 31,
Dec 31,
2020
2021
Fair Value
Fair Value
Fair Value
Dec 31,
2021
Dec 31,
2020
Dec 31,
2021
Dec 31,
2020
Dec 31,
2021
Dec 31,
2020
$ 2,340 $ 2,340 $ — $ — $ — $ — $ — $ —
437
286
2,777
2,626
6
6
(13)
(13)
11
11
3
3
(5)
(5)
(16)
(16)
Hedge Designation/ Derivative Type
Cash flow hedges
Interest rate swaps
Foreign currency swaps
Total cash flow hedges
Non-qualifying strategies
Interest rate contracts
Interest rate swaps and futures
7,567
8,335
(46)
(69)
3
4
(49)
(73)
Foreign exchange contracts
Foreign currency swaps and forwards
558
269
—
—
—
—
—
—
Credit contracts
Credit derivatives that purchase credit
protection
Credit derivatives that assume credit risk [1]
Credit derivatives in offsetting positions
Total non-qualifying strategies
Total cash flow hedges and non-qualifying
strategies
Balance Sheet Location
112
—
210
6
675
218
(2)
—
—
—
21
—
8,447
9,503
(48)
(48)
—
—
3
6
—
21
5
30
(2)
—
(3)
(54)
—
—
(5)
(78)
$ 11,224 $ 12,129 $
(42) $
(61) $
17 $
33 $
(59) $
(94)
Fixed maturities, available-for-sale
$
413 $
269 $ — $ — $ — $ — $ — $ —
Other investments
Other liabilities
Total derivatives
1,452
9,585
7
23
9,359
2,275
$ 11,224 $ 12,129 $
(49)
(42) $
(84)
(61) $
10
7
17 $
25
8
33 $
(3)
(56)
(59) $
(2)
(92)
(94)
[1]The derivative instruments related to this strategy are held for other investment purposes.
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.
157
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, 2021
Other investments
Other liabilities
As of December 31, 2020
Other investments
Other liabilities
$
$
$
$
17 $
(59) $
33 $
(94) $
13 $
(10) $
31 $
(6) $
7 $
(49) $
23 $
(84) $
(3) $
— $
(21) $
(4) $
4 $
(47) $
1 $
(83) $
—
(2)
1
(5)
[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,
2021
2020
2019
$
$
4 $
24
28 $
38 $
(8)
30 $
18
8
26
Gain (Loss) Reclassified from AOCI into Income
Year Ended December 31,
2021
2020
2019
Net
Realized
Gain/
(Loss)
Net
Investment
Income
Interest
Expense
Net
Realized
Gain/
(Loss)
Net
Investment
Income
Interest
Expense
Net
Realized
Gain/
(Loss)
Net
Investment
Income
Interest
Expense
Interest rate swaps
Foreign currency swaps
Total
$
$
— $
—
— $
41 $
(10) $
5
—
46 $
(10) $
— $
(1)
(1) $
29 $
5
34 $
(7) $
—
(7) $
2 $
—
2 $
4 $
3
7 $
1
—
1
Total amounts presented on the
Consolidated Statement of
Operations
$
509 $
2,313 $
234 $
(14) $
1,846 $
236 $
395 $
1,951 $
259
As of December 31, 2021, 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 $25.
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 or interest expense, as
applicable, over the term of the hedged instrument cash flows.
During the years ended December 31, 2021, 2020, and 2019,
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.
158
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Derivatives
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 gains
(losses).
Non-Qualifying Strategies Recognized within Net Realized 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
Total
For the Year Ended December 31,
2021
2020
2019
$
3 $
21 $
(35)
—
7
2
2
(5)
32
—
76
(17)
2
12 $
3
104 $
1
(24)
$
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.
159
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Credit Risk Assumed Derivatives by Type
Underlying Referenced
Credit Obligation(s) [1]
Note 7 - Derivatives
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, 2021
Basket credit default swaps [4]
Investment grade risk exposure
$
101 $
— 6 years
CMBS Credit
AAA
$
101 $
—
Below investment grade risk
exposure
Total
4
$
105 $
(2)
(2)
Less than
1 year
CMBS Credit
CCC
4
$
105 $
2
2
Single name credit default swaps
As of December 31, 2020
Investment grade risk exposure
$
175 $
9 5 years
Corporate Credit
A-
$
— $
—
Basket credit default swaps [4]
Investment grade risk exposure
500
12 5 years
Corporate Credit
BBB+
Investment grade risk exposure
Below investment grade risk
exposure
Total
100
1 8 years
CMBS Credit
AAA
9
$
784 $
(4)
18
Less than
1 year
CMBS Credit
CCC+
—
100
9
$
109 $
—
(1)
4
3
[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 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.
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, 2021
and 2020, the Company has pledged cash collateral associated
with derivative instruments of $2 and $0, respectively. In general,
collateral receivable is 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, 2021 and 2020, the Company pledged securities
collateral associated with derivative instruments with a fair value
of $48 and $90, respectively, which have been included in fixed
maturities on the Consolidated Balance Sheets. The
counterparties have the right to sell or re-pledge these securities.
In addition, as of December 31, 2021 and 2020 , the Company
has pledged initial margin of cash related to OTC-cleared and
exchange traded derivatives with a fair value of $12 and $21,
respectively, which is recorded in other investments or other
assets on the Company's Consolidated Balance Sheets. As of
December 31, 2021 and 2020, the Company has pledged initial
margin of securities related to OTC-cleared and exchange
traded derivatives with a fair value of $82 and $62, respectively,
which are included within fixed maturities on the Company's
Consolidated Balance Sheets.
As of December 31, 2021 and 2020, the Company accepted
cash collateral associated with derivative instruments of $7 and
$24, 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, 2021 and
2020 with a fair value of $5 and $1, respectively, which the
Company has the right to repledge or sell. As of December 31,
2021 and 2020, the Company had no repledged securities. In
addition, as of December 31, 2021 and 2020, non-cash collateral
accepted was held in separate custodial accounts and was not
included in the Company’s Consolidated Balance Sheets.
160
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Premiums Receivable and Agents' Balances
8. PREMIUMS RECEIVABLE AND AGENTS' BALANCES
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 sensitive business 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 sensitive business 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.
During 2021, the ACL on premiums receivable decreased as the
provision required on premiums written during the year was
more than offset by write-offs and a reduction in the provision,
primarily reflecting lessening expected impacts of COVID-19
relative to prior assumptions in certain lines of business. In
2020, an increase in the ACL was due to the increasing impacts
of COVID-19.
Premiums Receivable and Agents' Balances
As of December 31,
2021
2020
Premiums receivable, excluding
receivables for losses within a
deductible and retrospectively-
rated policy premiums ("loss
sensitive business")
Receivables for loss sensitive
business, by credit quality:
AAA
AA
A
BBB
BB
Below BB
Total receivables for loss
sensitive business
Total Premiums Receivable
and Agents' Balances, Gross
ACL
Total Premiums Receivable
and Agents' Balances, Net of
ACL
$
4,130 $
3,851
—
130
52
133
64
41
420
—
142
62
185
115
65
569
4,550
(105)
4,420
(152)
$
4,445 $
4,268
ACL on Premiums Receivable and
Agents' Balances
Premiums receivable and agents' balances, excluding
receivables for loss sensitive business, are primarily comprised
of premiums due from policyholders, which are typically
collectible within one year or less. 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. Balances are considered past due
when amounts that have been billed are not collected within
contractually stipulated time periods. The Company had an
immaterial amount of receivables with a due date of more than
one year that are past-due.
A portion of the Company's Commercial Lines business is
written with large deductibles or under retrospectively-rated
plans (referred to as "loss sensitive business"). 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 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
161
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Premiums Receivable and Agents' Balances
Rollforward of ACL on Premiums Receivable and Agents' Balances for the Year Ended
December 31, 2020
December 31, 2021
Premiums
Receivable and
Agents'
Balances,
Excluding
Receivables for
Loss Sensitive
Business
Receivables for
Loss Sensitive
Business
Total
Premiums
Receivable and
Agents'
Balances,
Excluding
Receivables for
Loss Sensitive
Business
Receivables for
Loss Sensitive
Business
Total
Beginning ACL
Cumulative effect of accounting change [1]
$
117 $
35 $
152 $
Adjusted beginning ACL
Current period provision (release)
Current period gross write-offs
Current period gross recoveries
117
17
(59)
8
35
152
(13)
—
—
4
(59)
8
85 $
(2)
83
78
(49)
5
60 $
(21)
39
(4)
—
—
145
(23)
122
74
(49)
5
Ending ACL
$
83 $
22 $
105 $
117 $
35 $
152
[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.
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") up
to an aggregate limit of $1.5 billion and the other covered
substantially all reserve development of Navigators Insurance
Company and certain of its affiliates for 2018 and prior accident
years (the Navigators ADC) up to an aggregate limit of $300. As
the Company has ceded all of the $300 available limit, there is
no remaining limit available as of December 31, 2021 under 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 $1,243, $1,156 and
$826 for the years ended December 31, 2021, 2020 and 2019,
respectively.
Group Benefits ceded losses, which reduce losses and loss
adjustment expenses incurred, were $85, $63 and $73 for the
years ended December 31, 2021, 2020 and 2019, 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.
162
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, 2021
As of December 31, 2020
Property
and
Casualty
Group
Benefits Corporate
Total
Property
and
Casualty
Group
Benefits Corporate
Total
AM Best Financial Strength
Rating
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
$
1,860 $
1,999
713
37
639
20
5,268
239
331
255
6,093
— $
— $
237
—
9
—
—
246
—
—
5
251
275
—
—
3
—
278
—
—
—
278
1,860 $
2,511
713
46
642
20
5,792
239
331
260
6,622
1,598 $
1,788
638
37
666
21
4,748
259
305
254
5,566
— $
— $
230
—
9
—
1
240
—
—
5
245
305
—
—
3
—
308
—
—
—
308
1,598
2,323
638
46
669
22
5,296
259
305
259
6,119
(96)
5,997 $
(1)
250 $
(2)
276 $
(99)
6,523 $
(105)
5,461 $
(1)
244 $
(2)
306 $
(108)
6,011
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. 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
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. There were $1 in write-offs for the
period ended December 31, 2021 that would impact the ACL.
The decrease in the ACL in 2021 was primarily due to a higher-
than-expected recovery from one reinsurer on which the
Company had recognized an ACL. In 2020, the increase in the
ACL includes the increasing impacts of COVID-19.
163
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Reinsurance
Allowance for Uncollectible Reinsurance
As of December 31, 2021
As of December 31, 2020
Property
and
Casualty
Group
Benefits Corporate
Total
Property
and
Casualty
Group
Benefits Corporate
Total
$
105 $
1 $
2 $
108 $
114 $
— $
— $
114
53
52
52
(9)
(1)
—
42
54
—
1
1
—
—
—
1
—
—
2
2
—
—
—
2
—
53
55
55
(9)
(1)
—
45
54
66
48
—
48
3
—
1
52
53
—
—
1
1
—
—
—
1
—
—
—
1
1
1
—
—
2
—
66
48
2
50
4
—
1
55
53
$
96 $
1 $
2 $
99 $
105 $
1 $
2 $
108
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 write-offs
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
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,
2020
2019
2021
$
$
$
$
13,696 $
631
(1,378)
12,949 $
13,204 $
568
(1,277)
12,495 $
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
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,
2021
2020
2019
$
$
5,663 $
5,245 $
128
(104)
387
(96)
5,687 $
5,536 $
4,122
1,572
(91)
5,603
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.
164
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 - Deferred Policy Acquisition Costs
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
Balance, end of period
For the years ended December 31,
2021
2020
2019
$
789 $
785 $
1,751
(1,680)
21
—
1,666
(1,706)
47
(3)
$
881 $
789 $
670
1,635
(1,622)
102
—
785
[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 amortization.
11. GOODWILL & OTHER INTANGIBLE ASSETS
Goodwill Carrying Value as of December 31, 2021
Balance at December 31, 2019
Measurement period adjustments [2]
Balance at December 31, 2020
Measurement period adjustments [2]
Balance at December 31, 2021
Commercial
Lines
Personal
Lines
Hartford
Funds
Group
Benefits
Corporate
[1]
Total
$
$
$
661 $
(2)
659 $
—
659 $
119 $
—
119 $
—
119 $
180 $
—
180 $
—
180 $
723 $
—
723 $
—
723 $
230 $
1,913
—
(2)
230 $
1,911
—
—
230 $
1,911
[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 goodwill within Corporate as of December 31, 2021, 2020, and 2019 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, 2021, 2020, and 2019,
which resulted in no write-downs of goodwill in the respective
years then ended. In 2021, all reporting units passed their
annual impairment test with a significant margin.
Other Intangible Assets
As of December 31, 2021
As of December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
Amortized Intangible Assets:
Value of in-force contracts
Customer relationships
Marketing agreement with Aetna
Distribution Agreement [1]
Distribution and Agency relationships &
Other
Total Finite Life Intangibles
Total Indefinite Life Intangible Assets
203 $
636
16
79
340
1,274
95
(194) $
(177)
(4)
(68)
(68)
(511)
9 $
459
12
11
272
763
95
203 $
636
16
79
340
1,274
95
(172) $
(134)
(3)
(65)
(45)
(419)
Total Other Intangible Assets
$
1,369 $
(511) $
858 $
1,369 $
(419) $
31
502
13
14
295
855
95
950
[1]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.
165
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11 - Goodwill & Other Intangible Assets
Expected Before Tax Amortization Expense [1]
for Acquired Intangibles as of December 31,
2021
2022
2023
2024
2025
2026
Value of In-force
Contracts
Other Intangible
Assets
$
$
$
$
$
9 $
— $
— $
— $
— $
70
70
70
70
70
[1]In the Consolidated Statements of Operations, the amortization of value of
in-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.
12. RESERVE FOR UNPAID LOSSES AND LOSS
ADJUSTMENT EXPENSES
|PROPERTY & CASUALTY INSURANCE PRODUCT RESERVES, NET OF
REINSURANCE
Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
For the years ended December 31,
2021
2020
2019
Beginning liabilities for unpaid losses and loss adjustment expenses, gross $
29,622 $
28,261 $
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 change in reserves transferred to liabilities held for sale
Foreign currency adjustment
Ending liabilities for unpaid losses and loss adjustment expenses, net
Reinsurance and other recoverables
5,725
23,897
—
7,911
199
8,110
(246)
(2,276)
(4,119)
(6,395)
—
2
25,368
6,081
5,275
22,986
—
7,794
(136)
7,658
(312)
(2,214)
(4,190)
(6,404)
(45)
14
23,897
5,725
Ending liabilities for unpaid losses and loss adjustment expenses, gross
$
31,449 $
29,622 $
24,584
4,232
20,352
2,001
7,463
(65)
7,398
(16)
(2,374)
(4,374)
(6,748)
—
(1)
22,986
5,275
28,261
[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 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.
166
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Casualty Insurance 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 $
Discount accretion included in losses and loss adjustment expenses
$
1,405
$
1,334
$
1,331
355
1,050
36
$
$
367
967
36
$
$
388
943
33
For the years ended December 31,
2021
2020
2019
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, 2021 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
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
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.
2.54 %
2.68 %
2.91 %
0.83 %- 14.03 % 0.83 % -
14.03 % 1.76 % -
14.03 %
(Favorable) Unfavorable Prior Accident Year
Development
For the years
ended December
31,
2021 2020 2019
Workers’ compensation
$ (190) $ (110) $ (120)
Workers’ compensation discount
accretion
General liability
Marine
Package business
Commercial property
Professional liability
Bond
Assumed reinsurance
35 35 33
454 237 61
1
3
8
(91)
(58)
(47)
(26)
(4)
(11)
(2)
(14) 29
(26)
(19)
(3)
(6)
(6)
3
Automobile liability - Commercial Lines
9 27 27
Automobile liability - Personal Lines
(90)
(61)
(38)
Homeowners
Net asbestos and environmental
reserves
Catastrophes
Uncollectible reinsurance
3
7
3
—
(2) —
(154) (529)
(42)
(6)
(8)
(30)
Other reserve re-estimates, net
42 54 46
Prior accident year development,
including full benefit for the ADC
cession
Change in deferred gain on retroactive
reinsurance included in other liabilities [1]
(47) (448)
(81)
246 312 16
Total prior accident year development $ 199 $ (136) $ (65)
[1]The change in deferred gain for the years ended December 31, 2021 and
2020 included $155 and $210, respectively of adverse development on
A&E reserves in excess of ceded premium paid and included $91 and
$102, respectively, of adverse development on Navigators 2018 and prior
accident year reserves, primarily within professional liability, general
liability and marine.
2021 re-estimates of prior accident year
reserves
Workers’ compensation reserves were decreased
within small commercial and middle & large commercial for the
167
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2013 through 2018 accident years driven by lower than
previously estimated claim severity.
General liability reserves were increased including an
increase for sexual molestation and sexual abuse claims above
the amount of reserves previously recorded for this exposure,
primarily to reflect an increase in reserves for claims made
against the Boy Scouts of America ("BSA") as discussed further
below, partially offset by reserve decreases for other mass torts
and extra contractual liability claims. In addition, the Company
recognized reserve increases on Navigators’ wholesale
construction business for 2018 and prior accident years, largely
included within the change in deferred gain on retroactive
reinsurance in the above table.
Package business reserves decreased largely due to
lower estimated loss adjustment expenses for accident years
2014 to 2018 and a reduction in estimated reserves for extra
contractual liability claims.
Commercial property reserves were decreased
primarily due to favorable development for the 2020 accident
year in both middle & large commercial and global specialty.
Professional liability reserves were decreased due to
lower estimated severity in both large and middle market
directors’ and officers’ (“D&O”) insurance for older accident
years. More than offsetting this favorable reserve development
were reserve increases on legacy Navigators public company
directors’ and officers’ insurance for 2019 and prior accident
years, a portion of which is reflected within the change in
deferred gain on retroactive reinsurance in the above table.
Bond reserves were reduced mostly due to favorable
emergence on contract surety claims driven by higher than
previously anticipated recoveries, largely for the 2016 to 2017
accident years.
Automobile liability reserves were decreased in
Personal Lines principally due to lower estimated severity on
AARP Direct and Agency claims, primarily within accident years
2017 to 2020, and a reduction in estimated reserves for extra
contractual liability claims.
Catastrophes reserves were decreased in both
Commercial and Personal Lines primarily driven by a reduction
in reserves for 2018 and 2019 wind and hail events, lower
estimated losses from 2018 and 2020 hurricanes, a reduction in
estimated losses from the 2017 and 2018 California wildfires,
including an expected recovery of subrogation from a utility
related to the 2018 Woolsey wildfire in California, and a
reduction in losses relating to the 2020 civil unrest.
Asbestos and environmental reserves were
reviewed in fourth quarter 2021 resulting in a $155 increase in
reserves before ADC reinsurance, including $106 for asbestos
and $49 for environmental. The Company recognized a $155
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, were increased
primarily due to an increase in reserves for sexual molestation
and sexual abuse claims within P&C Other Operations,
principally on assumed reinsurance, as well as an increase in
unallocated loss adjustment expense ("ULAE") reserves within
P&C Other Operations driven by an increase in gross asbestos
and environmental reserves.
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
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”).
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.
168
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Commercial property reserves were decreased for
accident year 2019 due to favorable developments on marine
and middle market property claims.
Uncollectible reinsurance reserves were reduced
due to higher than expected recoveries from reinsurers in older
accident years.
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 ("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.
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 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
169
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
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 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.
Settlement Agreement with Boy
Scouts of America
On September 14, 2021, the Company announced that it
entered into a new agreement-in-principle with the BSA, related
to sexual molestation and sexual abuse claims associated with
liability policies issued by various Hartford writing companies in
the 1970s and early 1980s, superseding its prior agreement of
April 16, 2021, which now includes the BSA, its local councils
and the representatives of a majority of the sexual abuse
claimants. As part of the agreement-in-principle, The Hartford
will pay $787, before tax, for claims associated with policies
mostly issued in the 1970s. In exchange for The Hartford’s
payment, the BSA and its local councils will fully release The
Hartford from any obligation under policies The Hartford issued
to the BSA and its local councils. In addition, the representatives
for the claimants joining this agreement-in-principle will support
a plan of reorganization which incorporates the settlement. The
prior agreement of April 16, 2021 to settle these claims for $650
did not include the local councils or representatives of a majority
of the claimants.
The agreement-in-principle was reached in connection with
BSA’s Chapter 11 bankruptcy and will become a final settlement
upon the occurrence of certain conditions, including, but not
limited to, execution of a definitive settlement agreement,
confirmation of BSA’s plan of reorganization, receipt of executed
releases from the local councils, and approval of the parties'
settlement as part of the confirmation of BSA's plan of
reorganization by the bankruptcy and district courts. Assuming
that all conditions are satisfied, the parties to the agreement-in-
principle expect to receive court approval of the settlement by
mid 2022. However, no assurance can be given that all the
conditions precedent to the settlement will be satisfied or that
final court approval, if obtained, will not be delayed for various
procedural reasons.
If the bankruptcy court ultimately does not approve BSA’s plan
of reorganization including terms of the agreement-in-principle, it
is possible that adverse outcomes, if any, could have a material
adverse effect on the Company’s consolidated operating results.
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 results 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, 2021, the Company has incurred $1,015 in
cumulative adverse development on asbestos and
environmental reserves that have been ceded under the A&E
ADC treaty with NICO with $485 of available limit remaining
under the A&E ADC. As a result, the Company has recorded a
$365 deferred gain within other liabilities, representing the
difference between the reinsurance recoverable of $1,015 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.
170
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2021, the Company has recorded a
reinsurance recoverable under the Navigators ADC of $300 as
estimated cumulative loss development on the 2018 and prior
accident year reserves has exhausted the treaty limit. While the
reinsurance recoverable is $300, the Company has recorded a
$209 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 $209 of cumulative ceded losses in
excess of ceded premium paid, $91, $102 and $16 were
recognized as changes in deferred gain in 2021, 2020 and
2019, respectively.
Reconciliation of Loss Development to Liability for Unpaid Losses and Loss Adjustment Expenses As of
December 31, 2021
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
Subtotal
Unpaid
Losses and
Loss
Adjustment
Expenses,
Net of
Reinsurance
Liability for
Unpaid
Losses and
Loss
Adjustment
Expenses
Reinsurance
and Other
Recoverables
18,263 $
6,731
1,516
6,952
3,830
3,908
172
2,511
625
1,384
11,104
(9,992) $
(3,157)
(1,242)
(5,208)
(3,342)
(2,778)
(162)
(1,335)
(254)
(1,106)
(9,809)
1,200
6,307
(1,170)
(5,982)
Reinsurance Discount
348 $
146
12
103
18
23
(341) $
—
—
—
—
—
2,981 $
1,240
17
77
24
22
4
47
32
3
29
7
5
183
—
38
31
4
66
3
34
5
—
—
—
—
—
—
—
(14)
11,259 $
4,960
303
1,924
530
1,175
14
1,261
434
285
1,390
40
364
174
1,793 $
870
235
90
268
91
13,052
5,830
538
2,014
798
1,266
(1)
781
10
50
23
—
17
310
13
2,042
444
335
1,413
40
381
484
64,503 $
(45,537) $
724
374
5,769 $
—
157
988 $
—
—
(355) $
724
531
25,368 $
1,545
(1)
6,081 $
2,269
530
31,449
$
$
Reserve Line
Workers' compensation
General liability
Marine
Package business
Commercial property
Commercial automobile liability
Commercial automobile
physical damage
Professional liability
Bond
Assumed Reinsurance
Personal automobile liability
Personal automobile physical
damage
Homeowners
Other ongoing business
Asbestos and environmental
[1]
Other operations [1]
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.
171
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $300 of losses to the Navigators ADC even
though $209 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 $300
of Navigators Insurers losses ceded to the Navigators ADC
included in the following triangles $110 for professional liability,
$86 for general liability, $39 for marine, $29 for assumed
reinsurance, $16 for commercial automobile and $3 for
commercial property and included $17 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. Incurred but not reported ("IBNR") reserves shown in
loss triangles include reserves 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 U.S. dollar have been converted into
U.S. dollars using the exchange rates as of December 31, 2021.
172
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Workers' Compensation
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
2021
IBNR
Reserves
Claims
Reported
2012 $ 2,185 $ 2,207 $ 2,207 $ 2,181 $ 2,168 $ 2,169 $ 2,154 $ 2,146 $ 2,135 $ 2,133 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2,020 1,981 1,920 1,883 1,861 1,861 1,850 1,831 1,811
1,869 1,838 1,789 1,761 1,713 1,692 1,679 1,654
1,873 1,835 1,801 1,724 1,714 1,699 1,667
1,772 1,772 1,780 1,767 1,748 1,708
1,862 1,869 1,840 1,822 1,757
1,916 1,917 1,915 1,904
1,937 1,935 1,934
1,865 1,864
1,831
$ 18,263
310
346
386
412
489
636
726
844
1,114
1,314
171,562
151,492
126,288
114,113
112,302
111,800
118,951
119,416
90,199
93,860
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
2021
2012 $ 359 $ 809 $ 1,106 $ 1,313 $ 1,436 $ 1,529 $ 1,587 $ 1,644 $ 1,678 $ 1,706
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
304
675
917 1,071 1,175 1,260 1,304 1,339 1,361
275
598
811
960 1,041 1,099 1,137 1,167
261
576
778
909 1,004 1,068 1,117
255
579
779
908 1,003 1,064
261
575
778
900
283
624
837
291
637
223
977
983
856
507
254
$ 9,992
173
Note 12 - Reserves for Unpaid Loss 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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $ 423 $ 402 $ 399 $ 392 $ 410 $ 408 $ 421 $ 413 $ 407 $ 406 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
455
442
456
484
488
502
505
508
500
506
475
481
494
513
522
515
505
556
560
554
594
633
647
637
613
583
607
632
632
620
626
614
613
615
613
692
669
697
703
822
827
822
938
923
1,002
$ 6,731
41
42
52
71
92
174
295
512
739
929
16,768
14,134
15,242
15,627
16,817
16,447
17,749
16,858
11,991
8,364
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
2021
2012 $
13 $
55 $ 101 $ 170 $ 233 $ 280 $ 305 $ 323 $ 332 $ 352
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
13
53
15
141
233
320
372
398
422
42
10
130
214
304
358
402
55
12
156
278
409
477
52
15
131
283
368
67
21
156
255
84
29
177
100
45
442
423
524
447
344
288
193
110
34
$ 3,157
174
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Marine
Accident
Year
Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance
For the years ended December 31,
(Unaudited)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
[1]
Claims
Reported
149
152
163
134
160
158
2012 $ 196 $ 220 $ 180 $ 169 $ 163 $ 164 $ 168 $ 164 $ 164 $ 165 $
136
2013
158
2014
146
2015
140
2016
2017
2018
2019
2020
2021
Total
139
171
140
147
180
161
140
142
131
140
167
138
150
174
154
142
150
138
169
134
148
175
161
144
135
164
148
138
187
144
140
165
146
143
160
$ 1,516
1
(2)
1
(3)
(17)
(8)
(8)
15
26
72
6,789
6,629
7,137
10,137
13,178
15,586
14,037
8,413
4,730
3,499
[1]Contributing to the negative IBNR reserves for some accident years is a lag in the timing of expected reinsurance recoveries under the Navigators ADC with NICO.
Recoveries from NICO will not be collected until the Company has cumulative loss payments for all covered lines of more than the attachment point.
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
2021
2012 $
51 $ 101 $ 125 $ 139 $ 148 $ 152 $ 155 $ 159 $ 158 $ 159
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
42
82
41
100
112
119
121
126
133
81
40
116
131
151
157
159
85
35
116
126
134
140
80
48
106
123
132
111
142
154
37
104
138
36
83
32
134
162
141
141
163
148
101
69
24
$ 1,242
175
Note 12 - Reserves for Unpaid Loss 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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $ 736 $ 725 $ 728 $ 731 $ 736 $ 735 $ 739 $ 732 $ 732 $ 727 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
579
565
573
585
586
592
586
587
583
566
578
601
602
603
603
593
581
582
588
585
583
588
581
567
655
638
632
625
611
595
695
702
692
657
644
719
724
688
667
813
769
749
915
893
946
$ 6,952
24
22
29
34
51
73
114
175
316
412
59,921
43,675
43,321
42,232
44,079
46,638
44,822
43,073
61,161
40,792
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
2021
2012 $ 286 $ 486 $ 560 $ 616 $ 652 $ 673 $ 687 $ 694 $ 697 $ 699
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
225
339
414
467
504
522
541
549
226
345
416
468
507
525
535
212
332
383
445
486
505
225
353
410
465
500
235
372
447
496
237
402
451
254
413
326
552
542
513
521
534
498
488
493
368
$ 5,208
176
Note 12 - Reserves for Unpaid Loss 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
2021
IBNR
Reserves
Claims
Reported
2012 $ 369 $ 333 $ 334 $ 335 $ 337 $ 335 $ 334 $ 333 $ 332 $ 332 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
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
456
437
480
247
280
304
408
439
424
440
501
247
279
301
408
441
403
419
469
531
$ 3,830
—
—
(1)
—
3
5
8
4
96
108
26,861
21,620
21,030
21,029
23,781
24,382
21,715
21,002
20,327
16,394
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
2021
2012 $ 182 $ 296 $ 317 $ 326 $ 331 $ 331 $ 331 $ 330 $ 330 $ 330
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
161
223
170
238
250
179
243
270
257
215
242
279
285
342
229
244
279
296
379
378
188
245
279
302
396
412
344
215
245
280
303
402
427
379
351
221
245
280
302
406
433
386
383
336
241
$ 3,342
177
Note 12 - Reserves for Unpaid Loss 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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $ 311 $ 377 $ 391 $ 402 $ 395 $ 389 $ 387 $ 388 $ 388 $ 387 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
311
318
334
341
340
339
336
334
333
309
317
331
337
341
334
333
332
308
358
372
356
356
359
360
385
393
390
391
391
395
372
383
379
383
381
349
396
405
406
425
439
450
428
424
440
$ 3,908
6
7
6
10
15
11
36
114
227
340
36,053
32,242
29,613
28,565
29,167
26,341
24,610
28,216
21,557
17,404
Cumulative Paid Losses & Allocated Loss Adjustment Expense, Net of
Reinsurance
For the years ended December 31
(Unaudited)
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012 $
65 $ 143 $ 234 $ 307 $ 346 $ 359 $ 372 $ 376 $ 378 $ 379
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
62
130
202
259
295
311
320
323
59
131
197
252
299
309
318
62
142
207
267
314
335
65
147
232
303
339
60
134
211
285
62
153
238
67
160
55
324
320
344
357
328
305
247
119
55
$ 2,778
178
Note 12 - Reserves for Unpaid Loss 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
2019
2020
2021
IBNR
Reserves
Claims
Reported
2019 $
63 $
64 $
63 $
2020
2021
Total
51
51
58
$
172
1
1
2
19,853
14,671
14,253
Cumulative Paid Losses &
Allocated Loss Adjustment
Expenses, Net of Reinsurance
For the years ended
December 31,
(Unaudited)
Accident
Year
2019
2020
2021
2019 $
56 $
62 $
45
62
50
50
2020
2021
Total
$
162
179
Note 12 - Reserves for Unpaid Loss 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
2021
IBNR
Reserves
Claims
Reported
207
195
187
187
183
164
2012 $ 242 $ 238 $ 238 $ 218 $ 221 $ 221 $ 219 $ 225 $ 217 $ 212 $
174
2013
181
2014
174
2015
183
2016
2017
2018
2019
2020
2021
Total
169
174
200
197
241
278
336
365
339
171
183
207
196
226
278
317
370
171
182
214
197
232
281
298
173
179
190
204
203
248
174
178
180
176
205
$ 2,511
(3)
14
21
15
27
47
74
150
259
310
7,037
5,979
6,734
7,245
8,391
9,466
10,040
9,654
7,713
5,450
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
2021
2012 $
17 $
67 $ 100 $ 139 $ 155 $ 169 $ 172 $ 175 $ 175 $ 176
2013
2014
2015
2016
2017
2018
2019
2020
2021
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
142
146
141
125
123
130
78
19
148
145
164
149
151
166
150
71
15
$ 1,335
180
Note 12 - Reserves for Unpaid Loss 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)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $
71 $
70 $
61 $
55 $
49 $
49 $
45 $
48 $
48 $
46 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
64
58
71
55
67
67
48
66
67
61
49
67
63
61
63
39
59
60
61
90
68
35
59
54
55
101
68
72
34
60
48
51
94
72
73
83
34
60
47
45
79
71
74
84
85
$ 625
11
13
8
17
23
36
36
58
71
68
1,729
1,468
1,387
1,395
1,339
1,724
1,664
1,779
1,889
1,960
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
2021
2012 $
12 $
25 $
26 $
24 $
26 $
26 $
34 $
35 $
35 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
3
9
18
17
31
9
19
40
20
2
19
43
24
12
5
19
43
31
15
46
6
20
44
34
20
55
16
3
20
46
32
22
54
23
13
4
34
20
47
30
22
42
24
15
12
8
$ 254
181
Note 12 - Reserves for Unpaid Loss 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
2021
IBNR
Reserves [1]
Claims
Reported
2012 $ 107 $
99 $
93 $
88 $ 115 $ 120 $ 119 $ 120 $ 120 $ 120 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
115
119
103
105
102
102
103
103
103
119
142
122
118
115
116
116
115
102
92
89
94
91
94
95
96
96
98
100
102
102
129
153
162
157
153
129
128
130
135
181
190
187
183
181
192
$ 1,384
—
(1)
(1)
—
(5)
(3)
(13)
20
71
104
1,468
1,656
1,820
1,582
1,730
2,166
2,263
2,522
1,623
584
[1]Contributing to the negative IBNR reserves for some accident years is a lag in the timing of expected reinsurance recoveries under the Navigators ADC with NICO.
Recoveries from NICO will not be collected until the Company has cumulative loss payments for all covered lines of more than the attachment point.
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
2021
2012 $
38 $
77 $
83 $
85 $ 112 $ 118 $ 118 $ 119 $ 119 $ 119
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
53
83
66
91
98
100
101
103
103
119
106
109
112
113
114
42
65
36
77
66
44
83
84
91
90
94
95
116
135
145
25
112
134
62
132
50
103
115
95
97
147
140
154
90
46
$ 1,106
182
Note 12 - Reserves for Unpaid Loss 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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $ 1,141 $ 1,149 $ 1,146 $ 1,142 $ 1,133 $ 1,130 $ 1,130 $ 1,130 $ 1,129 $ 1,128 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
1,131 1,145 1,144 1,153 1,152 1,153 1,157 1,156 1,155
1,146 1,153 1,198 1,200 1,199 1,202 1,201 1,199
1,195 1,340 1,338 1,330 1,331 1,328 1,324
1,407 1,402 1,393 1,397 1,395 1,386
1,277 1,275 1,228 1,214 1,200
1,108 1,104 1,072 1,058
1,018 1,010
805
991
782
881
$ 11,104
4
6
6
8
11
18
51
97
192
444
210,757
205,485
209,022
216,889
215,839
187,513
156,152
139,360
95,755
94,494
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
2021
2012 $ 441 $ 818 $ 986 $ 1,067 $ 1,104 $ 1,114 $ 1,120 $ 1,122 $ 1,123 $ 1,123
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
442
816 1,002 1,091 1,121 1,135 1,142 1,144 1,148
430
843 1,032 1,125 1,165 1,182 1,186 1,190
475
935 1,142 1,243 1,292 1,304 1,310
505
968 1,188 1,308 1,345 1,363
441
836 1,033 1,123 1,161
359
710
323
888
654
238
965
816
486
247
$ 9,809
183
Note 12 - Reserves for Unpaid Loss 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
2019
2020
2021
IBNR
Reserves
Claims
Reported
2019 $
445 $
442 $
441 $
2020
2021
Total
349
346
413
$ 1,200
—
5
(6)
277,060
210,783
213,209
Cumulative Paid Losses &
Allocated Loss Adjustment
Expenses, Net of Reinsurance
For the years ended
December 31,
(Unaudited)
Accident
Year
2019
2020
2021
2019 $
427 $
441 $
333
441
341
388
2020
2021
Total
$ 1,170
184
Note 12 - Reserves for Unpaid Loss 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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $ 774 $ 741 $ 741 $ 741 $ 739 $ 738 $ 738 $ 738 $ 737 $ 737 $
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
673
638
710
637
707
690
634
702
703
669
632
700
690
673
866
630
698
684
663
889
903
629
698
684
658
884
910
501
630
698
684
658
783
673
475
525
629
698
684
658
775
642
470
512
502
$ 6,307
—
1
—
1
2
6
(6)
13
26
107
142,860
113,552
121,923
119,997
119,793
124,713
102,784
84,536
87,841
71,196
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
2021
2012 $ 547 $ 696 $ 719 $ 727 $ 731 $ 734 $ 735 $ 736 $ 736 $ 736
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
467
590
526
611
663
487
622
684
645
481
626
691
665
621
538
627
695
674
640
747
484
628
697
680
649
795
712
318
628
697
681
653
757
616
425
335
628
698
681
655
761
619
445
454
305
$ 5,982
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
185
Note 12 - Reserves for Unpaid Loss and Loss Adjustment Expenses
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
methods, giving more weight to those methods deemed more
predictive of ultimate unpaid losses and loss adjustment
expenses. The Company does not produce a statistical range or
confidence interval of reserve estimates and, since reserving
methods with more credibility are given greater weight, the
selected best estimate may differ from the mid-point of the
various estimates produced by the actuarial methods used.
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.
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. 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.
The recorded reserve for losses and loss adjustment expenses
represents the actuarial best estimate of the ultimate settlement
amount of unpaid losses and loss adjustment expenses. In
applying judgment, actuaries select the best estimate after
considering the estimates derived from a number of actuarial
186
Note 12 - Reserves for Unpaid Loss 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 [1]
(Unaudited)
Reserve Line
1st
Year
2nd
Year
3rd
Year
4th
Year
5th
Year
6th
Year
7th
Year
8th
Year
9th
Year
10th
Year
Workers' compensation
15.1%
18.7%
12.3%
8.2%
5.4%
4.0%
General liability
Marine
Package business
Commercial property
2.9%
7.8%
14.2%
18.2%
16.6%
11.2%
25.3%
31.4%
17.5%
37.4%
21.8%
10.4%
53.5%
30.6%
7.7%
8.0%
8.6%
3.0%
6.6%
6.2%
1.0%
2.6%
6.9%
1.9%
2.1%
2.1%
4.5%
3.1%
1.2%
1.4%
3.1%
—%
0.4%
1.3%
4.8%
0.7%
0.3%
0.1%
(0.1%)
(0.1%)
—%
2.7%
0.8%
0.5%
0.4%
3.4%
3.2%
0.5%
4.5%
Commercial automobile liability
15.8%
20.3%
20.6%
17.6%
11.4%
Commercial automobile physical damage
88.0%
9.7%
(0.4%)
Professional liability
5.3%
18.4%
18.7%
14.3%
10.8%
7.6%
5.9%
1.1%
1.6%
0.7%
Bond
12.2%
22.2%
10.3%
4.6%
(0.2%)
(0.5%)
4.4%
1.8%
(0.2%)
(1.6%)
Assumed Reinsurance
Personal automobile liability
35.2%
36.9%
9.1%
34.7%
33.3%
16.0%
4.9%
7.7%
7.0%
3.1%
2.4%
1.2%
1.0%
0.5%
0.3%
0.2%
0.3%
0.2%
0.1%
—%
Personal automobile physical damage
95.7%
2.7%
(0.1%)
Homeowners
70.7%
23.5%
1.4%
0.3%
0.6%
0.3%
0.1%
0.1%
—%
—%
[1]Negative percentages are generally due to salvage, subrogation or other recoveries.
|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
$
8,233 $
8,256 $
8,445
For the years ended December 31,
2021
2020
2019
Reinsurance recoverables [1]
Beginning liabilities for unpaid losses and loss adjustment expenses, net
Provision for unpaid losses and loss adjustment expenses
Current incurral year
Prior year's discount accretion
Prior incurral year development [2]
Total provision for unpaid losses and loss adjustment expenses [3]
Payments
Current incurral year
Prior incurral years
Total payments
Ending liabilities for unpaid losses and loss adjustment expenses, net
Reinsurance recoverables
237
247
7,996
8,009
239
8,206
5,021
4,511
4,385
201
(458)
209
(445)
219
(410)
4,764
4,275
4,194
(2,631)
(2,164)
(4,795)
7,965
245
(2,288)
(2,000)
(4,288)
7,996
237
(2,277)
(2,114)
(4,391)
8,009
247
Ending liabilities for unpaid losses and loss adjustment expenses, gross
$
8,210 $
8,233 $
8,256
[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 Note 1 - Basis of Presentation and Significant Accounting Policies.
[2]Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted
basis.
[3]Includes unallocated loss adjustment expenses of $179, $178 and $178 for the years ended December 31, 2021, 2020 and 2019, respectively, that are recorded in
insurance operating costs and other expenses in the Consolidated Statements of Operations.
187
Note 12 - Reserves for Unpaid Loss 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
For the years ended December 31,
2021
2020
2019
$
$
8,176
$
8,380
$
8,636
(1,304)
(1,353)
(1,401)
6,872
$
7,027
$
7,235
3.3 %
3.4 %
3.4 %
2.1 % -
8.0 % 2.1 % -
8.0 % 2.1 % -
8.0 %
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.
Weighted average discount rate
Range of discount rate
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.
2021 re-estimates of prior incurral year
reserves
Group disability- Prior period reserve estimates decreased
by approximately $380 largely driven by group long-term
disability claim incidence lower than prior assumptions together
with strong recoveries on prior incurral year claims, and by a
New York Paid Family Leave program refund.
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 both group life premium
waiver and group accidental death and dismemberment.
Supplemental Accident & Health- Prior period reserve
estimates decreased by approximately $10 driven by lower-
than-previously expected claim incidence during the pandemic.
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.
188
Note 12 - Reserves for Unpaid Loss 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, 2021
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
$
14,113 $
(8,219) $
1,546 $
189 $ (1,192) $
6,437 $
234 $
6,671
Group life and accident,
excluding premium waiver
Group short-term disability
Group life premium waiver
Group supplemental health
6,323
(5,644)
163
124
620
34
(18)
—
(94)
4
5
11
—
828
129
537
34
5
—
1
5
833
129
538
39
Total Group Benefits
$
20,436 $
(13,863) $
2,487 $
209 $ (1,304) $
7,965 $
245 $
8,210
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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
IBNR
Reserves
Claims
Reported
2012 $ 1,829 $ 1,605 $ 1,539 $ 1,532 $ 1,530 $ 1,515 $ 1,504 $ 1,486 $ 1,479 $ 1,474 $
— 35,814
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
1,660
1,479
1,429
1,429 1,416
1,413
1,399 1,385 1,378
— 30,757
1,636
1,473
1,430 1,431
1,431
1,408 1,395 1,389
— 31,927
1,595
1,442 1,422
1,420
1,401 1,385 1,380
— 32,727
1,651 1,481
1,468
1,437 1,417 1,409
— 33,301
1,597
1,413
1,358 1,316 1,304
1 30,902
1,647
1,387 1,309 1,277
1 28,403
1,650 1,424 1,327
5 27,375
1,686 1,407
29 25,503
1,768
881 17,132
$ 14,113
189
Note 12 - Reserves for Unpaid Loss 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
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012 $
108 $
483 $
708 $
835 $
933 $
1,014 $
1,080 $
1,138 $
1,185 $
1,227
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
102
443
103
664
448
108
791
675
460
112
881
801
687
479
109
954
884
806
705
452
105
1,016
1,067
960
891
819
658
447
101
1,025
962
907
757
639
454
100
1,113
1,079
1,025
981
842
743
650
458
101
$
8,219
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
2019
2020
2021
IBNR
Reserves
Claims
Reported
2019 $ 1,902 $ 1,866 $ 1,867 $
9 57,811
2020
2021
Total
2,072
2,072
21 60,509
2,384
467 51,507
$ 6,323
Cumulative Paid Losses &
Allocated Loss Adjustment
Expenses, Net of Reinsurance
For the years ended
December 31,
(Unaudited)
Incurral
Year
2019
2020
2021
2019 $ 1,471 $ 1,830 $ 1,847
2020
2021
Total
1,524 2,033
1,764
$ 5,644
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. 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.
190
Note 12 - Reserves for Unpaid Loss 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
7.5 % 25.8 % 15.7 % 8.5 % 6.3 % 5.4 % 4.5 % 3.8 % 3.3 % 2.8 %
Group life and accident, excluding
premium waiver
75.4 % 21.9 % 1.0 %
13. RESERVE FOR FUTURE POLICY BENEFITS
Changes in Reserves for Future Policy Benefits [1]
Beginning liability balance
Incurred
Paid
Change in unrealized investment gains and losses
Ending liability balance
Ending reinsurance recoverable asset
For the years ended December 31,
2021
2020
$
$
$
638 $
61
(94)
(9)
596 $
22 $
635
85
(85)
3
638
28
[1]Reserve 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.
191
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14 - Debt
14. DEBT
The Company’s long-term debt securities are issued by Hartford
Financial Services Group, Inc. ("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.
Long-term Debt by Issuance
As of December 31,
2021
2020
Revolving Credit Facilities
$
— $
—
Senior Notes and Debentures
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
2.9% Notes, due 2051
600
300
295
409
178
300
500
800
600
600
300
295
409
178
300
500
800
—
Junior Subordinated Debentures
7.875% Notes, due 2042
3 Month LIBOR + 2.125% Notes, due
2067 [1]
Total Notes and Debentures
Unamortized discount and debt
issuance cost [2]
Total Debt
Less: Current maturities
Long-Term Debt
600
600
500
500
5,082
4,482
(138)
(130)
4,944
4,352
—
—
$ 4,944 $ 4,352
[1]In April 2017, the Company entered into an interest rate swap agreement
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 $74 and $75 as of
December 31, 2021 and 2020, 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 $234, $236 and $259 on debt for the years
ended December 31, 2021, 2020 and 2019, 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,
192
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 September 21, 2021, The Hartford issued $600 of 2.9%
senior notes (“2.9% Notes”) due September 15, 2051 for net
proceeds of approximately $588, after deducting underwriting
discounts and expenses from the offering. Interest is payable
semi-annually in arrears on March 15 and September 15,
commencing March 15, 2022. The Hartford, at its option, can
redeem the 2.9% Notes at any time, in whole or part, at a
redemption price equal to the greater of 100% of the principal
amount being redeemed or a make-whole amount based on a
comparable maturity US Treasury plus 20 basis points, plus any
accrued and unpaid interest, except the 2.9% Notes may be
redeemed at par within six months of maturity.
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.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14 - Debt
Junior Subordinated Debentures
Junior Subordinated Debentures by Issuance as
of December 31, 2021
Issue
Face Value
Interest Rate [1]
Call Date
Interest Rate Subsequent
to Call Date [2]
Final Maturity
7.875%
Debentures
3 Month LIBOR
+ 2.125%
$
600
$
500
7.875 % [2]
April 15,
2022
N/A
February 15,
2022
[3]
[4]
3 Month
LIBOR +
5.596%
April 15,
2042
3 Month
LIBOR +
2.125%
[5]
February 12,
2067
[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 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
more designated series of the Company's indebtedness, initially
the Company's 4.3% notes due 2043. Under the terms of the
193
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 intended to stop
persuading or compelling banks to report information used to set
LIBOR. On March 5, 2021, the FCA announced that publication
of certain LIBOR settings in currencies other than U.S. dollars
would cease immediately after December 31, 2021, and that
publication of U.S. dollar LIBOR on a representative basis would
cease for the one-week and two-month settings immediately
after December 31, 2021 and for the remaining U.S. dollar
settings immediately after June 30, 2023. 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, 2021
2022 - Current maturities
2023
2024
2025
2026
Thereafter
$
$
$
$
$
$
—
—
—
—
—
5,082
Revolving Credit Facility
In 2018, The Hartford entered into a $750 senior unsecured five-
year revolving credit facility (the "Credit Facility"), with an
expiration date of March 29, 2023. On October 27, 2021, The
Hartford amended and restated the Credit Facility (as amended,
the “2021 Credit Facility”) which, among other changes, extends
the term of the facility through October 27, 2026, includes
provisions for determining LIBOR successor rates, and resets
the level of The Hartford’s minimum consolidated net worth
financial covenant to $11.25 billion, excluding AOCI. The 2021
Credit Facility provides up to $750 of unsecured credit, including
$100 available to support letters of credit. Under the 2021 Credit
Facility:
•
•
•
Revolving loans may be in multiple currencies.
U.S. dollar loans will bear interest at a floating rate
equivalent to an indexed rate that varies depending on
the type of borrowing plus a basis point spread based
on The Hartford's credit rating and will mature no later
than October 27, 2026.
Letters of credit bear a fee based on The Hartford's
credit rating and expire no later than October 27, 2027.
The 2021 Credit Facility limits the ratio of senior debt to
capitalization, excluding AOCI, at 35% and includes other
customary covenants. The 2021 Credit Facility is for general
corporate purposes.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14 - Debt
balance sheets, The Hartford presents the liability for advances
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 $1.3 billion and $0.6
billion in qualifying assets, respectively, without prior approval,
to secure FHLBB advances in 2022. 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, 2021, there were no advances outstanding
under the FHLBB facility.
As of December 31, 2021, no borrowings were outstanding, no
letters of credit were issued under the 2021 Credit Facility and
the Company was in compliance with all financial covenants.
Lloyd's Letter of Credit Facilities
As a result of the acquisition of Navigators Group in 2019, 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 ($115 as of December 31, 2021)
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, 2021, letters of credit with an
aggregate face amount of $104 and £68 million, or $92, 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, 2021,
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
194
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 - Commitments and Contingencies
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.
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 Expenses, and
in the following discussion under the caption “COVID-19
Pandemic Business Income Insurance 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 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 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 260 such lawsuits have been filed, of
which more than 60 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 34 states.
Although the allegations vary, the plaintiffs generally seek a
declaration of insurance coverage, damages for breach of
contract in unspecified amounts, interest, and attorneys' 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. Some of the
lawsuits also allege that the Hartford Writing Companies
engaged in unfair business practices by collecting or retaining
excess premium.
The Company and its subsidiaries deny the allegations and
continue to vigorously defend these suits. 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 fully 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. These lawsuits are at
various stages of litigation; some are 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. Discovery is underway in certain
single plaintiff cases and class actions. More than 40
policyholders have appealed dismissals in favor of the Hartford
Writing Companies. The Hartford Writing Companies' first
appellate decision was received on December 27, 2021 when
195
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 - Commitments and Contingencies
the Second Circuit Court of Appeals affirmed a trial court ruling
in Sentinel Ins. Co. Ltd.'s favor. The remainder of the Hartford
Writing Companies' appeals are at various stages of the
process.
In addition, business income calculations depend upon a wide
range of factors that are particular to the circumstances of each
individual policyholder and, here, almost 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 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
and emerging legal doctrines with respect to the underlying
claims and with respect to the Company's coverage obligations.
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, insolvencies of insureds
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 against insureds, emerging
risks such as PFAS, the risks inherent in major litigation,
inconsistent and emerging legal doctrines concerning the
existence and scope of coverage for environmental claims, and
the scope and level of complexity of the remediation required by
regulators.
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, 2021, the Company
reported $604 of net asbestos and environmental reserves . In
addition, the Company has recorded a $365 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
196
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 - Commitments and Contingencies
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, 2021, the
Company has incurred $1,015 in cumulative adverse
development on A&E reserves that have been ceded under the
A&E ADC treaty with NICO, leaving $485 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 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, 2021, the Company has outstanding
commitments totaling $2.4 billion, of which $1.6 billion 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. The funding of purchase
investments in limited partnerships and other alternative
investments are at the discretion of the general partner or
manager and may be called at any time. Additionally, $185 of
the outstanding commitments relate to various funding
obligations primarily associated with private debt and equity
securities. The remaining outstanding commitments of $679
relate to mortgage loans. Of the $2.4 billion in total outstanding
commitments, $382 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, 2021 and 2020 the liability
balance was $74 and $83, respectively. As of December 31,
2021 and 2020, there were no premium tax offsets related to
guaranty fund or other insurance-related assessments.
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, in certain
instances, 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, 2021 was $52 for which the legal entities have
posted collateral of $50 in the normal course of business. Based
on derivative contractual terms as of December 31, 2021, a
downgrade of the current financial strength ratings by either
Moody's or S&P would not require additional assets to be
posted as collateral. This requirement could 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
197
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 - Commitments and Contingencies
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
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
through multiple economic cycles. Credit ratings are current and
16. EQUITY
Equity Repurchase Program
In December 2020, the Board of Directors authorized an equity
repurchase plan for $1.5 billion for the period commencing
January 1, 2021 through December 31, 2022. The Board of
Directors increased this authorization by $1 billion in April, 2021
and by $500 in October, 2021, bringing the aggregate
repurchase authorization to $3.0 billion through December 31,
2022. For the year ended December 31, 2021, The Hartford
repurchased $1.7 billion (25.9 million shares) of common stock
under this program. The timing of any repurchases of shares
under the remaining equity repurchase authorization is
dependent upon several factors, including the market price of
the Company's securities, the Company's capital position,
consideration of the effect of any repurchases on the Company's
financial strength or credit ratings, the Company's blackout
periods, and other considerations.
Under The Hartford’s previous $1.0 billion share repurchase
program authorized by its Board of Directors in February 2019
and which expired on 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.
Preferred Stock
The Company has outstanding 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). The
Preferred Stock is perpetual 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.
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
as macroeconomic scenarios similar to the approach used to
estimate the ACL for mortgage loans. See Note 6 - Investments.
In 2020, the LCL increased to $26 primarily due to the
increasing impacts of COVID-19. During 2021, the LCL
decreased to $25 primarily reflecting a decrease in the
estimated amount payable under guaranteed contracts as well
as lessening expected impacts of COVID-19 relative to prior
assumptions. The Company has never experienced a loss on
financial guarantees of this nature and we believe the risk of
loss is remote.
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.
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”). CPP warrant exercises were
1.9 million during the year ended December 31, 2019, and had
exercise prices that ranged from $8.750 to $8.836. 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.
198
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 16 - Equity
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".
U.S. Statutory Net Income
Group Benefits Insurance
Subsidiary
Property and Casualty
Insurance Subsidiaries
Total
For the years ended
December 31,
2021
2020
2019
$
32 $
310 $
513
1,774 1,598 1,391
$ 1,806 $ 1,908 $ 1,904
U.S. Statutory Capital
As of December 31,
2021
2020
Group Benefits Insurance
Subsidiary
Property and Casualty Insurance
Subsidiaries
Total
$
2,410 $
2,601
11,914
10,795
$
14,324 $
13,396
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.
199
Dividend Restrictions
Dividends to HFSG Holding Company from its insurance
subsidiaries are restricted by insurance regulation. The
Company’s principal insurance subsidiaries are domiciled in the
United States and the United Kingdom.
The payment of dividends by Connecticut-domiciled insurers is
limited under the insurance holding company laws of
Connecticut. These laws require notice to and approval by the
state insurance commissioner for the declaration or payment of
any dividend, which, together with other dividends or
distributions made within the preceding twelve months, exceeds
the greater of (i) 10% of the insurer’s statutory policyholder
surplus as of December 31 of the preceding year or (ii) net
income (or net gain from operations, if such company is a life
insurance company) for the preceding year, in each case
determined under statutory insurance accounting principles. In
addition, if any dividend of a Connecticut-domiciled insurer
exceeds the insurer’s earned surplus, it requires the prior
approval of the Connecticut Insurance Commissioner.
Property casualty insurers domiciled in New York, including
Navigators Insurance Company ("NIC") and Navigators
Specialty Insurance Company ("NSIC"), generally may not,
without notice to and approval by the state insurance
commissioner, pay dividends out of earned surplus in any
twelve‑month period that exceeds the lesser of (i) 10% of the
insurer’s statutory policyholders’ surplus as of the most recent
financial statement on file, or (ii) 100% of its adjusted net
investment income, as defined, for the same twelve month
period.
Corporate members of Lloyd's Syndicates may pay dividends to
its parent to the extent of available profits that have been
distributed from the syndicate in excess of the Funds at Lloyd's
("FAL") capital requirement and subject to restrictions imposed
under UK Company Law. The FAL is determined based on the
syndicate’s solvency capital requirement 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.
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 2021, the Company received $295 of dividends from HLA and
$165 from Hartford Funds. In addition, HFSG Holding Company
received $1.1 billion of net dividends from P&C subsidiaries in
2021 which excludes $150 of P&C dividends that were
subsequently contributed to P&C subsidiaries and $50 of P&C
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 16 - Equity
dividends related to interest payments on an intercompany note
owed by Hartford Holding Inc. ("HHI") to Hartford Fire Insurance
Company.
The Company’s property and casualty insurance subsidiaries
have dividend capacity of $2.0 billion for 2022, with $1.3 to $1.4
billion of net dividends expected in 2022.
HLA has dividend capacity of $241 in 2022 with $175 to $200 of
dividends expected in 2022.
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 before income taxes
included income from domestic operations of $2,910, $2,222
and $2,644 for the years ended December 31, 2021, 2020 and
2019, and income (losses) from foreign operations of $(14),
$(102) and $(84) for the years ended December 31, 2021, 2020
and 2019.
Income Tax Expense
For the years ended
December 31,
Income tax expense (benefit)
Carryback benefit
Current - U.S. federal
$ 486 $ 410 $
8
Tax law change
2021
2020
2019
Tax credits
2 — —
Other
Foreign
Total current
Deferred - U.S. federal
Foreign
Total deferred
49
(20) 476
(6)
(7)
(9)
43
(27) 467
Total income tax expense
$ 531 $ 383 $ 475
488 410
8
Provision for income taxes
$
531 $
383 $
475
Restricted Net Assets
The Company's insurance subsidiaries had net assets of $16.9
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, 2021.
Income Tax Rate Reconciliation
Tax provision at U.S. federal
statutory rate
Tax-exempt interest
Increase in deferred tax
valuation allowance
Sale of business
Earnings on corporate owned
life insurance
For the years ended
December 31,
2021
2020
2019
$
608 $
445 $
538
(40)
(46)
(56)
9
(5)
(22)
(9)
—
(8)
(2)
9
(8)
(6)
(5)
(5)
(6)
5
2
—
(11)
—
—
—
2
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 $4, $3 and $5
for the years ended December 31, 2021, 2020 and 2019,
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.
200
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 17 - Income Taxes
The entire amount of unrecognized tax benefits, if recognized,
would affect the effective tax rate in the period of the release.
The Company recognized $5 of its previously unrecognized tax
benefits associated with dividends from segregated asset
accounts of the life and annuity business sold in 2018. This
liability was subject to a tax indemnification agreement and a
corresponding receivable included in other assets has been
taken down upon lapse of the statute of limitations.
OTHER TAX MATTERS
On June 10, 2021, the United Kingdom enacted Finance Bill
2021, which included an increase in the corporate tax rate from
19% to 25%, effective April 1, 2023. In 2021, the Company
recorded a tax benefit of $8, which reflects the estimated benefit
of the change in tax rate on the deferred tax assets and
liabilities of its U.K. subsidiaries.
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 credit
carryforwards; and (3) retroactive changes to allow accelerated
depreciation for certain depreciable property.
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.
For the year ended December 31, 2021 and 2020 the Company
recorded a tax benefit of $5 and $8 related to the excess of tax
basis over GAAP basis on the sale of the continental Europe
operations. Refer to Note 22 - Business Dispositions.
The federal income tax audits for the Company have been
completed through 2013, and the Company is not currently
under federal income tax examination for any open years. The
statute of limitations is closed through the 2017 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 $1
for the years ended December 31, 2021, 2020 and 2019. The
Company has no interest payable as of December 31, 2021,
2020 and 2019. 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.
Deferred Tax Assets (Liabilities)
As of December 31,
2021
2020
Deferred tax assets
Loss reserves and tax discount
$
386 $
312
Unearned premium reserve and
other underwriting related
reserves
Investment-related items
Employee benefits
Net operating loss carryover
Other
406
8
225
29
—
384
125
282
11
34
Total deferred tax assets
1,054
1,148
Valuation allowance
(7)
(4)
Deferred tax assets, net of
valuation allowance
Deferred tax liabilities
1,047
1,144
Deferred acquisition costs
(129)
(120)
Net unrealized gains on
investments
Other depreciable and
amortizable assets
Other
(428)
(758)
(216)
(4)
(220)
—
Total deferred tax liabilities
(777)
(1,098)
Net deferred tax asset
$
270 $
46
As of December 31, 2021, the Company has foreign net
operating losses of $29 for which a valuation allowance of $7
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 which management views as prudent
and feasible.
UNCERTAIN TAX POSITIONS
Rollforward of Unrecognized Tax Benefits
For the years ended
December 31,
2021
2020
2019
$
15 $
14 $
14
Balance, beginning of period
Gross increases - tax positions
in current period
Lapse of statute of limitations
6
(5)
1
—
Balance, end of period
$
16 $
15 $
—
—
14
201
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 18 - Accumulated Other Comprehensive Income
18. CHANGES IN AND RECLASSIFICATIONS FROM
ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in AOCI, Net of Tax for the Year Ended December 31, 2021
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
$
2,834 $
(2) $
43 $
(1,717) $
1,170
OCI before reclassifications
Amounts reclassified from AOCI
OCI, before tax
Income tax benefit (expense)
OCI, net of tax
Ending balance
(1,307)
(234)
(1,541)
323
(1,218)
—
—
—
—
—
12 $
28
(36)
(8)
2
(6)
(3)
—
(3)
1
(2)
219
(1,063)
70
(200)
289
(1,263)
(61)
228
265
(998)
172
$
1,616 $
(2) $
6 $
41 $
(1,489) $
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, before tax
Income tax benefit (expense)
OCI, net of tax
Ending balance
1,627
(171)
1,456
(306)
1,150
1
—
1
—
1
30
(26)
4
(1)
3
11
—
11
(2)
9
(117)
1,552
60
(57)
12
(45)
(137)
1,415
(297)
1,118
$
2,834 $
(2) $
12 $
43 $
(1,717) $
1,170
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 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
Amounts reclassified from AOCI
OCI, before tax
Income tax benefit (expense)
OCI, net of tax
Ending balance
2,275
(174)
2,101
(441)
1,660
1
—
1
—
1
28
(10)
18
(4)
14
5
—
5
(1)
4
(104)
2,205
43
(61)
13
(48)
(141)
2,064
(433)
1,631
$
1,684 $
(3) $
9 $
34 $
(1,672) $
52
202
Note 18 - Accumulated Other Comprehensive Income
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reclassifications from AOCI
AOCI
Net Unrealized Gain on Fixed Maturities
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
Amount Reclassified from AOCI
For the year
ended
December
31, 2020
For the year
ended
December
31, 2021
For the year
ended
December
31, 2019
Affected Line Item in the
Consolidated Statement of
Operations
$
$
$
$
$
234 $
234
49
185 $
171 $
171
36
135 $
174 Net realized gains (losses)
174 Total before tax
37 Income tax expense
137 Net income
— $
— $
2 Net realized gains (losses)
41
(10)
—
5
36
8
29
(7)
(1)
5
26
5
4 Net investment income
1 Interest expense
— Net realized gains (losses)
3 Net investment income
10 Total before tax
2 Income tax expense
28 $
21 $
8 Net income
7 $
7 $
(77)
(70)
(15)
(55)
(67)
(60)
(13)
(47)
Insurance operating costs and other
expenses
7
Insurance operating costs and other
expenses
(50)
(43) Total before tax
(9) Income tax expense
(34) Net income
Total amounts reclassified from AOCI
$
158 $
109 $
111 Net income
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
each pay period. The Company also maintains a non-qualified
savings plan, The Hartford Excess Savings Plan, with the dollar-
for-dollar matching contributions related to employee
compensation in excess of the amount of eligible compensation
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
$147, $153 and $156 for the years ended December 31, 2021,
2020 and 2019, 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, 2021, 2020 and 2019 for these plans was
immaterial.
Postretirement 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 (“U.S. 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, as well as a
Canadian defined benefit pension plan. Together, the non-
203
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 19 - Employee Benefit Plans
qualified and Canadian defined benefit plan are referred to as
"Other Pension Plans".
The U.S. 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
I and The Hartford Excess Pension Plan II, the Company's non-
qualified excess pension benefit plans for certain highly
compensated employees, are 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
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 plans 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 2.91%
and 2.72% were the appropriate discount rates as of December
31, 2021 to calculate the Company’s U.S. Pension Plan 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 73% in fixed income securities and 27% 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 postretirement 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 5.40% and 4.90% for the Company's
U.S. Pension Plan and other postretirement obligations,
respectively, for the year ended December 31, 2021 and 6.00%
and 5.60% for the Company's U.S. Pension Plan and other
postretirement obligations, respectively, for the year ended
December 31, 2020. To determine the Company's 2022
expense, the Company has assumed an expected long-term
rate of return on plan assets of 5.10% and 4.80% for the
Company's U.S. Pension Plan and other postretirement
obligations, respectively.
204
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 19 - Employee Benefit Plans
Assumptions Used in Calculating the Benefit Obligations and the Net Amount Recognized
Weighted Average Assumptions used to determine benefit obligations
Discount rate:
U.S. Pension Plan
Other Pension Plans
Other postretirement benefits
Interest crediting rate on cash balance plan
Weighted Average Assumptions used to determine net periodic benefit
costs:
Discount rate:
U.S. Pension Plan
Other Pension Plans
Other postretirement benefits
Expected long-term rate of return on plan assets:
U.S. Pension Plan
Other Pension Plans
Other postretirement benefits
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,
2021
2020
2019
2.91 %
2.83 %
2.72 %
3.30 %
2.66 %
2.52 %
2.36 %
5.40 %
2.90 %
4.90 %
7.00 %
N/A
4.50 %
2033
2.65 %
2.51 %
2.36 %
3.30 %
3.33 %
3.25 %
3.15 %
6.00 %
3.90 %
5.60 %
7.00 %
N/A
4.50 %
2033
3.33 %
3.23 %
3.15 %
3.30 %
4.35 %
4.28 %
4.23 %
6.45 %
4.50 %
6.00 %
7.00 %
N/A
4.50 %
2033
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. Information is presented for the
qualified U.S. Pension Plan, Other Pension Plans (including
non-qualified plans and the Canadian pension plan) and other
postretirement benefits.
205
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Obligations and Funded Status
Note 19 - Employee Benefit Plans
U.S. Pension
Plan
Other Pension
Plans
Total Pension
Plans
For the years ended December 31,
Other
Postretirement
Benefits
2021
2020
2021
2020
2021
2020
2021
2020
Change in Benefit Obligation
Benefit obligation — beginning of year
$ 4,409 $ 4,060 $
466 $
438 $ 4,875 $ 4,498 $
220 $
223
Service cost
Interest cost
Plan participants’ contributions
Actuarial loss (gain)
Changes in assumptions
Benefits and expenses paid
Foreign exchange adjustment
Benefit obligation — end of year [1]
Fair value of plan assets — beginning of year
Actual return on plan assets
Employer contributions [2]
Benefits paid [3]
Expenses paid
4
87
—
(7)
4
115
—
8
(96)
399
(187)
(177)
—
—
$ 4,210 $ 4,409 $
Change in Plan Assets
$ 4,346 $ 3,899 $
—
9
—
2
(11)
(26)
(1)
439 $
—
12
—
4
38
4
96
—
(5)
4
127
—
12
(107)
437
—
3
11
1
(5)
—
6
11
(2)
16
(26)
(213)
(203)
(33)
(34)
—
(1)
466 $ 4,649 $ 4,875 $
—
—
197 $
—
220
17 $
15 $ 4,363 $ 3,914 $
63 $
75
338
—
566
70
(187)
(177)
(30)
(12)
(1)
—
(1)
—
2
—
—
—
337
—
568
70
(188)
(177)
(30)
(12)
4
7
(23)
—
6
5
(23)
—
Fair value of plan assets — end of year
$ 4,467 $ 4,346 $
15 $
17 $ 4,482 $ 4,363 $
51 $
63
Funded status — end of year
$
257 $
(63) $
(424) $
(449) $
(167) $
(512) $
(146) $
(157)
Amounts Recognized in the Consolidated Balance Sheets
Other assets
Other liabilities
$
257 $ — $ — $ — $
257 $ — $ — $ —
$ — $
(63) $
(424) $
(449) $
(424) $
(512) $
(146) $
(157)
[1] As of December 31, 2021 and 2020, the Accumulated Benefit Obligation is equal to the Projected Benefit Obligation.
[2] Employer contributions in 2020 to the U.S. qualified defined benefit pension plan were discretionary, made in cash, and did not include contributions of the
Company’s common stock.
[3] Other postretirement benefits paid represent non-key employee postretirement medical benefits paid from the Company's prefunded trust fund.
Changes in assumptions for the U.S. Pension Plan in 2021
primarily included a $109 decrease in the benefit obligation for
pension benefits as a result of an increase in the discount rate
from 2.65% as of the December 31, 2020 valuation to 2.91% as
of the December 31, 2021 valuation. Changes in assumptions in
2020 included a $395 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 for the Other Pension Plans in 2021
primarily included a $12 decrease in the benefit obligation for
pension benefits as a result of an increase in the discount rate
from 2.51% as of the December 31, 2020 valuation to 2.83% as
of the December 31, 2021 valuation. Changes in assumptions in
2020 included a $39 increase in the benefit obligation for
pension benefits as a result of a decrease in the discount rate
from 3.23% as of the December 31, 2019 valuation to 2.51% as
of the December 31, 2020 valuation.
The cash balance plan pension benefit obligation was $414 and
$443 as of December 31, 2021 and 2020, respectively.
The fair value of assets for total pension plans, and hence the
funded status, presented in the table above excludes assets of
$210 and $186 as of December 31, 2021 and 2020,
respectively, held in rabbi trusts and designated for the Other
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, total pension plan
assets would have been $4,692 and $4,549 as of December 31,
2021 and 2020, respectively, and the funded status of total
pension plans would have been $43 and $(326) as of December
31, 2021 and 2020, respectively.
The tables below present an aggregate view of net periodic cost
(benefit) and components of other comprehensive income and
AOCI for pension plans that includes both the U.S. Pension Plan
and Other Pension Plans. Net periodic cost (benefit) is
recognized in insurance operating costs and other expenses in
the consolidated statement of operations.
206
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Periodic Cost (Benefit)
Note 19 - Employee Benefit Plans
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of actuarial loss
Net periodic cost (benefit)
Pension Benefits
Other Postretirement Benefits
For the years ended December 31,
2021
2020
2019
2021
2020
2019
$
4 $
4 $
4 $
— $
— $
96
(205)
—
69
127
(215)
—
60
159
(226)
—
44
3
(3)
(7)
8
6
(4)
(7)
7
$
(36) $
(24) $
(19) $
1 $
2 $
—
8
(4)
(7)
6
3
Amounts Recognized in Other Comprehensive Income (Loss)
Amortization of actuarial loss
Amortization of prior service credit
Net income (loss) arising during the year
Prior service cost (credit)
Total
Pension Benefits
Other Postretirement Benefits
For the years ended December 31,
2021
2020
2019
2021
2020
2019
$
69 $
—
214
—
60 $
—
(106)
—
44 $
8 $
7 $
—
(88)
—
(7)
5
—
(7)
(11)
—
$
283 $
(46) $
(44) $
6 $
(11) $
6
(7)
(18)
2
(17)
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,
2021
2020
2019
2021
2020
2019
$
(1,815) $
(2,098) $
(2,052) $
(124) $
(136) $
(132)
—
—
—
54
60
$
(1,815) $
(2,098) $
(2,052) $
(70) $
(76) $
67
(65)
Pension Plan Assets
Investment Strategy and Target Allocation
The overall investment strategy of the U.S. Pension Plan is to
produce total investment returns that 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 U.S. 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; selecting qualified service providers such
as investment managers and investment consultants; 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 Pension Investment
Committee has adopted a de-risking glide path that reduces the
target allocation to equity securities and alternative assets and
increases the allocation to fixed income securities over time in
response to improvement in the funded status of the U.S.
Pension Plan. The Company believes that the asset allocation
decision will be the single most important factor determining the
long-term performance of the U.S. Pension Plan.
Target Asset Allocation
Pension Plans
Other
Postretirement
Plans
Minimum Maximum Minimum Maximum
Equity securities
3 %
23 %
— %
45 %
Fixed income
securities
Alternative
assets
69 %
77 %
55 %
100 %
— %
28 %
— %
— %
Divergent market performance among different asset classes
and changes in the context of the glide path 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 first, as necessary, to bring the
allocation within tactical ranges, before shifting assets across
portfolios.
207
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 19 - Employee Benefit Plans
The U.S. Pension Plan invests in investment portfolios, including
commingled funds and partnerships, managed by affiliated and
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 U.S. Pension Plan, the investment
preferences and risk tolerance of the U.S. 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 addition to certain other
investments, in a duration overlay program to adjust the duration
of U.S. Pension Plan assets to better match the duration of the
benefit obligation.
Pension Plan Assets at Fair Value
As of December 31, 2021
As of December 31, 2020
Asset Category
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Short-term investments:
$
120 $
29 $
— $
149 $
75 $
25 $
— $
100
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
—
—
23
—
—
—
—
237
121
2,333
98
169
38
56
185
—
—
—
42
—
—
2
4
1
202
—
—
2,375
98
192
40
60
186
202
237
121
—
—
—
—
—
—
—
513
271
2,303
41
47
16
30
137
—
—
—
39
1
—
9
—
—
161
—
—
2,342
42
47
25
30
137
161
513
271
$
501 $
2,908 $
251 $
3,660 $
859 $
2,599 $
210 $
3,668
572
199
451
224
Total pension plan assets
at fair value
$
501 $
2,908 $
251 $
4,431 $
859 $
2,599 $
210 $
4,343
[1]Includes ABS, municipal bonds, and CDOs.
[2]Excludes $51 and $20 as of December 31, 2021 and 2020, respectively, of investment receivables net of investment payables that are excluded from this
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
U.S. Pension Plan Assets for which significant unobservable
inputs ("Level 3") are used in the fair value measurement on a
recurring basis. The U.S. 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 U.S. 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.
208
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 19 - Employee Benefit Plans
Pension Plan Asset Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Assets
Fair Value as of January 1, 2021
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, 2021
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
Corporate
RMBS
Foreign
government
Mortgage
loans
Other [1]
Totals
$
39 $
1 $
9 $
161 $
— $
210
$
$
—
—
6
—
(5)
2
—
42 $
27 $
—
1
14
—
(3)
—
—
—
—
—
—
—
—
(1)
— $
— $
—
—
1
—
—
—
—
—
—
—
—
(7)
—
—
(3)
—
55
—
(11)
—
—
2 $
1 $
202 $
131 $
—
—
9
—
—
—
(1)
—
4
32
—
(6)
—
—
—
—
5
—
—
—
—
5 $
1 $
(1)
1
—
—
—
—
(1)
(3)
—
66
—
(23)
2
(1)
251
160
(1)
6
56
—
(9)
—
(2)
Fair Value as of December 31, 2020
$
39 $
1 $
9 $
161 $
— $
210
[1]"Other" includes U.S. Treasuries, Other fixed income and CMBS investments.
During the year ended December 31, 2021, 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, 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.
There was less than $1 in Company common stock included in
the U.S. Pension Plan’s assets as of December 31, 2021 and
2020.
Other Postretirement Plan Assets at Fair Value
As of December 31, 2021
As of December 31, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
1 $
— $
— $
1 $
2 $
— $
— $
—
—
1
1
—
—
11
7
13
—
—
1
16
—
—
—
—
—
—
—
—
11
7
14
1
—
1
16
—
—
—
—
—
—
16
9
16
—
1
2
17
—
—
—
—
—
—
—
—
Asset Category
Short-term investments
Fixed Income Securities:
Corporate
RMBS
U.S. Treasuries
Foreign government
CMBS
Other fixed income
Equity Securities:
Large-cap
Total other postretirement
plan assets at fair value
$
19 $
32 $
— $
51 $
19 $
44 $
— $
2
16
9
16
—
1
2
17
63
There was no Company common stock included in the other
postretirement benefit plan assets as of December 31, 2021 and
2020.
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.
209
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 19 - Employee Benefit Plans
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.
Securities specifically prohibited from purchase include, but are
not limited to: shares or fixed income instruments issued by The
Hartford (other than equity securities purchased on the open
market as part of a passively managed strategy), 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 2022 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 2022. The Company will monitor the funded
status of the U.S. qualified defined benefit pension plan during
2022 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, 2021
Pension
Benefits
Other
Postretirement
Benefits
2022
2023
2024
2025
2026
$
228 $
234
240
250
249
2027 - 2031
Total
1,265
2,466 $
$
20
18
16
15
14
56
139
The Hartford measures stock compensation at the grant date
based on the estimated fair value of the award and recognizes
expense on a straight-line basis, net of estimated forfeitures,
over the requisite service period. Stock-based compensation
expense, included in insurance operating costs and other
expenses in the consolidated statement of operations, was as
follows:
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 2021, 2020 and
2019, the Company issued shares from treasury in satisfaction
of stock-based compensation.
20. STOCK COMPENSATION PLANS
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, 2021, there were 9,667,290 shares
available for future issuance.
Stock-Based Compensation Expense
Stock-based compensation
plans expense
For the years ended
December 31,
Excess tax benefit on awards
vested, exercised and expired
Income tax benefit
128 $
116 $
(22)
(20)
2019
2021
2020
(21)
125
(6)
(1)
(6)
$
Total stock-based
compensation plans
expense, net of tax
$
100 $
95 $
98
The Company did not capitalize any cost of stock-based
compensation. As of December 31, 2021, the total
compensation cost related to non-vested awards not yet
recognized was $71, which is expected to be recognized over a
weighted average period of 2 years.
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
considered non-substantive. Beginning with awards granted in
210
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 20 - Stock Compensation Plans
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.
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, 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,
2021
2.8%
2020
2.6%
2019
2.5%
34.1 % - 43.0% 22.2 % - 36.2% 20.7 % - 36.7%
39.4%
30.9%
29.3%
0.03 % - 1.4%
1.3 % - 1.6%
2.4 % - 2.6%
6.4 years
6.6 years
5.9 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
For the year ended December 31, 2021
6,693 $
930 $
(1,137) $
(51) $
— $
6,435 $
6,385 $
4,749 $
45.54
51.87
39.51
53.03
—
47.46
47.42
45.67
5.7 $
5.7 $
4.7 $
139
138
111
ended December 31, 2021, 2020 and 2019 was $28, $2, and
$16, respectively.
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,
2021, 2020, and 2019 was $14.88, $12.97 and $11.71,
respectively. For the years ended December 31, 2021, 2020,
and 2019, The Hartford received $45, $3, and $24, respectively,
in cash from exercised stock options. The Hartford recognized
tax benefits of $4, $0, and $2 on stock options exercised for the
years ended December 31, 2021, 2020 and 2019, respectively.
The total intrinsic value of options exercised during the years
211
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 20 - Stock Compensation Plans
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.
Share Awards
Share awards granted under the Stock Incentive Plan and
outstanding include restricted stock units and 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 three years and for the 2021 grant subject to a
modifier that will either increase or decrease final performance
by 10% based upon results against predetermined year-end
2023 representation goals for women and people of color in
executive level roles. 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 2021 and 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.
Assumptions for Total Stockholder Return Performance Shares
For the years ended December 31,
2020
2019
2021
Volatility of common stock
Average volatility of peer companies
Average correlation coefficient of peer companies
Risk-free spot rate
Term
Total Share Awards
37.3%
19.6%
19.4%
27.0 % - 49.0% 18.0 % - 31.0% 16.0 % - 27.0%
67.0%
0.2%
51.0%
1.2%
50.0%
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 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, 2021
3,866 $
1,628 $
52.58
52.13
(1,160) $
(303) $
4,031 $
52.72
51.30
52.45
790 $
419 $
225 $
(624) $
(45) $
765 $
54.82
56.09
60.67
56.44
52.89
52.53
In addition to the non-vested shares presented in the above
table, there are related non-vested dividend equivalent shares.
The number of non-vested dividend equivalent shares related to
restricted stock units was 209 thousand and 186 thousand as of
212
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 20 - Stock Compensation Plans
2020 and 2019, 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
years ended December 31, 2021, 2020 and 2019, the Company
repurchased $16, $10 and $8, respectively, in subsidiary stock.
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, 2021, there were 3,544,674 shares
available for future issuance. During the years ended
December 31, 2021, 2020 and 2019, 199,173 shares, 340,653
shares, and 213,472 shares were sold, respectively. For the
years ended December 31, 2021, 2020 and 2019, The Hartford
received $13, $13 and $11, respectively, in cash from sales
under this plan.
Supplemental Operating Lease Information
For the years ended December 31,
2020
2021
2019
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
$
46
$
54
$
50
3
49
42
6 years
7 years
6 years
3.0 %
3.1 %
3.5 %
December 31, 2021 and 2020, respectively, and the number of
non-vested dividend equivalent shares related to performance
shares was 30 thousand and 11 thousand as of December 31,
2021 and 2020, respectively. The dividend equivalent shares
are subject to the same vesting terms as the restricted stock
units and performance shares.
The weighted average grant-date fair value per share of
restricted stock units granted during the years ended
December 31, 2021, 2020, and 2019 was $52.13, $54.64 and
$50.49, respectively. The weighted average grant-
date fair value per share of performance shares granted during
the years ended December 31, 2021, 2020, and 2019 was
$56.09, $55.62 and $54.07, respectively.
The total fair value of shares vested during the years ended
December 31, 2021, 2020 and 2019 was $105, $73 and $102,
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,
2021, 2020 and 2019.
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 $11 in the years ended December 31, 2021,
21. LEASES
The Hartford has operating leases for real estate and
equipment. The right-of-use asset as of December 31, 2021 and
2020 was $167 and $209, respectively, and is included in
property and equipment, net, in the Consolidated Balance
Sheet. The lease liability as of December 31, 2021 and 2020
was $184 and $221, 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. In 2021, variable lease costs of $4
were reported in restructuring and other costs for lease
terminations under Hartford Next (see Note 23 - Restructuring
and Other Costs for more information), and were excluded from
components of lease expense.
Components of Lease Expense
For the years ended December 31,
2021
2020
2019
Operating lease cost
$
45 $
52 $
—
2
(3)
—
—
(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
$
44 $
47 $
47
213
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 21 - Leases
Maturities of Operating Lease Liabilities as of
December 31, 2021
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Discount on lease payments to present
value
Total lease liability
Operating
Leases
$
$
42
40
31
23
18
46
200
16
184
22. BUSINESS DISPOSITIONS
Sale of Continental Europe
Operations
On December 29, 2021, the Company completed the sale of its
Continental Europe Operations for approximately $11, net of
transaction costs. The complete sale of the Continental Europe
Operations consists of multiple arrangements designed as a
single transaction. The Continental Europe Operations are
included in the Commercial Lines segment. Revenues and
earnings are not material to the Company's consolidated results
of operations for the years ended December 31, 2021, 2020 and
2019.
The sale resulted in losses of approximately $21 and $48,
before tax, for the periods ended December 31, 2021 and 2020,
respectively, which were recorded within net realized gains
(losses) in the Consolidated Statements of Operations. The
Company also recorded related income tax benefits on the sale
of $5 and $18, for after tax losses of $16 and $30, for the years
ended December 31, 2021 and 2020, respectively.
Total consideration less costs to sell of $11 is subject to change
based 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 $0 and could result in an increase or decrease in
consideration 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.
Major Classes of Assets and Liabilities
Transferred by the Company to the Buyer in
Connection with the Sale
Assets
Investments and cash
Reinsurance recoverables and other
Total assets held for sale
Liabilities
Unpaid losses and loss adjustment
expenses
Unearned premiums
Other liabilities
Carrying Value as of
December
31, 2020
[1][2]
Closing
$
150 $
13
163
81
19
52
142
35
177
84
31
43
Total liabilities held for sale
$
152 $
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.
[2]Classified as assets and liabilities held for sale.
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 2023.
214
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 23 - Restructuring and Other Costs
Termination benefits related to workforce reductions and
professional fees are included within restructuring and other
costs in the Consolidated Statement of Operations and unpaid
restructuring costs are included in other liabilities in the
Company's Consolidated Balance Sheets. For the year ended
December 31, 2021, the severance benefits accrual was
reduced $25 due to more recent experience of higher than
expected voluntary attrition. Subsequent to December 31, 2021,
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, and other expenses. Total
restructuring and other costs are expected to be approximately
$130, before tax, and will be recognized in Corporate for
segment reporting. The estimated restructuring and other costs
for future periods do not include all costs associated with the
real estate consolidation plan as those plans are still being
finalized.
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
$
73 $
2
29
104 $
Incurred in the
Year Ended
December 31, 2021
Cumulative
Incurred Through
December 31, 2021
Total Amount
Expected to be
Incurred
(25) $
9
17
1 $
48 $
11
46
105 $
48
21
61
130
Accrued Restructuring and Other Costs
Year Ended December 31, 2021
Severance
Benefits and
Related Costs
IT Costs
Professional
Fees and
Other
Total
Restructuring
and Other
Costs Liability
$
$
54 $
(25)
(11)
18 $
— $
9
(9)
— $
— $
17
(17)
— $
54
1
(37)
18
Accrued Restructuring and Other Costs
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
Balance, beginning of period
Incurred
Payments
Balance, end of period
Balance, beginning of period
Incurred
Payments
Balance, end of period
215
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Shareholder Services
Toll Free 877-272-7740
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Senior Vice President & Corporate Secretary
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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 112 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 89 seconds—a startling reminder about the importance of
teaching children the basics of personal fire safety.
Junior Fire Marshal is a fun, interactive online program available to
teachers, families and communities everywhere, to ensure that as many
kids as possible can learn life-saving fire safety lessons.
Above: child participating in Junior
Fire Marshal fire safety activities.
MORE THAN 112
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
DIGITAL PLATFORM
includes a one-of-a-kind, standards-aligned fire safety
and prevention curriculum.
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 CNBC (2022) Recognized for sustainability issues including
fair pay, environmental and community impact, ethical leadership, and long-term
financial growth
World’s Most Ethical Companies®, Ethisphere (2022)
13
Best Place to Work for Lesbian, Gay, Bisexual and Transgender (LGBT)
Equality, Human Rights Campaign, Corporate Equality Index (2022)
Military Friendly Employer, Military Times (2022)
2022 Bloomberg Financial Services Gender-Equality Index (BFGEI)
100% Disability Equality Index, Best Place to Work (2021)
Best Place to Work for Disability Inclusion, scoring 100%
on Disability Equality Index
Named to the Dow Jones Sustainability Indices (2021)
Every year since first submitting in 2012 in recognition of our
commitment to sustainability.
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.
22-EN-1142584 © March 2022 The Hartford
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