Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2010


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

For the transition period from to

Commission File Number: 001-13958

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-3317783
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Hartford Plaza, Hartford, Connecticut 06155
(Address of principal executive offices) (Zip Code)

(860) 547-5000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 30, there were outstanding 444,324,287 shares of Common Stock, $0.01 par value per share, of the registrant.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS


Item	Description	Page

	Part I. FINANCIAL INFORMATION

1.	Financial Statements

	Report of Independent Registered Public Accounting Firm		5

	Condensed Consolidated Statements of Operations — For the Three and Six Months Ended June 30, 2010 and 2009		6

	Condensed Consolidated Balance Sheets — As of June 30, 2010 and December 31, 2009		7

	Condensed Consolidated Statements of Changes in Equity — For the Six Months Ended June 30, 2010 and 2009		8

	Condensed Consolidated Statements of Comprehensive Income — For the Three and Six Months Ended June 30, 2010 and 2009		9

	Condensed Consolidated Statements of Cash Flows — For the Six Months Ended June 30, 2010 and 2009		10

	Notes to Condensed Consolidated Financial Statements		11

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		60

3.	Quantitative and Qualitative Disclosures About Market Risk		133

4.	Controls and Procedures		133

	Part II. OTHER INFORMATION

1.	Legal Proceedings		134

1A.	Risk Factors		134

2.	Unregistered Sales of Equity Securities and Use of Proceeds		137

6.	Exhibits		137

	Signature		138

	Exhibits Index		139

Exhibit 10.02
Exhibit 10.03
Exhibit 10.04
Exhibit 10.06
Exhibit 15.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Forward-Looking Statements

Certain of the statements contained herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects,” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding economic, competitive and legislative developments. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon The Hartford Financial Services Group, Inc. and its subsidiaries (collectively, the “Company”). Future developments may not be in line with management’s expectations or have unanticipated effects. Actual results could differ materially from expectations, depending on the evolution of various factors, including those set forth in Part I, Item 1A, Risk Factors in The Hartford’s 2009 Form 10-K Annual Report, Part II, Item 1A, Risk Factors of The Hartford’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as well as in Part II, Item 1A, Risk Factors of this Form 10-Q. These important risks and uncertainties include:

•

risks and uncertainties related to the Company’s current operating environment, which reflects continued volatility in financial markets, constrained capital and credit markets and uncertainty about the strength of an economic recovery and the impact of U.S. and other governmental stimulus, budgetary and legislative initiatives, and whether management’s efforts to identify and address these risks will be timely and effective;

•

risks associated with our continued execution of steps to realign our business and reposition our investment portfolio, including the potential need to take other actions, such as divestitures;

•

market risks associated with our business, including changes in interest rates, credit spreads, equity prices and foreign exchange rates, as well as challenging or deteriorating conditions in key sectors such as the commercial real estate market, that have pressured our results and have continued to do so in 2010;

•

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

•

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

•

risks to our business, financial position, prospects and results associated with negative ratings actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades relating to our investments;

•

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

•

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

•

losses due to nonperformance or defaults by others;

•

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

•

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

•

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

•

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

•

the possibility of a pandemic or man-made disaster that may adversely affect the financial condition of the Company’s businesses and cost and availability of reinsurance;

•

weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow;

•

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

•

the possibility of unfavorable loss development;

•

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

•

the restrictions, oversight, costs and other consequences of being a savings and loan holding company, including from the supervision, regulation and examination by the Office of Thrift Supervision (the “OTS”), and in the future, as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), The Federal Reserve and the Office of the Controller of the Currency as regulator of Federal Trust Bank, and arising from our participation in the Capital Purchase Program (the “CPP”), under the Emergency Economic Stabilization Act of 2008, certain elements of which will continue to apply to us for so long as the Treasury holds the warrant or shares of our common stock received on exercise of the warrant that we issued as part of our participation in the CPP;

•

the potential effect of domestic and foreign regulatory developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels, including changes to statutory reserves and/or risk-based capital requirements related to secondary guarantees under universal life and variable annuity products;

•

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

•

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

•

the uncertain effects of emerging claim and coverage issues;

•

the ability of the Company to declare and pay dividends is subject to limitations;

•

the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines;

•

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

•

the risk that our framework for managing business risks may not be effective in mitigating risk and loss to us that could adversely affect our business;

•

the potential for difficulties arising from outsourcing relationships;

•

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

•

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

•

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

•

unfavorable judicial or legislative developments; and

•

other factors described in such forward-looking statements.

Any forward-looking statement made by us in this document speaks only as of the date of the filing of this Form 10-Q. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
The Hartford Financial Services Group, Inc.
Hartford, Connecticut

We have reviewed the accompanying Condensed Consolidated Balance Sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the “Company”) as of June 30, 2010, and the related Condensed Consolidated Statements of Operations and Comprehensive Income for the three-month and six-month periods ended June 30, 2010 and 2009 and Statements of Changes in Equity and Cash Flows for the six-month periods ended June 30, 2010 and 2009. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2009, and the related consolidated statements of operations, changes in equity, comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2010 (which report includes an explanatory paragraph relating to the Company’s change in its method of accounting and reporting for other-than-temporary impairments in 2009 and for the fair value measurement of financial instruments in 2008), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP
Hartford, Connecticut
August 4, 2010

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Operations


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions, except for per share data)	2010			2009			2010			2009
	(Unaudited)						(Unaudited)

Revenues
Earned premiums	$	3,506		$	3,592		$	7,033		$	7,421
Fee income		1,195			1,062			2,384			2,229
Net investment income (loss):
Securities available-for-sale and other		1,153			1,021			2,213			1,941
Equity securities, trading		(2,649	)		2,523			(1,948	)		1,799

Total net investment income (loss)		(1,496	)		3,544			265			3,740

Net realized capital gains (losses):
Total other-than-temporary impairment (“OTTI”) losses		(292	)		(562	)		(632	)		(786	)
OTTI losses recognized in other comprehensive income		184			248			372			248

Net OTTI losses recognized in earnings		(108	)		(314	)		(260	)		(538	)
Net realized capital gains (losses), excluding net OTTI losses recognized in earnings		119			(367	)		(5	)		(59	)

Total net realized capital gains (losses)		11			(681	)		(265	)		(597	)

Other revenues		120			120			238			238

Total revenues		3,336			7,637			9,655			13,031

Benefits, losses and expenses
Benefits, losses and loss adjustment expenses		3,592			3,092			6,725			7,729
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities		(2,649	)		2,523			(1,948	)		1,799
Amortization of deferred policy acquisition costs and present value of future profits		938			674			1,589			2,933
Insurance operating costs and expenses		969			959			1,888			1,857
Interest expense		132			119			252			239
Goodwill impairment		153			—			153			32
Other expenses		208			252			468			441

Total benefits, losses and expenses		3,343			7,619			9,127			15,030
Income (loss) before income taxes		(7	)		18			528			(1,999	)
Income tax expense (benefit)		(83	)		33			133			(775	)


Net income (loss)	$	76		$	(15	)	$	395		$	(1,224	)

Preferred stock dividends and accretion of discount		11			3			494			3


Net income (loss) available to common shareholders	$	65		$	(18	)	$	(99	)	$	(1,227	)


*Earnings (Loss) per common share*
Basic	$	0.15		$	(0.06	)	$	(0.24	)	$	(3.80	)
Diluted	$	0.14		$	(0.06	)	$	(0.24	)	$	(3.80	)


Cash dividends declared per common share	$	0.05		$	0.05		$	0.10		$	0.10

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Balance Sheets


	June 30,			December 31,
(In millions, except for share and per share data)	2010			2009
	(Unaudited)

*Assets*
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost of $78,529 and $76,015) (includes variable interest entity assets, at fair value, of $842 as of June 30, 2010)	$	77,132		$	71,153
Equity securities, trading, at fair value (cost of $32,755 and $33,070)		30,183			32,321
Equity securities, available-for-sale, at fair value (cost of $1,244 and $1,333)		1,103			1,221
Mortgage loans (net of allowances for loan losses of $340 and $366)		4,673			5,938
Policy loans, at outstanding balance		2,182			2,174
Limited partnerships and other alternative investments (includes variable interest entity assets of $22 as of June 30, 2010)		1,774			1,790
Other investments		2,293			602
Short-term investments		8,731			10,357

Total investments		128,071			125,556
Cash		2,998			2,142
Premiums receivable and agents’ balances		3,371			3,404
Reinsurance recoverables		5,485			5,384
Deferred policy acquisition costs and present value of future profits		9,689			10,686
Deferred income taxes, net		2,828			3,940
Goodwill		1,051			1,204
Property and equipment, net		1,150			1,026
Other assets		4,624			3,981
Separate account assets		154,883			150,394

Total assets	$	314,150		$	307,717


*Liabilities*
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
Property and casualty	$	21,479		$	21,651
Life		18,529			17,980
Other policyholder funds and benefits payable		46,394			45,852
Other policyholder funds and benefits payable — International variable annuities		30,161			32,296
Unearned premiums		5,291			5,221
Short-term debt		—			343
Long-term debt		6,600			5,496
Consumer notes		452			1,136
Other liabilities (includes variable interest entity liabilities of $426 as of June 30, 2010)		11,470			9,454
Separate account liabilities		154,883			150,394

Total liabilities		295,259			289,823
Commitments and Contingencies (Note 9)
*Equity*
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 575,000 and 3,400,000 shares issued, liquidation preference $1,000 per share		556			2,960
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 469,765,004 and 410,184,182 shares issued		5			4
Additional paid-in capital		10,470			8,985
Retained earnings		11,049			11,164
Treasury stock, at cost — 25,654,189 and 27,177,019 shares		(1,810	)		(1,936	)
Accumulated other comprehensive loss, net of tax		(1,379	)		(3,312	)

Total stockholders’ equity		18,891			17,865
Noncontrolling interest		—			29

Total equity		18,891			17,894

Total liabilities and equity	$	314,150		$	307,717

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Changes in Equity


	Six Months Ended
	June 30,
(In millions, except for share data)	2010			2009
	(Unaudited)
Preferred Stock, at beginning of period	$	2,960		$	—
Issuance of mandatory convertible preferred stock		556			—
Accretion of preferred stock discount on issuance to U.S. Treasury		—			1
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury		440			—
Issuance (redemption) of preferred stock to the U.S. Treasury		(3,400	)		2,920

Preferred Stock, at end of period		556			2,921


Common Stock		5			4

Additional Paid-in Capital, at beginning of period		8,985			7,569
Issuance of warrants to U.S. Treasury		—			480
Issuance of shares under discretionary equity issuance plan		—			16
Issuance of shares under public offering		1,599			—
Issuance of shares under incentive and stock compensation plans		(108	)		(50	)
Reclassification of warrants from other liabilities to equity and extension of warrants’ term		—			186
Tax expense on employee stock options and awards		(6	)		(11	)

Additional Paid-in Capital, at end of period		10,470			8,190


Retained Earnings, at beginning of period, before cumulative effect of accounting change, net of tax		11,164			11,336
Cumulative effect of accounting change, net of tax		26			—

Retained Earnings, at beginning of period, as adjusted		11,190			11,336
Net income (loss)		395			(1,224	)
Cumulative effect of accounting change, net of tax		—			912
Accretion of preferred stock discount on issuance to U.S. Treasury		—			(1	)
Accelerated accretion of discount from redemption of preferred stock issued to U.S. Treasury		(440	)		—
Dividends on preferred stock		(54	)		(2	)
Dividends declared on common stock		(42	)		(30	)

Retained Earnings, at end of period		11,049			10,991


Treasury Stock, at Cost, at beginning of period		(1,936	)		(2,120	)
Issuance of shares under incentive and stock compensation plans from treasury stock		129			69
Return of shares under incentive and stock compensation plans to treasury stock		(3	)		(3	)

Treasury Stock, at Cost, at end of period		(1,810	)		(2,054	)


Accumulated Other Comprehensive Loss, Net of Tax, at beginning of period		(3,312	)		(7,520	)
Cumulative effect of accounting change, net of tax		—			(912	)
Total other comprehensive income		1,933			1,822

Accumulated Other Comprehensive Loss, Net of Tax, at end of period		(1,379	)		(6,610	)


Total Stockholders’ Equity		18,891			13,442


Noncontrolling Interest, at beginning of period (Note 13)		29			92
Change in noncontrolling interest ownership		—			(65	)
Noncontrolling loss		—			(7	)
Recognition of noncontrolling interest in other liabilities		(29	)		—

Noncontrolling Interest, at end of period		—			20


Total Equity	$	18,891		$	13,462


Preferred Shares Outstanding, at beginning of period (in thousands)		3,400			6,048
Conversion of preferred to common shares		—			(6,048	)
Issuance of shares to U.S. Treasury		—			3,400
Issuance of mandatory convertible preferred shares		575			—
Redemption of preferred shares issued to the U.S. Treasury		(3,400	)		—

Preferred Shares Outstanding, at end of period		575			3,400


Common Shares Outstanding, at beginning of period (in thousands)		383,007			300,579
Treasury stock acquired		—			(15	)
Conversion of preferred to common shares		—			24,194
Issuance of shares under discretionary equity issuance plan		—			1,301
Issuance of shares under public offering		59,590			—
Issuance of shares under incentive and stock compensation plans		1,639			854
Return of shares under incentive and stock compensation plans to treasury stock		(125	)		(184	)

Common Shares Outstanding, at end of period		444,111			326,729

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions)	2010		2009			2010		2009
	(Unaudited)					(Unaudited)

Comprehensive Income
Net income (loss)	$	76	$	(15	)	$	395	$	(1,224	)

Other comprehensive income (loss)
Change in net unrealized loss on securities		719		2,373			1,578		2,340
Change in OTTI losses recognized in other comprehensive income		21		(125	)		53		(125	)
Change in net gain (loss) on cash-flow hedging instruments		163		(320	)		229		(368	)
Change in foreign currency translation adjustments		77		164			41		(45	)
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs		18		11			32		20

Total other comprehensive income		998		2,103			1,933		1,822

Total comprehensive income	$	1,074	$	2,088		$	2,328	$	598

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Cash Flows


	Six Months Ended
	June 30,
(In millions)	2010			2009
	(Unaudited)

*Operating Activities*
Net income (loss)	$	395		$	(1,224	)
*Adjustments to reconcile net income (loss) to net cash provided by operating activities*
Amortization of deferred policy acquisition costs and present value of future profits		1,589			2,933
Additions to deferred policy acquisition costs and present value of future profits		(1,338	)		(1,450	)
Change in reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums		200			1,333
Change in reinsurance recoverables		162			(111	)
Change in receivables and other assets		72			249
Change in payables and accruals		(342	)		(389	)
Change in accrued and deferred income taxes		(128	)		(343	)
Net realized capital losses		265			597
Net disbursements from investment contracts related to policyholder funds — International variable annuities		(2,137	)		(892	)
Net decrease in equity securities, trading		2,138			885
Depreciation and amortization		315			259
Goodwill impairment		153			32
Other operating activities, net		(144	)		107

Net cash provided by operating activities		1,200			1,986

*Investing Activities*
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale		23,292			33,229
Equity securities, available-for-sale		158			482
Mortgage loans		1,297			297
Partnerships		249			239
Payments for the purchase of:
Fixed maturities, available-for-sale		(23,796	)		(35,015	)
Equity securities, available-for-sale		(100	)		(251	)
Mortgage loans		(69	)		(214	)
Partnerships		(135	)		(136	)
Proceeds from business sold		130			7
Derivatives, net		584			262
Change in policy loans, net		(8	)		4
Change in payables for collateral under securities lending, net		(46	)		(2,262	)
Other investing activities, net		44			(199	)

Net cash provided by (used for) investing activities		1,600			(3,557	)

*Financing Activities*
Deposits and other additions to investment and universal life-type contracts		6,410			7,323
Withdrawals and other deductions from investment and universal life-type contracts		(11,183	)		(11,516	)
Net transfers from separate accounts related to investment and universal life-type contracts		4,120			3,646
Proceeds from issuance of long-term debt		1,090			—
Repayments at maturity for long-term debt and payments on capital lease obligations		(343	)		(24	)
Change in commercial paper		—			(375	)
Repayments at maturity or settlement of consumer notes		(684	)		(11	)
Net proceeds from issuance of mandatory convertible preferred stock		556			—
Net proceeds from issuance of shares under public offering		1,600			—
Redemption of preferred stock issued to the U.S. Treasury		(3,400	)		—
Proceeds from issuance of preferred stock and warrants to U.S. Treasury		—			3,400
Net proceeds from issuance of shares under discretionary equity issuance plan		—			14
Proceeds from net issuance of shares under incentive and stock compensation plans and excess tax benefit		14			4
Dividends paid on preferred stock		(64	)		(8	)
Dividends paid on common stock		(40	)		(115	)
Changes in bank deposits and payments on bank advances		(43	)		—

Net cash provided by (used for) financing activities		(1,967	)		2,338
Foreign exchange rate effect on cash		23			(20	)
Net increase in cash		856			747
Cash — beginning of period		2,142			1,811

Cash — end of period	$	2,998		$	2,558

*Supplemental Disclosure of Cash Flow Information*
*Net Cash Paid (Received) During the Period For:*
Income taxes	$	248		$	(468	)
Interest	$	233		$	243

See Notes to Condensed Consolidated Financial Statements

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in millions, except for per share data, unless otherwise stated)

(Unaudited)

1. Basis of Presentation and Accounting Policies

Basis of Presentation

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

The Condensed Consolidated Financial Statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

The accompanying Condensed Consolidated Financial Statements and Notes as of June 30, 2010, and for the three and six months ended June 30, 2010 and 2009 are unaudited. These financial statements reflect all adjustments (consisting only of normal accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in The Hartford’s 2009 Form 10-K Annual Report. The results of operations for the interim periods should not be considered indicative of the results to be expected for the full year.

Consolidation

The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., companies in which the Company directly or indirectly has a controlling financial interest and those variable interest entities in which the Company is required to consolidate. Entities in which the Company has significant influence over the operating and financing decisions but are not required to consolidate are reported using the equity method. Material intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated. For further discussions on variable interest entities see Note 5 and Note 13.

Reclassifications

Certain reclassifications have been made to prior period financial information to conform to the current period classifications.

Use of Estimates

The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report, which should be read in conjunction with these accompanying Condensed Consolidated Financial Statements.

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

1. Basis of Presentation and Accounting Policies (continued)

Adoption of New Accounting Standards

Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) updated the guidance which amends the consolidation requirements applicable to variable interest entities (“VIE”). Under this new guidance, an entity would consolidate a VIE when the entity has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. The FASB also issued an amendment to this guidance in February 2010 which defers application of this guidance to certain entities that apply specialized accounting guidance for investment companies. The Company adopted this guidance on January 1, 2010. As a result of adoption, in addition to those VIEs the Company consolidates under the previous guidance, the Company consolidated a Company sponsored Collateralized Debt Obligation (“CDO”), electing the fair value option, and a Company sponsored Collateralized Loan Obligation, at carrying values carried forward as if the Company had been the primary beneficiary from the date the Company entered into the VIE arrangement. The impact on the Company’s Condensed Consolidated Balance Sheet as a result of adopting this new guidance was an increase in assets of $432, an increase in liabilities of $406, and an increase in January 1, 2010 retained earnings, net of tax, of $26. The Company has investments in mutual funds, limited partnerships and other alternative investments, including hedge funds, mortgage and real estate funds, mezzanine debt funds, and private equity and other funds which may be VIEs. The accounting for these investments will remain unchanged as they fall within the scope of the deferral of this new consolidation guidance. See Note 5 for further discussion.

Future Adoption of New Accounting Standards

Embedded Credit Derivatives

In March 2010, the FASB issued guidance clarifying the scope exception for credit derivatives embedded within structured securities which may result in bifurcation of these credit derivatives. Embedded credit derivatives resulting only from subordination of one financial instrument to another continue to qualify for the exemption. As a result, investments with an embedded credit derivative in a form other than the above mentioned subordination may need to be separately accounted for as an embedded credit derivative meaning that changes in the fair value of the embedded credit derivative are recorded in current period earnings. Upon adoption, an entity may elect the fair value option, with changes in fair value of the investment in its entirety recognized in earnings, rather than bifurcate the embedded credit derivative. The guidance is effective, on a prospective basis only, for fiscal years and interim periods within those fiscal years, beginning on or after June 15, 2010. The Company adopted this guidance on July 1, 2010, and reclassified approximately $200, after-tax, of unrealized capital losses recorded in Accumulated Other Comprehensive Income, to Retained Earnings.

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

1. Basis of Presentation and Accounting Policies (continued)

Income Taxes

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Tax expense (benefit) at U.S. Federal statutory rate	$	(2	)	$	6		$	185		$	(700	)
Tax-exempt interest		(38	)		(38	)		(78	)		(75	)
Dividends received deduction		(40	)		(39	)		(81	)		(79	)
Investment valuation allowance		—			—			86			—
Nondeductible costs associated with warrants		—			103			—			78
Other		(3	)		1			21			1


Income tax expense (benefit)	$	(83	)	$	33		$	133		$	(775	)

The separate account dividends received deduction (“DRD”) is estimated for the current year using information from the prior year-end, adjusted for current year equity market performance and other appropriate factors, including estimated levels of corporate dividend payments. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. Given recent financial markets’ volatility, the Company is reviewing its DRD computations on a quarterly basis.

The Company’s unrecognized tax benefits were unchanged during the six months ended June 30, 2010, remaining at $48 as of June 30, 2010. This entire amount, if it were recognized, would affect the effective tax rate for the applicable periods.

The Company’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”). Audits have been concluded for all years through 2006. The audit of 2007 and 2008 commenced in the second quarter of 2010. In addition, the Company is working with the IRS on a possible settlement of a DRD issue related to prior periods which, if settled, may result in the booking of tax benefits. Such benefits are not expected to be material to the statement of operations.

The Company’s net deferred tax asset as of June 30, 2010 and December 31, 2009 includes a net deferred tax liability of $1,161 and $849, respectively, for the Company’s International subsidiary in Japan.

The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. The deferred tax asset valuation allowance as of June 30, 2010 was approximately $172, which has not materially changed from the first quarter of 2010. In assessing the need for a valuation allowance, management considered future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and taxable income in prior carry back years, as well as tax planning strategies that include holding debt securities with market value losses until recovery, selling appreciated securities to offset capital losses, and sales of certain corporate assets, including subsidiaries. Such tax planning strategies are viewed by management as prudent and feasible and will be implemented if necessary to realize the deferred tax asset. An increase in interest rates can adversely impact the Company’s tax planning strategies and in particular the Company’s ability to utilize tax benefits to offset certain previously recognized realized capital losses.

Also, for the three months ended March 31, 2010, the Company incurred a charge of $19 related to a decrease in deferred tax assets as a result of recent federal legislation that will reduce the tax deduction available to the Company related to retiree health care costs beginning in 2013.

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

2. Earnings (Loss) Per Share

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


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions, except for per share data)	2010		2009			2010			2009

Income (loss)
Net income (loss)	$	76	$	(15	)	$	395		$	(1,224	)
Less: Preferred stock dividends and accretion of discount		11		3			494			3

Net income (loss) available to common shareholders	$	65	$	(18	)	$	(99	)	$	(1,227	)


Common shares
Basic
Weighted average common shares outstanding		443.9		325.4			418.8			323.1

Diluted
Warrants		35.2		—			—			—
Stock compensation plans		1.1		—			—			—

Weighted average shares outstanding and dilutive potential common shares		480.2		325.4			418.8			323.1


Earnings (loss) per common share
Basic	$	0.15	$	(0.06	)	$	(0.24	)	$	(3.80	)
Diluted	$	0.14	$	(0.06	)	$	(0.24	)	$	(3.80	)

On March 23, 2010, The Hartford issued 23 million depositary shares, each representing a 1/40th interest in The Hartford’s 7.25% mandatory convertible preferred stock, Series F. These shares and the related dividend adjustment are included in diluted earnings per share, if dilutive, using the if converted method. For additional information on the mandatory convertible preferred stock see Note 13.

As a result of the net loss in the three months ended June 30, 2009, the Company is required to use basic weighted average common shares outstanding in the calculation of the three months ended June 30, 2009 diluted loss per share, since the inclusion of 0.7 million shares for stock compensation plans calculation and 0.5 million for warrants would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 326.6 million.

For the three months ended June 30, 2010, 20.8 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculation. Assuming the impact of the mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 501.0 million.

As a result of the net loss in the six months ended June 30, 2009, the Company is required to use basic weighted average common shares outstanding in the calculation of the six months ended June 30, 2009 diluted loss per share, since the inclusion of 0.2 million shares for warrants and 0.7 million shares for stock compensation plans would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 324.0 million.

As a result of the net loss available to common shareholders for the six months ended June 30, 2010, the Company is required to use basic weighted average common shares outstanding in the calculation of the six months ended June 30, 2010 diluted loss per share, since the inclusion of 1.2 million shares for stock compensation plans, 34.4 million shares for warrants and 12.1 million shares for mandatory convertible preferred shares, along with the related dividend adjustment, would have been antidilutive to the earnings per share calculation. In the absence of the net loss available to common shareholders and assuming the impact of the mandatory convertible preferred shares was not antidilutive, weighted average common shares outstanding and dilutive potential common shares would have totaled 466.5 million.

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

3. Segment Information

The Hartford is organized into two major operations: Life and Property & Casualty, each containing reporting segments. Within the Life and Property & Casualty operations, The Hartford conducts business principally in eleven reporting segments. Corporate primarily includes the Company’s debt financing and related interest expense, as well as other capital raising activities, banking operations and certain purchase accounting adjustments.

Life

Effective for first quarter 2010 reporting, Life made changes to its segments as described below. Life changed its reporting structure to realign mutual funds businesses into Retirement from Global Annuity — U.S. (formerly the Retail Products Group or “Retail”). In addition, certain fee income and commission expenses associated with sales of non-proprietary products by broker-dealer subsidiaries have been moved from Global Annuity — U.S. to Life Other, with no impact on net income in either Global Annuity — U.S. or Life Other. The impact of these changes on the annual periods presented in The Hartford’s 2009 Annual Report on Form 10-K, which annual periods are not contained in the accompanying interim financial statements, is disclosed in the following tables:


	As Reported in the		Realignment of			Movement of
	2009 Annual Report		Mutual Fund			Non-Proprietary			Segment Results,
Revenues	on Form 10-K		Businesses			Product Results			As Revised
For the year ended December 31, 2009
Global Annuity — U.S. (formerly Retail)	$	2,132	$	(517	)	$	(149	)	$	1,466
Retirement		324		517			—			841
Life Other		58		—			149			207

For the year ended December 31, 2008
Global Annuity — U.S. (formerly Retail)	$	2,753	$	(666	)	$	(150	)	$	1,937
Retirement		338		666			—			1,004
Life Other		60		—			150			210

For the year ended December 31, 2007
Global Annuity — U.S. (formerly Retail)	$	3,055	$	(688	)	$	(140	)	$	2,227
Retirement		242		688			—			930
Life Other		67		—			140			207


	As Reported in the			Realignment of
	2009 Annual Report			Mutual Fund			Segment Results,
Net Income (Loss)	on Form 10-K			Businesses			As Revised
For the year ended December 31, 2009
Global Annuity — U.S. (formerly Retail)	$	(410	)	$	(34	)	$	(444	)
Retirement		(222	)		34			(188	)


For the year ended December 31, 2008
Global Annuity — U.S. (formerly Retail)	$	(1,399	)	$	(37	)	$	(1,436	)
Retirement		(157	)		37			(120	)

For the year ended December 31, 2007
Global Annuity — U.S. (formerly Retail)	$	812		$	(65	)	$	747
Retirement		61			65			126

Life is organized into six reporting segments, Global Annuity — U.S., Global Annuity — International, Retirement, Individual Life, Group Benefits and Institutional.

Global Annuity — U.S. offers individual variable, fixed market value adjusted (“MVA”), and single premium immediate annuities.

Global Annuity — International administers investments, retirement savings and other insurance and savings products to individuals and groups outside the United States. The Company’s Japan operation is the largest component of the Global Annuity — International segment.

Retirement provides products and services to corporations pursuant to Section 401(k) and products and services to municipalities and not-for-profit organizations under Section 457 and 403(b) of the IRS code, as well as Retail mutual funds, Insurance Product mutual funds, Investment-Only mutual funds and 529 college savings plans.

Individual Life sells a variety of life insurance products, including variable universal life, universal life, and term life.

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

3. Segment Information (continued)

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

Institutional, primarily offers institutional liability products, such as variable Private Placement Life Insurance (“PPLI”) owned by corporations and high net worth individuals and stable value products. Institutional continues to service existing customers of its suspended businesses, which includes Leveraged PPLI, structured settlements and institutional annuities (primarily terminal funding cases).

Life includes within its Other category corporate items not directly allocated to any of its reportable operating segments; inter-segment eliminations; the mark-to-mark adjustment for the Global Annuity — International variable annuity assets that are classified as equity securities, trading, reported in net investment income and the related change in interest credited reported as a component of benefits, losses and loss adjustment expenses; and includes certain fee income and commission expenses associated with sales of non-proprietary products by broker-dealer subsidiaries.

Life charges direct operating expenses to the appropriate segment and allocates the majority of indirect expenses to the segments based on an intercompany expense arrangement. Inter-segment revenues primarily occur between Life’s Other category and the reporting segments. These amounts primarily include interest income on allocated surplus and interest charges on excess separate account surplus.

Property & Casualty

Property & Casualty is organized into five reporting segments: the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial (collectively, “Ongoing Operations”); and the Other Operations segment. For the three months ended June 30, 2010 and 2009, AARP members accounted for earned premiums of $716 and $709, respectively, in Personal Lines. For both the six months ended June 30, 2010 and 2009, AARP members accounted for earned premiums of $1.4 billion in Personal Lines.

Through inter-segment arrangements, Specialty Commercial reimburses Personal Lines, Small Commercial and Middle Market for losses incurred from uncollectible reinsurance and losses incurred under certain liability claims. Earned premiums assumed (ceded) under the inter-segment arrangements were as follows:


	Three Months Ended						Six Months Ended
Net assumed (ceded) earned premiums under	June 30,						June 30,
inter-segment arrangements	2010			2009			2010			2009
Personal Lines	$	(2	)	$	(2	)	$	(3	)	$	(3	)
Small Commercial		(4	)		(6	)		(10	)		(12	)
Middle Market		(2	)		(5	)		(7	)		(11	)
Specialty Commercial		8			13			20			26

Total	$	—		$	—		$	—		$	—

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

3. Segment Information (continued)

Financial Measures and Other Segment Information

One of the measures of profit or loss used by The Hartford’s management in evaluating the performance of its Life segments is net income. Net income is also a measure of profit or loss used in evaluating the performance of Ongoing Operations and the Other Operations segment. Within Ongoing Operations, the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial are evaluated by The Hartford’s management primarily based upon underwriting results. Underwriting results represent premiums earned less incurred losses, loss adjustment expenses and underwriting expenses. The sum of underwriting results, net servicing income, net investment income, net realized capital gains and losses, other expenses, and related income taxes is net income (loss).


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Revenues by Product Line	2010			2009			2010			2009
Life
Earned premiums, fees, and other considerations
Global Annuity — U.S.
Variable annuity	$	437		$	314		$	839		$	728
Fixed MVA annuity [1]		1			1			4			—

Total Global Annuity — U.S.		438			315			843			728
Global Annuity — International
Variable annuity		191			183			389			351
Fixed MVA annuity		9			7			17			13
Other		3			8			7			16

Total Global Annuity — International		203			198			413			380
Retirement
401(k)		80			71			156			134
403(b)/457		9			9			20			19
Retail mutual funds		142			120			284			226
Other [2]		32			5			63			7

Total Retirement		263			205			523			386
Individual Life
Variable life		101			109			203			273
Universal life		104			97			209			194
Term / Other life		11			12			24			24

Total Individual Life		216			218			436			491
Group Benefits
Group disability		502			484			1,033			1,014
Group life and accident		514			529			1,026			1,072
Other		58			61			117			126

Total Group Benefits		1,074			1,074			2,176			2,212
Institutional
Institutional investment products		4			81			17			295
PPLI [3]		43			31			83			65

Total Institutional		47			112			100			360
Other		47			51			90			98

Total earned premiums, fees, and other considerations		2,288			2,173			4,581			4,655
Net investment income (loss)
Securities available-for-sale and other		807			739			1,551			1,428
Equity securities, trading		(2,649	)		2,523			(1,948	)		1,799

Total net investment income (loss)		(1,842	)		3,262			(397	)		3,227
Net realized capital gains (losses)		(25	)		(329	)		(261	)		36

Total Life	$	421		$	5,106		$	3,923		$	7,918


[1]		Single premium immediate annuities were transferred from Institutional to Global Annuity — U.S. effective January 1, 2010.

[2]		Includes fee income earned on Insurance Product, Investment-Only and Canadian mutual funds and 529 college savings plan assets under management.

[3]		Includes Leveraged PPLI transferred from Life Other effective January 1, 2010.

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

3. Segment Information (continued)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
Revenues by Product Line (continued)	2010		2009			2010			2009
Property & Casualty
Earned premiums
Ongoing Operations
Personal Lines
Automobile	$	710	$	711		$	1,422		$	1,415
Homeowners		284		274			567			549

Total Personal Lines		994		985			1,989			1,964
Small Commercial
Workers’ compensation		300		292			592			588
Package business		282		281			561			564
Automobile		66		70			132			143

Total Small Commercial		648		643			1,285			1,295
Middle Market
Workers’ compensation		202		218			414			431
Property		130		139			262			285
Automobile		64		74			129			151
Liability		91		107			183			219

Total Middle Market		487		538			988			1,086
Specialty Commercial
Workers’ compensation		71		66			142			131
Property		7		7			15			23
Automobile		21		21			43			43
Liability		44		52			91			110
Fidelity and surety		57		64			113			131
Professional liability		80		101			163			205

Total Specialty Commercial		280		311			567			643

Total Ongoing Operations		2,409		2,477			4,829			4,988
Other Operations		1		1			1			1

Total earned premiums		2,410		2,478			4,830			4,989
Other revenues [1]		120		120			238			238
Net investment income		340		280			649			505
Net realized capital gains (losses)		36		(78	)		(4	)		(401	)

Total Property & Casualty		2,906		2,800			5,713			5,331
Corporate		9		(269	)		19			(218	)

Total revenues	$	3,336	$	7,637		$	9,655		$	13,031


[1]		Represents servicing revenue.

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

3. Segment Information (continued)

The following table presents net income (loss) for each of Life’s reporting segments, total Property & Casualty Ongoing Operations, Property & Casualty Other Operations and Corporate, while underwriting results are presented for the Personal Lines, Small Commercial, Middle Market and Specialty Commercial segments.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Net Income (Loss)	2010			2009			2010			2009
Life
Global Annuity — U.S.	$	(107	)	$	188		$	46		$	(558	)
Global Annuity — International		2			119			25			(174	)
Retirement		37			(36	)		57			(122	)
Individual Life		95			16			111			(2	)
Group Benefits		48			14			99			83
Institutional		(1	)		(66	)		(89	)		(240	)
Other		14			(59	)		25			(69	)

Total Life		88			176			274			(1,082	)
Property & Casualty
Ongoing Operations
Underwriting results
Personal Lines		(73	)		(10	)		(19	)		65
Small Commercial		62			74			145			161
Middle Market		(22	)		56			(10	)		125
Specialty Commercial		111			36			163			59

Total Ongoing Operations underwriting results		78			156			279			410
Net servicing income [1]		10			7			17			15
Net investment income		298			239			566			424
Net realized capital gains (losses)		16			(80	)		(20	)		(369	)
Other expenses		(53	)		(48	)		(107	)		(98	)

Income before income taxes		349			274			735			382
Income tax expense		88			52			236			49

Ongoing Operations		261			222			499			333
Other Operations		(73	)		(49	)		(54	)		(48	)

Total Property & Casualty		188			173			445			285
Corporate		(200	)		(364	)		(324	)		(427	)

Net income (loss)	$	76		$	(15	)	$	395		$	(1,224	)


[1]		Net of expenses related to service business.

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

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

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

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


Level 1		Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds and exchange traded equity securities, open-ended mutual funds reported in separate account assets and derivative securities, including futures and certain option contracts.

Level 2		Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most fixed maturities and preferred stocks, including those reported in separate account assets, are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are derivative instruments that are priced using models with significant observable market inputs, including interest rate, foreign currency and certain credit default swap contracts and have no significant unobservable market inputs.

Level 3		Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities such as highly structured and/or lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), residential mortgage-backed securities (“RMBS”) primarily backed by below- prime loans, and private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivative securities, including customized guaranteed minimum withdrawal benefit (“GMWB”) hedging derivatives (see Note 4a for further information on GMWB product related financial instruments), equity derivatives, long dated derivatives, swaps with optionality, certain complex credit derivatives and certain other liabilities. Because Level 3 fair values, by their nature, contain unobservable market inputs as there is little or no observable market for these assets and liabilities, considerable judgment is used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges.

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

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

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

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


	June 30, 2010
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	3,012		$	—	$	2,464		$	548
CDOs		2,824			—		46			2,778
CMBS		8,719			—		8,067			652
Corporate		38,834			—		30,018			8,816
Foreign government/government agencies		1,716			—		1,665			51
States, municipalities and political subdivisions (“Municipal”)		12,516			—		12,199			317
RMBS		4,772			—		3,306			1,466
U.S. Treasuries		4,739			1,410		3,329			—

Total fixed maturities, AFS		77,132			1,410		61,094			14,628
Equity securities, trading		30,183			2,101		28,082			—
Equity securities, AFS		1,103			301		722			80
Derivative assets
Credit derivatives		(30	)		—		2			(32	)
Equity derivatives		(1	)		—		—			(1	)
Foreign exchange derivatives		463			—		463			—
Interest rate derivatives		66			—		82			(16	)
Other derivative contracts		35			—		—			35

Total derivative assets [1]		533			—		547			(14	)
Short-term investments		8,731			1,853		6,878			—
Separate account assets [2]		139,472			103,518		35,017			937

Total assets accounted for at fair value on a recurring basis	$	257,154		$	109,183	$	132,340		$	15,631

Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Institutional notes	$	2		$	—	$	—		$	2
Equity linked notes		(7	)		—		—			(7	)

Total other policyholder funds and benefits payable		(5	)		—		—			(5	)
Derivative liabilities
Credit derivatives		(558	)		—		(57	)		(501	)
Equity derivatives		1			—		—			1
Foreign exchange derivatives		(47	)		—		(47	)		—
Interest rate derivatives		(160	)		—		(127	)		(33	)

Total derivative liabilities [3]		(764	)		—		(231	)		(533	)
Other liabilities		(16	)		—		—			(16	)
Consumer notes [4]		(4	)		—		—			(4	)

Total liabilities accounted for at fair value on a recurring basis	$	(789	)	$	--	$	(231	)	$	(558	)


[1]		Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. As of June 30, 2010, $1.5 billion of a cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities.

[2]		As of June 30, 2010, excludes approximately $15 billion of investment sales receivable that are not subject to fair value accounting.

[3]		Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.

[4]		Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.

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

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


	December 31, 2009
				Quoted Prices
				in Active		Significant		Significant
				Markets for		Observable		Unobservable
				Identical Assets		Inputs		Inputs
	Total			(Level 1)		(Level 2)		(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,523		$	—	$	1,943	$	580
CDOs		2,892			—		57		2,835
CMBS		8,544			—		8,237		307
Corporate		35,243			—		27,216		8,027
Foreign government/government agencies		1,408			—		1,315		93
Municipal		12,065			—		11,803		262
RMBS		4,847			—		3,694		1,153
U.S. Treasuries		3,631			526		3,105		—

Total fixed maturities, AFS		71,153			526		57,370		13,257
Equity securities, trading		32,321			2,443		29,878		—
Equity securities, AFS		1,221			259		904		58
Derivative assets [1]		178			—		97		81
Short-term investments		10,357			6,846		3,511		—
Separate account assets [2]		147,432			112,877		33,593		962

Total assets accounted for at fair value on a recurring basis	$	262,662		$	122,951	$	125,353	$	14,358


Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Institutional notes	$	(2	)	$	—	$	—	$	(2	)
Equity linked notes		(10	)		—		—		(10	)

Total other policyholder funds and benefits payable		(12	)		—		—		(12	)
Derivative liabilities [3]		(214	)		—		56		(270	)
Consumer notes [4]		(5	)		—		—		(5	)

Total liabilities accounted for at fair value on a recurring basis	$	(231	)	$	—	$	56	$	(287	)


[1]		Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. As of December 31, 2009, $149 of a cash collateral liability was netted against the derivative asset value in the Condensed Consolidated Balance Sheet and is excluded from the table above. See footnote 3 below for derivative liabilities.

[2]		As of December 31, 2009, excludes approximately $3 billion of investment sales receivable that are not subject to fair value accounting.

[3]		Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll-forward table included below in this Note 4, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.

[4]		Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.

Determination of fair values

The valuation methodologies used to determine the fair values of assets and liabilities under the “exit price” notion reflect market-participant objectives and are based on the application of the fair value hierarchy that prioritizes relevant observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices where available and where prices represent a reasonable estimate of fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s default spreads, liquidity and, where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above tables.

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

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

Available-for-Sale Securities, Equity Securities, Trading, and Short-term Investments

The fair value of AFS securities, equity securities, trading, and short-term investments in an active and orderly market (e.g. not distressed or forced liquidation) is determined by management after considering one of three primary sources of information: third-party pricing services, independent broker quotations or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third-party pricing services, the remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third-party pricing services will normally derive the security prices from recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the third-party pricing services and independent brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of ABS and RMBS are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. Actual prepayment experience may vary from these estimates.

Prices from third-party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding. A pricing matrix is used to price securities for which the Company is unable to obtain either a price from a third-party pricing service or an independent broker quotation, by discounting the expected future cash flows from the security by a developed market discount rate utilizing current credit spreads. Credit spreads are developed each month 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 Company performs a monthly analysis of the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. As a part of this analysis, the Company considers trading volume and other factors to determine whether the decline in market activity is significant when compared to normal activity in an active market, and if so, whether transactions may not be orderly considering the weight of available evidence. If the available evidence indicates that pricing is based upon transactions that are stale or not orderly, the Company places little, if any, weight on the transaction price and will estimate fair value utilizing an internal pricing model. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of third-party pricing services’ methodologies, review of pricing statistics and trends, back testing recent trades, and monitoring of trading volumes, new issuance activity and other market activities. In addition, the Company ensures that prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company’s internal pricing model utilizes the Company’s best estimate of expected future cash flows discounted at a rate of return that a market participant would require. The significant inputs to the model include, but are not limited to, current market inputs, such as credit loss assumptions, estimated prepayment speeds and market risk premiums.

The Company has analyzed the third-party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Most prices provided by third-party pricing services are classified into Level 2 because the inputs used in pricing the securities are market observable. Due to a general lack of transparency in the process that brokers use to develop prices, most valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated. Internal matrix priced securities, primarily consisting of certain private placement securities, are also classified as Level 3 due to significant non-observable inputs.

Derivative Instruments, including embedded derivatives within investments

Derivative instruments are fair valued using pricing valuation models; that utilize independent market data inputs, quoted market prices for exchange-traded derivatives, or independent broker quotations. Excluding embedded and reinsurance related derivatives, as of June 30, 2010 and December 31, 2009, 98% and 97%, respectively, of derivatives, based upon notional values, were priced by valuation models or quoted market prices. The remaining derivatives were priced by broker quotations. The Company performs a monthly analysis on derivative valuations which includes both quantitative and qualitative analysis. Examples of procedures performed include, but are not limited to, review of pricing statistics and trends, back testing recent trades, analyzing the impacts of changes in the market environment, and review of changes in market value for each derivative including those derivatives priced by brokers.

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

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

The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified with the same fair value hierarchy level as the associated assets and liabilities. Therefore the realized and unrealized gains and losses on derivatives reported in Level 3 may not reflect the offsetting impact of the realized and unrealized gains and losses of the associated assets and liabilities.

Valuation techniques and inputs for investments

Generally, the Company determines the estimated fair value of its AFS securities and short-term investments using the market approach. The income approach is used for securities priced using a pricing matrix, as well as for derivative instruments. For Level 1 investments, which are comprised of U.S. Treasuries, equity securities, short-term investments, and exchange traded futures and option contracts, valuations are based on observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date.

For most of the Company’s debt securities, the following inputs are typically used in the Company’s pricing methods: reported trades, benchmark yields, bids, offers and/or estimated cash flows. For securities except U.S. Treasuries, inputs also include issuer spreads, which may utilize credit default swaps. Derivative instruments are valued using mid-market inputs that are predominantly observable in the market.

A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is listed below:


Level 2		The fair values of most of the Company’s Level 2 investments are determined by management after considering prices received from third party pricing services. These investments include most fixed maturities and preferred stocks, including those reported in separate account assets.

•

ABS, CDOs, CMBS and RMBS — Primary inputs also include monthly payment information, collateral performance, which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral refinancing assumptions, credit default swap indices and, for RMBS, estimated prepayment rates.

•

Corporates - Primary inputs also include observations of equity and credit default swap curves related to the issuer.

•

Foreign government/government agencies - Primary inputs also include observations of equity and credit default swap curves related to the issuer and political events in emerging markets.

•

Municipals - Primary inputs also include Municipal Securities Rulemaking Board reported trades and material event notices, and issuer financial statements.

•

Short-term investments — Primary inputs also include material event notices and new issue money market rates.

•

Equity securities, trading — Consist of investments in mutual funds. Primary inputs include net asset values obtained from third party pricing services.

•

Credit derivatives- Significant inputs primarily include the swap yield curve and credit curves.

•

Foreign exchange derivatives- Significant inputs primarily include the swap yield curve, currency spot and forward rates, and cross currency basis curves.

•

Interest rate derivatives- Significant input is primarily the swap yield curve.


Level 3		Most of the Company’s securities classified as Level 3 are valued based on brokers’ prices. Certain long-dated securities are priced based on third party pricing services, including municipal securities and foreign government/government agencies, as well as bank loans. Primary inputs for these long-dated securities are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest rate or credit spread assumptions that are not observable in the marketplace. Also included in Level 3 are certain derivative instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above, but also may include the following:

•

Credit derivatives- Significant unobservable inputs may include credit correlation and swap yield curve and credit curve extrapolation beyond observable limits.

•

Equity derivatives — Significant unobservable inputs may include equity volatility.

•

Interest rate contracts — Significant unobservable inputs may include swap yield curve extrapolation beyond observable limits and interest rate volatility.

Separate Account Assets

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security, and short-term investments of the Company.

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The tables below provide fair value roll forwards for the three and six months ending June 30, 2010 and 2009, for the financial instruments classified as Level 3, excluding those related to the Company’s living benefits and associated hedging programs, which are reported in Note 4a.

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the three months ended June 30, 2010


																					Changes in unrealized
	Fair value			Total realized/unrealized					Purchases,									Fair value			gains (losses) included in
	as of			gains (losses) included in:					issuances,			Transfers			Transfers			as of			net income related to
	March 31,			Net					and			in to			out of			June 30,			financial instruments still
Asset (Liability)	2010			income [1]			OCI [2]		settlements			Level 3 [3]			Level 3 [3]			2010			held at June 30, 2010 [1]
Assets
Fixed maturities, AFS
ABS	$	533		$	(3	)	$	15	$	(13	)	$	28		$	(12	)	$	548		$	(4	)
CDO		2,749			(22	)		105		(48	)		11			(17	)		2,778			(28	)
CMBS		442			(42	)		189		(17	)		139			(59	)		652			(39	)
Corporate		8,612			6			103		61			174			(140	)		8,816			2
Foreign govt./govt. agencies		59			—			—		(2	)		—			(6	)		51			—
Municipal		322			—			16		(21	)		—			—			317			—
RMBS		1,174			(21	)		75		238			—			—			1,466			(16	)

Total fixed maturities, AFS		13,891			(82	)		503		198			352			(234	)		14,628			(85	)
Equity securities, AFS		65			(1	)		2		8			6			—			80			(4	)
Freestanding derivatives
Credit derivatives		(491	)		(47	)		—		5			—			—			(533	)		(47	)
Equity derivatives		(1	)		1			—		—			—			—			—			1
Interest rate derivatives		(6	)		1			—		(44	)		—			—			(49	)		(20	)
Other derivative contracts		35			—			—		—			—			—			35			—

Total freestanding derivatives [4]		(463	)		(45	)		—		(39	)		—			—			(547	)		(66	)
Separate accounts [5]		955			(2	)		—		5			(2	)		(19	)		937			9


Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(7	)	$	9		$	—	$	—		$	—		$	—		$	2		$	9
Equity linked notes		(9	)		2			—		—			—			—			(7	)		2

Total other policyholder funds and benefits payable		(16	)		11			—		—			—			—			(5	)		11
Other liabilities		(22	)		6			—		—			—			—			(16	)		—
Consumer notes		(5	)		1			—		—			—			—			(4	)		1


[1]		All amounts in these columns are reported in net realized capital gains (losses) except for less than $1, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of deferred policy acquisition costs and present value of future profits (“DAC”).

[2]		OCI refers to “Other comprehensive income” in the Condensed Consolidated Statement of Comprehensive Income. All amounts are before income taxes and amortization of DAC.

[3]		Transfers in and/or (out) of Level 3 are primarily attributable to changes in the availability of market observable information and re-evaluation of the observability of pricing inputs.

[4]		Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[5]		The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

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

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

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the six months ended June 30, 2010


																					Changes in unrealized
	Fair value			Total realized/unrealized					Purchases,									Fair value			gains (losses) included in
	as of			gains (losses) included in:					issuances,			Transfers			Transfers			as of			net income related to
	January 1,			Net					and			in to			out of			June 30,			financial instruments still
Asset (Liability)	2010			income [1]			OCI [2]		settlements			Level 3 [3]			Level 3 [3]			2010			held at June 30, 2010 [1]
Assets
Fixed maturities, AFS
ABS	$	580		$	(3	)	$	43	$	(23	)	$	28		$	(77	)	$	548		$	(4	)
CDO		2,835			(85	)		320		(67	)		27			(252	)		2,778			(91	)
CMBS		307			(114	)		275		(23	)		266			(59	)		652			(110	)
Corporate		8,027			8			232		277			510			(238	)		8,816			2
Foreign govt./govt. agencies		93			—			2		(8	)		6			(42	)		51			—
Municipal		262			—			34		25			—			(4	)		317			—
RMBS		1,153			(34	)		164		206			—			(23	)		1,466			(29	)

Total fixed maturities, AFS		13,257			(228	)		1,070		387			837			(695	)		14,628			(232	)
Equity securities, AFS		58			(2	)		9		9			6			—			80			(5	)
Freestanding derivatives
Credit derivatives		(228	)		(20	)		—		5			(290	)		—			(533	)		(20	)
Equity derivatives		(2	)		2			—		—			—			—			—			2
Interest rate derivatives		5			1			—		(44	)		—			(11	)		(49	)		(20	)
Other derivative contracts		36			(1	)		—		—			—			—			35			(1	)

Total freestanding derivatives [4]		(189	)		(18	)		—		(39	)		(290	)		(11	)		(547	)		(39	)
Separate accounts [5]		962			16			—		82			4			(127	)		937			13


Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(2	)	$	4		$	—	$	—		$	—		$	—		$	2		$	4
Equity linked notes		(10	)		3			—		—			—			—			(7	)		3

Total other policyholder funds and benefits payable		(12	)		7			—		—			—			—			(5	)		7
Other liabilities		—			(5	)		—		—			(11	)		—			(16	)		—
Consumer notes		(5	)		1			—		—			—			—			(4	)		1


[1]		All amounts in these columns are reported in net realized capital gains (losses) except for less than $1, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of DAC.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		Transfers in and/or (out) of Level 3 are primarily attributable to changes in the availability of market observable information and re-evaluation of the observability of pricing inputs. Transfers in also include the consolidation of additional VIEs due to the adoption of new accounting guidance on January 1, 2010, as well as the election of fair value option for one of these VIEs.

[4]		Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[5]		The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

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

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

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the three months ended June 30, 2009


																			Changes in unrealized
																			gains (losses)
	Fair value			Total realized/unrealized						Purchases,									included in net income
	as of			gains (losses) included in:						issuances,			Transfers in			Fair value			related to financial
	March 31,			Net income						and			and/or (out)			as of			instruments still held at
Asset (Liability)	2009			[1]			OCI [2]			settlements			of Level 3 [3]			June 30, 2009			June 30, 2009 [1]
Assets
Fixed maturities, AFS
ABS	$	544		$	(7	)	$	75		$	(29	)	$	(81	)	$	502		$	(8	)
CDO		2,422			(73	)		246			(33	)		—			2,562			(94	)
CMBS		188			(35	)		47			(4	)		2			198			(26	)
Corporate		6,597			6			427			(36	)		(464	)		6,530			(26	)
Foreign govt./govt. agencies		65			—			4			(1	)		—			68			—
Municipal		180			—			—			(13	)		47			214			—
RMBS		1,278			(51	)		(34	)		157			3			1,353			(85	)

Total fixed maturities, AFS		11,274			(160	)		765			41			(493	)		11,427			(239	)
Equity securities, AFS		510			—			74			2			(358	)		228			—
Freestanding derivatives [4]		(380	)		85			(5	)		21			(3	)		(282	)		91
Separate accounts [5]		639			—			—			23			11			673			12


Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(25	)	$	27		$	—		$	—		$	—		$	2		$	27
Equity linked notes		(5	)		(1	)		—			—			—			(6	)		(1	)

Total other policyholder funds and benefits payable		(30	)		26			—			—			—			(4	)		26
Consumer notes		(4	)		—			—			—			—			(4	)		—


[1]		All amounts in these columns are reported in net realized capital gains/losses except for $1 for the three months ended June 30, 2009, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization DAC.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information and re-evaluation of the observability of pricing inputs.

[4]		Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[5]		The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

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

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

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3) for the six months ended June 30, 2009


																			Changes in unrealized
																			gains (losses)
	Fair value			Total realized/unrealized						Purchases,									included in net income
	as of			gains (losses) included in:						issuances,			Transfers in			Fair value			related to financial
	January 1,			Net income						and			and/or (out)			as of			instruments still held at
Asset (Liability)	2009			[1]			OCI [2]			settlements			of Level 3 [3]			June 30, 2009			June 30, 2009 [1]
Assets
Fixed maturities, AFS
ABS	$	536		$	(9	)	$	36		$	1		$	(62	)	$	502		$	(8	)
CDO		2,612			(95	)		98			(53	)		—			2,562			(94	)
CMBS		341			(48	)		28			(8	)		(115	)		198			(26	)
Corporate		6,396			(60	)		407			198			(411	)		6,530			(26	)
Foreign govt./govt. agencies		100			—			(2	)		(10	)		(20	)		68			—
Municipal		163			—			(7	)		(13	)		71			214			—
RMBS		1,662			(169	)		(244	)		101			3			1,353			(85	)

Total fixed maturities, AFS		11,810			(381	)		316			216			(534	)		11,427			(239	)
Equity securities, AFS		541			(1	)		(1	)		(2	)		(309	)		228			—
Freestanding derivatives [4]		(281	)		(5	)		(10	)		20			(6	)		(282	)		9
Separate accounts [5]		786			(122	)		—			110			(101	)		673			(73	)


Liabilities
Other policyholder funds and benefits payable
Institutional notes	$	(41	)	$	43		$	—		$	—		$	—		$	2		$	43
Equity linked notes		(8	)		2			—			—			—			(6	)		2

Total other policyholder funds and benefits payable		(49	)		45			—			—			—			(4	)		45
Other derivative liabilities [6]		(163	)		70			—			93			—			—			—
Consumer notes		(5	)		1			—			—			—			(4	)		1


[1]		All amounts in these columns are reported in net realized capital gains (losses) except for $2 for the six months ended June 30, 2009, which is reported in benefits, losses and loss adjustment expenses. All amounts are before income taxes and amortization of DAC.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		Transfers in and/or (out) of Level 3 are attributable to a change in the availability of market observable information and re-evaluation of the observability of pricing inputs.

[4]		Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[5]		The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company.

[6]		On March 26, 2009, certain of the Allianz warrants were reclassified to equity, at their current fair value, as shareholder approval of the conversion of these warrants to common shares was received. See Note 21 of the Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report for further discussion.

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

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

Fair Value Option

The Company elected the fair value option for one of its consolidated VIEs in order to employ a consistent accounting model for the VIE’s assets and liabilities. The fair value option requires the VIE’s assets and liabilities to be reported in the Company’s Condensed Consolidated Balance Sheets at fair value with the changes in fair value reported in net realized capital gains and losses in the Company’s Condensed Consolidated Statements of Operations. The VIE is an investment vehicle that holds high quality investments, derivative instruments that references third-party corporate credit and issues notes to investors that reflect the credit characteristics of the high quality investments and derivative instruments. The risks and rewards associated with the assets of the VIE inure to the investors. The investors have no recourse against the Company. As a result, there has been no adjustment to the market value of the notes for the Company’s own credit risk.

The following table presents the gains and losses recorded for those assets and liabilities accounted for using the fair value option:


	Three Months Ended			Six Months Ended
	June 30, 2010			June 30, 2010
Assets
Fixed maturities
ABS	$	1		$	2
Corporate		(4	)		(4	)
Other liabilities
Credit-linked notes		6			(5	)

Total realized capital gains (losses)	$	3		$	(7	)

Included in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2010, are high quality investments of $328 in fixed maturities, and other liabilities comprised of derivative instruments of $293 and notes at fair value of $16 with an outstanding principal balance of $243. Electing the fair value option resulted in lowering other liabilities with an offsetting impact to the cumulative effect adjustment to retained earnings of $232, representing the difference between the fair value and outstanding principal of the notes as of January 1, 2010.

Financial Instruments Not Carried at Fair Value

The following table presents carrying amounts and fair values of The Hartford’s financial instruments not carried at fair value and not included in the above fair value discussion as of June 30, 2010 and December 31, 2009.


	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets
Policy loans	$	2,182	$	2,342	$	2,174	$	2,321
Mortgage loans		4,673		4,499		5,938		5,091


Liabilities
Other policyholder funds and benefits payable [1]	$	11,532	$	11,771	$	12,330	$	12,513
Senior notes [2]		4,879		4,906		4,054		4,037
Junior subordinated debentures [2]		1,721		2,225		1,717		2,338
Consumer notes [3]		448		466		1,131		1,194


[1]		Excludes guarantees on variable annuities, group accident and health and universal life insurance contracts, including corporate owned life insurance.

[2]		Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are included in short-term debt.

[3]		Excludes amounts carried at fair value and included in disclosures above.

As of June 30, 2010 and December 31, 2009, included in other liabilities in the Condensed Consolidated Balance Sheets are carrying amounts of $248 and $273, respectively, for deposits and $60 and $78, respectively, for Federal Home Loan Bank advances related to Federal Trust Corporation. These carrying amounts approximate fair value.

The Company has not made any changes in its valuation methodologies for the following assets and liabilities since December 31, 2009.

•

Fair value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates.

•

Fair values for mortgage loans were estimated using discounted cash flow calculations based on current lending rates for similar type loans. Current lending rates reflect changes in credit spreads and the remaining terms of the loans.

•

Fair values for other policyholder funds and benefits payable, not carried at fair value, are determined by estimating future cash flows, discounted at the current market rate.

•

Fair values for senior notes and junior subordinated debentures are based primarily on market quotations from independent third-party pricing services.

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

4a. Fair Value Measurements — Guaranteed Living Benefits

These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments related to variable annuity product guaranteed living benefits and the related variable annuity hedging program and information about the inputs used to value those financial instruments to allow users to assess the relative reliability of the measurements. The following tables present assets and (liabilities) related to the guaranteed living benefits program carried at fair value by hierarchy level.


	June 30, 2010
				Quoted Prices
				in Active			Significant			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
	Total			(Level 1)			(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Variable annuity hedging derivatives	$	870		$	—		$	(48	)	$	918
Macro hedge program		833			4			187			642
Reinsurance recoverable for U.S. GMWB		550			—			—			550

Total assets accounted for at fair value on a recurring basis	$	2,253		$	4		$	139		$	2,110


Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
U.S. guaranteed withdrawal benefits	$	(3,148	)	$	—		$	—		$	(3,148	)
International guaranteed withdrawal benefits		(72	)		—			—			(72	)
International other guaranteed living benefits		(1	)		—			—			(1	)
Variable annuity hedging derivatives		(33	)		—			(43	)		10
Macro hedge program		20			(1	)		—			21

Total liabilities accounted for at fair value on a recurring basis	$	(3,234	)	$	(1	)	$	(43	)	$	(3,190	)


	December 31, 2009
				Quoted Prices
				in Active			Significant			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
	Total			(Level 1)			(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Variable annuity hedging derivatives	$	9		$	—		$	—		$	9
Macro hedge program		203			8			16			179
Reinsurance recoverable for U.S. GMWB		347			—			—			347

Total assets accounted for at fair value on a recurring basis	$	559		$	8		$	16		$	535


Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
U.S. guaranteed withdrawal benefits	$	(1,957	)	$	—		$	—		$	(1,957	)
International guaranteed withdrawal benefits		(45	)		—			—			(45	)
International other guaranteed living benefits		2			—			—			2
Variable annuity hedging derivatives		43			—			(184	)		227
Macro hedge program		115			(2	)		6			111

Total liabilities accounted for at fair value on a recurring basis	$	(1,842	)	$	(2	)	$	(178	)	$	(1,662	)

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

4a. Fair Value Measurements — Guaranteed Living Benefits (continued)

Product Derivatives

The Company currently offers certain variable annuity products with GMWB riders in the U.S., and formerly offered such products in the U.K. and Japan. The GMWB represents an embedded derivative in the variable annuity contract. 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, is carried at fair value, with changes in fair value reported in net realized capital gains and losses. The Company’s GMWB liability is reported in other policyholder funds and benefits payable in the Condensed Consolidated Balance Sheets.

In valuing the embedded derivative, the Company attributes to the derivative a portion of the expected fees to be collected over the expected life of the contract from the contract holder equal to the present value of future GMWB claims (the “Attributed Fees”). The excess of fees collected from the contract holder in the current period over the current period’s Attributed Fees are associated with the host variable annuity contract and reported in fee income.

U.S. GMWB Reinsurance Derivative

The Company has reinsurance arrangements in place to transfer a portion of its risk of loss due to GMWB. These arrangements are recognized as derivatives and carried at fair value in reinsurance recoverables. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses.

The fair value of the U.S. GMWB reinsurance derivative is calculated as an aggregation of the components described in the Living Benefits Required to be Fair Valued discussion below and is modeled using significant unobservable policyholder behavior inputs, identical to those used in calculating the underlying liability, such as lapses, fund selection, resets and withdrawal utilization and risk margins.

Living Benefits Required to be Fair Valued (in Other Policyholder Funds and Benefits Payable)

Fair values for GMWB and guaranteed minimum accumulation benefit (“GMAB”) contracts are calculated using the income approach based upon internally developed models because active, observable markets do not exist for those items. The fair value of the Company’s guaranteed benefit liabilities, classified as embedded derivatives, and the related reinsurance and customized freestanding derivatives is calculated as an aggregation of the following components: Best Estimate Claim Payments; Credit Standing Adjustment; and Margins. The resulting aggregation is reconciled or calibrated, if necessary, to market information that is, or may be, available to the Company, but may not be observable by other market participants, including reinsurance discussions and transactions. The Company believes the aggregation of these components, as necessary and as reconciled or calibrated to the market information available to the Company, results in an amount that the Company would be required to transfer or receive, for an asset, to or from market participants in an active liquid market, if one existed, for those market participants to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. The fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. In the absence of any transfer of the guaranteed benefit liability to a third party, the release of risk margins is likely to be reflected as realized gains in future periods’ net income. Each component described below is unobservable in the marketplace and requires subjectivity by the Company in determining their value.

Best Estimate Claim Payments

The Best Estimate Claim Payments is calculated based on actuarial and capital market assumptions related to projected cash flows, including the present value of benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior such as lapses, fund selection, resets and withdrawal utilization. For the customized derivatives, policyholder behavior is prescribed in the derivative contract. Because of the dynamic and complex nature of these cash flows, best estimate assumptions and a Monte Carlo stochastic process is used in valuation. The Monte Carlo stochastic process involves the generation of thousands of scenarios that assume risk neutral returns consistent with swap rates and a blend of observable implied index volatility levels. Estimating these cash flows involves numerous estimates and subjective judgments regarding a number of variables — including expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and assumptions about policyholder behavior which emerge over time.

At each valuation date, the Company assumes expected returns based on:

•

risk-free rates as represented by the Eurodollar futures, LIBOR deposits and swap rates to derive forward curve rates;

•

market implied volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility” data;

•

correlations of historical returns across underlying well known market indices based on actual observed returns over the ten years preceding the valuation date; and

•

three years of history for fund indexes compared to separate account fund regression.

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

4a. Fair Value Measurements — Guaranteed Living Benefits (continued)

As many guaranteed benefit obligations are relatively new in the marketplace, actual policyholder behavior experience is limited. As a result, estimates of future policyholder behavior are subjective and based on analogous internal and external data. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model.

On a daily basis, the Company updates capital market assumptions used in the GMWB liability model such as interest rates and equity indices. On a weekly basis, the blend of implied equity index volatilities is updated. The Company continually monitors various aspects of policyholder behavior and may modify certain of its assumptions, including living benefit lapses and withdrawal rates, if credible emerging data indicates that changes are warranted. At a minimum, all policyholder behavior assumptions are reviewed and updated, as appropriate, in conjunction with the completion of the Company’s comprehensive study to refine its estimate of future gross profits during the third quarter of each year.

Credit Standing Adjustment

This assumption makes an adjustment that market participants would make, in determining fair value, to reflect the risk that guaranteed benefit obligations or the GMWB reinsurance recoverables will not be fulfilled (“nonperformance risk”). As a result of sustained volatility in the Company’s credit default spreads, during 2009 the Company changed its estimate of the Credit Standing Adjustment to incorporate a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. Prior to the first quarter of 2009, the Company calculated the Credit Standing Adjustment by using default rates published by rating agencies, adjusted for market recoverability. The credit standing adjustment assumption, net of reinsurance, resulted in pre-tax realized gains of $22 and $11, for the three months ended June 30, 2010 and 2009, respectively, and $29 and $233 for the six months ended June 30, 2010 and 2009, respectively.

Margins

The behavior risk margin adds a margin that market participants would require, in determining fair value, for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The behavior risk margin is calculated by taking the difference between adverse policyholder behavior assumptions and best estimate assumptions.

Assumption updates, including policyholder behavior assumptions, affected best estimates and margins for a total pre-tax realized gain of $0 and $118 for the three months ended June 30, 2010 and 2009, respectively and $0 and $432 for the six months ended June 30, 2010 and 2009, respectively.

In addition to the non-market-based updates described above, the Company recognized non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices resulting in pre-tax realized gains of approximately $15 and $239, for the three months ended June 30, 2010 and 2009, respectively, and $42 and $391 for the six months ended June 30, 2010 and 2009, respectively.

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

4a. Fair Value Measurements — Guaranteed Living Benefits (continued)

The tables below provide fair value roll forwards for the three and six months ended June 30, 2010 and 2009, for the financial instruments related to the Guaranteed Living Benefits Program classified as Levels 1, 2 and 3.

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the three months ended June 30, 2010


																				Changes in unrealized
																				gains (losses) included
	Fair value			Total realized/unrealized						Purchases,							Fair value			in net income related to
	as of			gains (losses) included in:						issuances,			Transfers		Transfers		as of			financial instruments
	March 31,			Net income						and			in to		out of		June 30,			still held at
Asset (liability)	2010			[1] [2] [6]			OCI [2]			settlements [3]			Level 3		Level 3		2010			June 30, 2010 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	(166	)	$	208		$	—		$	(133	)	$	—	$	—	$	(91	)		[4]
Level 3		311			617			—			—			—		—		928		$	617

Total variable annuity hedging derivatives		145			825			—			(133	)		—		—		837
Reinsurance recoverable for GMWB		295			246			—			9			—		—		550			246
U.S. guaranteed withdrawal benefits — Level 3		(1,655	)		(1,458	)		—			(35	)		—		—		(3,148	)		(1,458	)
International guaranteed withdrawal benefits — Level 3		(31	)		(39	)		(1	)		(1	)		—		—		(72	)		(39	)

Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(1,246	)		(426	)		(1	)		(160	)		—		—		(1,833	)

Macro hedge program [5]
Levels 1 and 2		54			117			—			19			—		—		190			[4]
Level 3		151			280			—			232			—		—		663			300

Total macro hedge program		205			397			—			251			—		—		853

International other guaranteed living benefits — Level 3		4			(5	)		—			—			—		—		(1	)		(5	)


[1]		The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.

[4]		Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.

[5]		The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[6]		Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

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

4a. Fair Value Measurements — Guaranteed Living Benefits Program (continued)

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the six months ended June 30, 2010


																			Changes in unrealized
																			gains (losses) included
	Fair value			Total realized/unrealized					Purchases,							Fair value			in net income related to
	as of			gains (losses) included in:					issuances,			Transfers		Transfers		as of			to financial instruments
	January 1,			Net income					And			in to		out of		June 30,			still held at
Asset (liability)	2010			[1] [2] [6]			OCI [2]		Settlements [3]			Level 3		Level 3		2010			June 30, 2010 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	(184	)	$	123		$	—	$	(30	)	$	—	$	—	$	(91	)		[4]
Level 3		236			539			—		153			—		—		928		$	502

Total variable annuity hedging derivatives		52			662			—		123			—		—		837
Reinsurance recoverable for GMWB		347			185			—		18			—		—		550			185
U.S. guaranteed withdrawal benefits — Level 3		(1,957	)		(1,120	)		—		(71	)		—		—		(3,148	)		(1,120	)
International guaranteed withdrawal benefits — Level 3		(45	)		(24	)		—		(3	)		—		—		(72	)		(24	)

Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(1,603	)		(297	)		—		67			—		—		(1,833	)

Macro hedge program [5]
Levels 1 and 2		28			92			—		70			—		—		190			[4]
Level 3		290			141			—		232			—		—		663			161

Total macro hedge program		318			233			—		302			—		—		853

International other guaranteed living benefits — Level 3		2			(2	)		—		(1	)		—		—		(1	)		(2	)


[1]		The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.

[4]		Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.

[5]		The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[6]		Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

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

4a. Fair Value Measurements — Guaranteed Living Benefits Program (continued)

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the three months ended June 30, 2009


																		Changes in unrealized
																		gains (losses)
	Fair value			Total realized/unrealized						Purchases,					Fair value			included in net income
	as of			gains (losses) included in:						issuances,			Transfers in		as of			related to financial
	March 31,			Net income						and			and/or (out)		June 30,			instruments still held at
Asset (Liability)	2009			[1] [2] [6]			OCI [2]			settlements [3]			of Level 3		2009			June 30, 2009 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	(57	)	$	(503	)	$	—		$	393		$	—	$	(167	)		[4]
Level 3		2,379			(1,015	)		—			(342	)		—		1,022		$	(947	)

Total variable annuity hedging derivatives		2,322			(1,518	)		—			51			—		855
Reinsurance recoverable for GMWB		1,058			(433	)		—			7			—		632			(433	)
U.S. guaranteed withdrawal benefits — Level 3		(5,829	)		2,572			—			(32	)		—		(3,289	)		2,573
International guaranteed withdrawal benefits — Level 3		(98	)		50			(7	)		(2	)		—		(57	)		52

Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(2,547	)		671			(7	)		24			—		(1,859	)

Macro hedge program [5]
Levels 1 and 2		24			(382	)		—			386			—		28			[4]
Level 3		173			(186	)		—			126			—		113			(186	)

Total macro hedge program		197			(568	)		—			512			—		141

International other guaranteed living benefits — Level 3		(3	)		6			—			(1	)		—		2			3


[1]		The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.

[4]		Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.

[5]		The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[6]		Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

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

4a. Fair Value Measurements — Guaranteed Living Benefits Program (continued)

Roll-forward of Financial Instruments related to the Guaranteed Living Benefits Program Measured at Fair Value on a Recurring Basis for the six months ended June 30, 2009


																		Changes in unrealized
																		gains (losses)
	Fair value			Total realized/unrealized						Purchases,					Fair value			included in net income
	as of			gains (losses) included in:						issuances,			Transfers in		as of			related to financial
	January 1,			Net income						and			and/or (out)		June 30,			instruments still held at
Asset (Liability)	2009			[1] [2] [6]			OCI [2]			settlements [3]			of Level 3		2009			June 30, 2009 [1] [2]
Variable annuity hedging derivatives [5]
Levels 1 and 2	$	27		$	(514	)	$	—		$	320		$	—	$	(167	)		[4]
Level 3		2,637			(886	)		—			(729	)		—		1,022		$	(835	)

Total variable annuity hedging derivatives		2,664			(1,400	)		—			(409	)		—		855
Reinsurance recoverable for GMWB		1,302			(685	)		—			15			—		632			(685	)
U.S. guaranteed withdrawal benefits — Level 3		(6,526	)		3,300			—			(63	)		—		(3,289	)		3,301
International guaranteed withdrawal benefits — Level 3		(94	)		45			(3	)		(5	)		—		(57	)		47

Total Guaranteed withdrawal benefits net of reinsurance and hedging derivatives		(2,654	)		1,260			(3	)		(462	)		—		(1,859	)

Macro hedge program [5]
Levels 1 and 2		—			(157	)		—			185			—		28			[4]
Level 3		137			(207	)		—			183			—		113			(207	)

Total macro hedge program		137			(364	)		—			368			—		141

International other guaranteed living benefits — Level 3		—			4			—			(2	)		—		2			1


[1]		The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.

[2]		All amounts are before income taxes and amortization of DAC.

[3]		The ‘Purchases, issuances, and settlements’ primarily relates to the receipt of cash on futures and option contracts classified as Level 1 and interest rate, currency and credit default swaps classified as Level 2. For GMWB reinsurance and guaranteed withdrawal benefits, purchases, issuances and settlements represent the reinsurance premium paid and the attributed fees collected, respectively.

[4]		Disclosure of changes in unrealized gains (losses) is not required for Levels 1 and 2. Information presented is for Level 3 only.

[5]		The variable annuity hedging derivatives and the macro hedge program derivatives are reported in this table on a net basis for asset/(liability) positions and reported in the Condensed Consolidated Balance Sheet in other investments and other liabilities.

[6]		Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

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

5. Investments and Derivative Instruments

Significant Investment Accounting Policies

Recognition and Presentation of Other-Than-Temporary Impairments

The Company deems debt securities and certain equity securities with debt-like characteristics (collectively “debt securities”) to be other-than-temporarily impaired (“impaired”) if a security meets the following conditions: a) the Company intends to sell or it is more likely than not the Company will be required to sell the security before a recovery in value, or b) the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell or it is more likely than not the Company will be required to sell the security before a recovery in value, a charge is recorded in net realized capital losses equal to the difference between the fair value and amortized cost basis of the security. For those impaired debt securities which do not meet the first condition and for which the Company does not expect to recover the entire amortized cost basis, the difference between the security’s amortized cost basis and the fair value is separated into the portion representing a credit other-than-temporary impairment (“impairment”), which is recorded in net realized capital losses, and the remaining impairment, which is recorded in OCI. Generally, the Company determines a security’s credit impairment as the difference between its amortized cost basis and its best estimate of expected future cash flows discounted at the security’s effective yield prior to impairment. The remaining non-credit impairment, which is recorded in OCI, is the difference between the security’s fair value and the Company’s best estimate of expected future cash flows discounted at the security’s effective yield prior to the impairment, which typically represents current market liquidity and risk premiums. The previous amortized cost basis less the impairment recognized in net realized capital losses becomes the security’s new cost basis. The Company accretes the new cost basis to the estimated future cash flows over the expected remaining life of the security by prospectively adjusting the security’s yield, if necessary. The following table presents the change in non-credit impairments recognized in OCI as disclosed in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2010 and 2009, respectively.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009 [1]			2010			2009 [1]
OTTI losses recognized in OCI	$	(184	)	$	(248	)	$	(372	)	$	(248	)
Changes in fair value and/or sales		223			99			477			99
Tax and deferred acquisition costs		(18	)		24			(52	)		24

Change in non-credit impairments recognized in OCI	$	21		$	(125	)	$	53		$	(125	)


[1]		The Company adopted the other-than-temporary impairment guidance as of April 1, 2009.

The Company evaluates whether a credit impairment exists for debt securities by considering primarily the following factors: (a) changes in the financial condition of the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) the extent to which the fair value has been less than the amortized cost of the security and (e) the payment structure of the security. The Company’s best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the security. The Company’s best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor re-financing. In addition, for structured securities, the Company considers factors including, but not limited to, average cumulative collateral loss rates that vary by vintage year, commercial and residential property value declines that vary by property type and location and commercial real estate delinquency levels. 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. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral such as changes in the projections of the underlying property value estimates.

For equity securities where the decline in the fair value is deemed to be other-than-temporary, a charge is recorded in net realized capital losses equal to the difference between the fair value and cost basis of the security. The previous cost basis less the impairment becomes the security’s new cost basis. The Company asserts its intent and ability to retain those equity securities deemed to be temporarily impaired until the price recovers. Once identified, these securities are systematically restricted from trading unless approved by a committee of investment and accounting professionals (“Committee”). The Committee will only authorize the sale of these securities based on predefined criteria that relate to events that could not have been reasonably foreseen. Examples of the criteria include, but are not limited to, the deterioration in the issuer’s financial condition, security price declines, a change in regulatory requirements or a major business combination or major disposition.

The primary factors considered in evaluating whether an impairment exists for an equity security include, but are not limited to: (a) the length of time and extent to which the fair value has been less than the cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated payments and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery.

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

5. Investments and Derivative Instruments (continued)

Net Realized Capital Gains (Losses)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
*(Before-tax)*	2010			2009			2010			2009
Gross gains on sales	$	343		$	157		$	475		$	365
Gross losses on sales		(94	)		(189	)		(205	)		(909	)
Net OTTI losses recognized in earnings		(108	)		(314	)		(260	)		(538	)
Valuation allowances on mortgage loans		(40	)		(78	)		(152	)		(153	)
Japanese fixed annuity contract hedges, net [1]		27			(6	)		11			35
Periodic net coupon settlements on credit derivatives/Japan		(4	)		(13	)		(11	)		(32	)
Results of variable annuity hedge program
GMWB derivatives, net		(426	)		671			(297	)		1,260
Macro hedge program		397			(568	)		233			(364	)

Total results of variable annuity hedge program		(29	)		103			(64	)		896
Other, net [2]		(84	)		(341	)		(59	)		(261	)

Net realized capital gains (losses)	$	11		$	(681	)	$	(265	)	$	(597	)


[1]		Relates to derivative hedging instruments, excluding periodic net coupon settlements, and is net of the Japanese fixed annuity product liability adjustment for changes in the dollar/yen exchange spot rate.

[2]		Primarily consists of losses on Japan 3Win related foreign currency swaps, changes in fair value on non-qualifying derivatives, and other investment gains and losses.

Net realized capital gains (losses) from investment sales, after deducting the life and pension policyholders’ share for certain products, are reported as a component of revenues and are determined on a specific identification basis. Net realized capital gains (losses) previously reported as unrealized gains (losses) in AOCI were $141 and $10 for the three and six months ended June 30, 2010, respectively, and ($346) and ($1.1) billion for the three and six months ended June 30, 2009, respectively. Proceeds from sales of AFS securities totaled $16.0 billion and $22.1 billion, respectively, for the three and six months ended June 30, 2010, and $8.4 billion and $28.1 billion, respectively, for the three and six months ended June 30, 2009.

Other-Than-Temporary Impairment Losses

The following table presents a roll-forward of the Company’s cumulative credit impairments on debt securities held. The Company adopted the impairment guidance as of April 1, 2009.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010
Balance as of beginning of period	$	(2,341	)	$	(1,320	)	$	(2,200	)
Additions for credit impairments recognized on [1]:
Securities not previously impaired		(52	)		(212	)		(164	)
Securities previously impaired		(52	)		(49	)		(91	)
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period		151			—			154
Securities that the Company intends to sell or more likely than not will be required to sell before recovery		—			3			—
Securities due to an increase in expected cash flows		13			—			20

Balance as of end of period	$	(2,281	)	$	(1,578	)	$	(2,281	)


[1]		These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.

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

5. Investments and Derivative Instruments (continued)

Available-for-Sale Securities


	June 30, 2010												December 31, 2009
	Cost or		Gross		Gross					Non-			Cost or		Gross		Gross					Non-
	Amortized		Unrealized		Unrealized			Fair		Credit			Amortized		Unrealized		Unrealized			Fair		Credit
	Cost		Gains		Losses			Value		OTTI [1]			Cost		Gains		Losses			Value		OTTI [1]
ABS	$	3,403	$	58	$	(449	)	$	3,012	$	(35	)	$	3,040	$	36	$	(553	)	$	2,523	$	(48	)
CDOs		3,689		43		(908	)		2,824		(144	)		4,054		27		(1,189	)		2,892		(174	)
CMBS		9,786		222		(1,289	)		8,719		(3	)		10,736		114		(2,306	)		8,544		(6	)
Corporate		37,557		2,329		(1,052	)		38,834		(15	)		35,318		1,368		(1,443	)		35,243		(23	)
Foreign govt./govt. agencies		1,671		69		(24	)		1,716		—			1,376		52		(20	)		1,408		—
Municipal		12,401		344		(229	)		12,516		1			12,125		318		(378	)		12,065		(3	)
RMBS		5,201		157		(586	)		4,772		(138	)		5,512		104		(769	)		4,847		(185	)
U.S. Treasuries		4,821		27		(109	)		4,739		—			3,854		14		(237	)		3,631		—

Total fixed maturities		78,529		3,249		(4,646	)		77,132		(334	)		76,015		2,033		(6,895	)		71,153		(439	)
Equity securities		1,244		63		(204	)		1,103		—			1,333		80		(192	)		1,221		—

Total AFS securities	$	79,773	$	3,312	$	(4,850	)	$	78,235	$	(334	)	$	77,348	$	2,113	$	(7,087	)	$	72,374	$	(439	)


[1]		Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of June 30, 2010 and December 31, 2009.


	June 30, 2010
Contractual Maturity	Amortized Cost		Fair Value
One year or less	$	1,823	$	1,852
Over one year through five years		16,475		17,061
Over five years through ten years		14,377		15,026
Over ten years		23,775		23,866

Subtotal		56,450		57,805
Mortgage-backed and asset-backed securities		22,079		19,327

Total	$	78,529	$	77,132

Estimated maturities may differ from contractual maturities due to security call or prepayment provisions. Due to the potential for variability in payment spreads (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.

Security Unrealized Loss Aging

The following tables present the Company’s unrealized loss aging for AFS securities by type and length of time the security was in a continuous unrealized loss position.


	June 30, 2010
	Less Than 12 Months							12 Months or More							Total
	Cost or							Cost or							Cost or
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
ABS	$	391	$	366	$	(25	)	$	1,515	$	1,091	$	(424	)	$	1,906	$	1,457	$	(449	)
CDOs		434		390		(44	)		3,216		2,352		(864	)		3,650		2,742		(908	)
CMBS		558		536		(22	)		5,447		4,180		(1,267	)		6,005		4,716		(1,289	)
Corporate		2,693		2,541		(152	)		5,882		4,982		(900	)		8,575		7,523		(1,052	)
Foreign govt./govt. agencies		260		244		(16	)		52		44		(8	)		312		288		(24	)
Municipal		1,847		1,818		(29	)		2,001		1,801		(200	)		3,848		3,619		(229	)
RMBS		112		90		(22	)		1,854		1,290		(564	)		1,966		1,380		(586	)
U.S. Treasuries		1,437		1,436		(1	)		596		488		(108	)		2,033		1,924		(109	)

Total fixed maturities		7,732		7,421		(311	)		20,563		16,228		(4,335	)		28,295		23,649		(4,646	)
Equity securities		116		108		(8	)		810		614		(196	)		926		722		(204	)

Total securities in an unrealized loss	$	7,848	$	7,529	$	(319	)	$	21,373	$	16,842	$	(4,531	)	$	29,221	$	24,371	$	(4,850	)

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

5. Investments and Derivative Instruments (continued)


	December 31, 2009
	Less Than 12 Months							12 Months or More							Total
	Cost or							Cost or							Cost or
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
ABS	$	445	$	376	$	(69	)	$	1,574	$	1,090	$	(484	)	$	2,019	$	1,466	$	(553	)
CDOs		1,649		1,418		(231	)		2,388		1,430		(958	)		4,037		2,848		(1,189	)
CMBS		1,951		1,628		(323	)		6,330		4,347		(1,983	)		8,281		5,975		(2,306	)
Corporate		5,715		5,314		(401	)		6,675		5,633		(1,042	)		12,390		10,947		(1,443	)
Foreign govt./govt. agencies		543		530		(13	)		43		36		(7	)		586		566		(20	)
Municipal		2,339		2,283		(56	)		2,184		1,862		(322	)		4,523		4,145		(378	)
RMBS		855		787		(68	)		1,927		1,226		(701	)		2,782		2,013		(769	)
U.S. Treasuries		2,592		2,538		(54	)		648		465		(183	)		3,240		3,003		(237	)

Total fixed maturities		16,089		14,874		(1,215	)		21,769		16,089		(5,680	)		37,858		30,963		(6,895	)
Equity securities		419		356		(63	)		676		547		(129	)		1,095		903		(192	)

Total securities in an unrealized loss	$	16,508	$	15,230	$	(1,278	)	$	22,445	$	16,636	$	(5,809	)	$	38,953	$	31,866	$	(7,087	)

As of June 30, 2010, AFS securities in an unrealized loss position, comprised of 3,155 securities, primarily related to CMBS, corporate securities primarily within the financial services sector and CDOs which have experienced significant price deterioration. As of June 30, 2010, 72% of these securities were depressed less than 20% of cost or amortized cost. The decline in unrealized losses during 2010 was primarily attributable to declining interest rates. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined above.

Mortgage Loans


	June 30, 2010							December 31, 2009
	Amortized		Valuation			Carrying		Amortized		Valuation			Carrying
	Cost [1]		Allowance			Value		Cost [1]		Allowance			Value
Agricultural	$	375	$	(23	)	$	352	$	604	$	(8	)	$	596
Commercial		4,449		(317	)		4,132		5,492		(358	)		5,134
Residential		189		—			189		208		—			208

Total mortgage loans	$	5,013	$	(340	)	$	4,673	$	6,304	$	(366	)	$	5,938


[1]		Amortized cost represents carrying value prior to valuation allowances, if any.

Included in the table above, are mortgage loans held for sale with a carrying value and valuation allowance of $226 and $42, respectively, as of June 30, 2010 and $209 and $98, respectively, as of December 31, 2009. The carrying value of these loans is included in mortgage loans in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2010. The following table presents the activity within the Company’s valuation allowance for mortgage loans.


	2010			2009
Balance as of January 1	$	(366	)	$	(26	)
Additions		(152	)		(153	)
Deductions		178			16

Balance as of June 30	$	(340	)	$	(163	)


Mortgage Loans by Region
	June 30, 2010					December 31, 2009
	Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total
East North Central	$	112		2.4	%	$	125		2.1	%
Middle Atlantic		393		8.4	%		689		11.6	%
Mountain		132		2.8	%		138		2.3	%
New England		414		8.9	%		449		7.6	%
Pacific		1,176		25.2	%		1,377		23.2	%
South Atlantic		1,178		25.2	%		1,213		20.4	%
West North Central		40		0.9	%		51		0.9	%
West South Central		243		5.2	%		297		5.0	%
Other [1]		985		21.0	%		1,599		26.9	%

Total mortgage loans	$	4,673		100.0	%	$	5,938		100.0	%


[1]		Primarily represents multi-regional properties.

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

5. Investments and Derivative Instruments (continued)


Mortgage Loans by Property Type
	June 30, 2010					December 31, 2009
	Carrying		Percent of			Carrying		Percent of
	Value		Total			Value		Total
Agricultural	$	352		7.5	%	$	596		10.0	%
Industrial		1,062		22.7	%		1,068		18.0	%
Lodging		207		4.4	%		421		7.1	%
Multifamily		811		17.4	%		835		14.1	%
Office		1,066		22.8	%		1,727		29.1	%
Residential		189		4.0	%		208		3.5	%
Retail		625		13.4	%		712		12.0	%
Other		361		7.8	%		371		6.2	%

Total mortgage loans	$	4,673		100.0	%	$	5,938		100.0	%

Variable Interest Entities

The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral manager and as an investor through normal investment activities, as well as a means of accessing capital. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest 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 Condensed Consolidated Financial Statements.

Consolidated VIEs

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors have no recourse against the Company in the event of default by these VIEs nor does the Company have any implied or unfunded commitments to these VIEs. The Company’s financial or other support provided to these VIEs is limited to its investment management services. As a result of accounting guidance adopted on January 1, 2010, certain CDO VIEs were consolidated in 2010 and are included in the following table, while in prior periods they were reported in the Non-Consolidated VIEs table further below. See Note 1 for further information on the adoption.


	June 30, 2010						December 31, 2009
					Maximum						Maximum
	Total		Total		Exposure		Total		Total		Exposure
	Assets		Liabilities [1]		to Loss [2]		Assets		Liabilities		to Loss [2]
CDOs [3]	$	824	$	421	$	384	$	226	$	32	$	196
Limited partnerships		22		1		21		31		1		30
Other investments [3]		18		4		11		111		20		87

Total	$	864	$	426	$	416	$	368	$	53	$	313


[1]		Included in other liabilities in the Company’s Condensed Consolidated Balance Sheets.

[2]		The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment.

[3]		Total assets included in fixed maturities in the Company’s Condensed Consolidated Balance Sheets.

CDOs represent structured investment vehicles for which the Company has a controlling financial interest as it provides collateral management services, earns a fee for those services and also holds investments in the securities issued by these vehicles. Limited partnerships represent a hedge fund for which the Company holds a majority interest in the fund’s securities as an investment. Other investments represent an investment trust for which the Company has a controlling financial interest as it provides investment management services, earns a fee for those services and also holds investments in the securities issued by the trusts. Since December 31, 2009, the Company has received a paydown from this investment trust.

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

5. Investments and Derivative Instruments (continued)

Non-Consolidated VIEs

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to significant VIEs for which the Company is not the primary beneficiary. The Company has no implied or unfunded commitments to these VIEs.


	June 30, 2010						December 31, 2009
					Maximum						Maximum
					Exposure						Exposure
	Assets		Liabilities		to Loss		Assets		Liabilities		to Loss
CDOs [1]	$	—	$	—	$	—	$	262	$	—	$	273
Other [2]		35		34		4		36		36		5

Total	$	35	$	34	$	4	$	298	$	36	$	278


[1]		Maximum exposure to loss represents the Company’s investment in securities issued by CDOs at cost.

[2]		Maximum exposure to loss represents issuance costs that were incurred to establish a contingent capital facility.

Other represents the Company’s variable interest in a contingent capital facility (“facility”), which has been held for less than four years. For further information on the facility, see Note 14 of the Notes to Consolidated Financial Statements included in The Hartford’s 2009 Form 10-K Annual Report. The Company does not have a controlling financial interest as it does not manage the assets of the facility nor does it have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the facility, as the asset manager has significant variable interest in the vehicle. The Company’s financial or other support provided to the facility is limited to providing ongoing support to cover the facility’s operating expenses.

In addition, the Company, through normal investment activities, makes passive investments in structured securities issued by VIEs for which the Company is not the manager which are included in ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.

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

5. Investments and Derivative Instruments (continued)

Derivative Instruments

The Company utilizes a variety of over-the-counter and exchange traded derivative instruments as a part of its overall risk management strategy, as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would otherwise be permissible investments under the Company’s investment policies. The Company also purchases and issues financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or may contain features that are deemed to be embedded derivative instruments, such as the GMWB rider included with certain variable annuity products.

Cash flow hedges

Interest rate swaps

Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed maturity securities or interest payments on floating-rate guaranteed investment contracts to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities.

The Company also enters into forward starting swap agreements to hedge the interest rate exposure related to the purchase of fixed-rate securities or the anticipated future cash flows of floating-rate fixed maturity securities due to changes in interest rates. These derivatives are primarily structured to hedge interest rate risk inherent in the assumptions used to price certain liabilities.

Forward rate agreements

Forward rate agreements are used to convert interest receipts on floating-rate securities to fixed rates. These derivatives are used to lock in the forward interest rate curve and reduce income volatility that results from changes in interest rates. As of June 30, 2010, the Company does not have any forward rate agreements.

Foreign currency swaps

Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to minimize cash flow fluctuations due to changes in currency rates.

Fair value hedges

Interest rate swaps

Interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to fluctuations in interest rates.

Foreign currency swaps

Foreign currency swaps are used to hedge the changes in fair value of certain foreign currency-denominated fixed rate liabilities due to changes in foreign currency rates by swapping the fixed foreign payments to floating rate U.S. dollar denominated payments.

Non-qualifying strategies

Interest rate swaps, caps, floors, and futures

The Company uses interest rate swaps, caps, floors, and futures to manage duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of June 30, 2010 and December 31, 2009, the notional amount of interest rate swaps in offsetting relationships was $7.1 billion and $7.3 billion, respectively.

Foreign currency swaps, forwards and options

The Company enters into foreign currency swaps and forwards to convert the foreign currency exposures to U.S. dollars in certain of its foreign currency-denominated fixed maturity investments. The Company also enters into foreign currency forward contracts and options that convert U.S. dollars and Euros to Yen in order to economically hedge portions of the foreign currency risk associated with certain Japanese variable annuity products.

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

5. Investments and Derivative Instruments (continued)

Japan 3Win related foreign currency swaps

The Company entered into foreign currency swaps to hedge the foreign currency exposure related to the Japan 3Win product guaranteed minimum income benefit (“GMIB”) fixed liability payments.

Japanese fixed annuity hedging instruments

The Company enters into currency rate swaps and forwards to mitigate the foreign currency exchange rate and Yen interest rate exposures associated with the Yen denominated individual fixed annuity product.

Credit derivatives that purchase credit protection

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 value on fixed maturity securities. These contracts require the Company to pay a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract.

Credit derivatives that assume credit risk

Credit default swaps are used to assume credit risk related to an individual entity, referenced index, or asset pool, as a part of replication transactions. These contracts entitle the Company to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk due to embedded derivatives associated with credit linked notes.

Credit derivatives in offsetting positions

The Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity index swaps, options, and futures

The Company offers certain equity indexed products, which may contain an embedded derivative that requires bifurcation. The Company enters into S&P index swaps, futures and options to economically hedge the equity volatility risk associated with these embedded derivatives. In addition, the Company is exposed to bifurcated options embedded in certain fixed maturity investments.

Warrants

During the fourth quarter of 2008, the Company issued warrants to purchase the Company’s Series C Non-Voting Contingent Convertible Preferred Stock, which were required to be accounted for as a derivative liability at December 31, 2008. As of March 31, 2009, the warrants were no longer required to be accounted for as derivatives and were reclassified to equity.

GMWB product derivatives

The Company offers certain variable annuity products with a GMWB rider in the U.S. and formerly in the U.K. and Japan. The GMWB is a bifurcated embedded derivative that provides the policyholder with a guaranteed remaining balance (“GRB”) if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. Certain contract provisions can increase the GRB at contractholder election or after the passage of time. The notional value of the embedded derivative is the GRB.

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

5. Investments and Derivative Instruments (continued)

GMWB reinsurance contracts

The Company has entered into reinsurance arrangements to offset a portion of its risk exposure to the GMWB for the remaining lives of covered variable annuity contracts. Reinsurance contracts covering GMWB are accounted for as free-standing derivatives. The notional amount of the reinsurance contracts is the GRB amount.

GMWB hedging instruments

The Company enters into derivative contracts to partially hedge exposure associated with the portion of the GMWB liabilities that are not reinsured. These derivative contracts include customized swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices including the S&P 500 index, EAFE index, and NASDAQ index.

The following table represents notional and fair value for GMWB hedging instruments.


	Notional Amount				Fair Value
	June 30,		December 31,		June 30,			December 31,
	2010		2009		2010			2009
Customized swaps	$	9,448	$	10,838	$	483		$	234
Equity swaps, options, and futures		3,701		2,994		445			9
Interest rate swaps and futures		2,621		1,735		(91	)		(191	)

Total	$	15,770	$	15,567	$	837		$	52

Macro hedge program

The Company utilizes equity options, currency options, and equity futures contracts to partially hedge against a decline in the equity markets or changes in foreign currency exchange rates and the resulting statutory surplus and capital impact primarily arising from guaranteed minimum death benefit (“GMDB”), GMIB and GMWB obligations.

The following table represents notional and fair value for the macro hedge program.


	Notional Amount				Fair Value
	June 30,		December 31,		June 30,			December 31,
	2010		2009		2010			2009
Equity options and futures	$	11,358	$	25,373	$	666		$	296
Long currency options		4,938		1,000		256			22
Short currency options		5,934		1,075		(69	)		—

Total	$	22,230	$	27,448	$	853		$	318

GMAB product derivatives

The GMAB rider associated with certain of the Company’s Japanese variable annuity products is accounted for as a bifurcated embedded derivative. The GMAB provides the policyholder with their initial deposit in a lump sum after a specified waiting period. The notional amount of the embedded derivative is the Yen denominated GRB converted to U.S. dollars at the current foreign spot exchange rate as of the reporting period date.

Contingent capital facility put option

The Company entered into a put option agreement that provides the Company the right to require a third-party trust to purchase, at any time, The Hartford’s junior subordinated notes in a maximum aggregate principal amount of $500. Under the put option agreement, The Hartford will pay premiums on a periodic basis and will reimburse the trust for certain fees and ordinary expenses.

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

5. Investments and Derivative Instruments (continued)

Derivative Balance Sheet Classification

The table below summarizes the balance sheet classification of the Company’s derivative related fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented do not include income accruals or cash collateral held amounts, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts are not included because the associated gains and losses accrue directly to policyholders. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the table below. 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.


	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
	Jun. 30,		Dec. 31,		Jun. 30,			Dec. 31,			Jun. 30,		Dec. 31,		Jun. 30,			Dec. 31,
Hedge Designation/ Derivative Type	2010		2009		2010			2009			2010		2009		2010			2009
Cash flow hedges
Interest rate swaps	$	10,407	$	11,170	$	327		$	123		$	333	$	294	$	(6	)	$	(171	)
Forward rate agreements		—		6,355		—			—			—		—		—			—
Foreign currency swaps		346		381		13			(3	)		39		30		(26	)		(33	)

Total cash flow hedges		10,753		17,906		340			120			372		324		(32	)		(204	)

Fair value hedges
Interest rate swaps		1,043		1,745		(66	)		(21	)		1		16		(67	)		(37	)
Foreign currency swaps		696		696		(49	)		(9	)		44		53		(93	)		(62	)

Total fair value hedges		1,739		2,441		(115	)		(30	)		45		69		(160	)		(99	)

Non-qualifying strategies
Interest rate contracts
Interest rate swaps, caps, floors, and futures		8,096		8,355		(355	)		(84	)		316		250		(671	)		(334	)
Foreign exchange contracts
Foreign currency swaps and forwards		643		1,296		44			(21	)		50		14		(6	)		(35	)
Japan 3Win related foreign currency swaps		2,514		2,514		(10	)		(19	)		21		35		(31	)		(54	)
Japanese fixed annuity hedging instruments		2,201		2,271		418			316			418		319		—			(3	)
Credit contracts
Credit derivatives that purchase credit protection		2,953		2,606		45			(50	)		79		45		(34	)		(95	)
Credit derivatives that assume credit risk [1]		1,699		1,158		(552	)		(240	)		3		2		(555	)		(242	)
Credit derivatives in offsetting positions		6,506		6,176		(82	)		(71	)		162		185		(244	)		(256	)
Equity contracts
Equity index swaps, options, and futures		195		220		(11	)		(16	)		3		3		(14	)		(19	)
Variable annuity hedge program
GMWB product derivatives [2]		45,228		47,329		(3,220	)		(2,002	)		—		—		(3,220	)		(2,002	)
GMWB reinsurance contracts		9,517		10,301		550			347			550		347		—			—
GMWB hedging instruments		15,770		15,567		837			52			969		264		(132	)		(212	)
Macro hedge program		22,230		27,448		853			318			923		558		(70	)		(240	)
Other
GMAB product derivatives [2]		230		226		(1	)		2			—		2		(1	)		—
Contingent capital facility put option		500		500		35			36			35		36		—			—

Total non-qualifying strategies		118,282		125,967		(1,449	)		(1,432	)		3,529		2,060		(4,978	)		(3,492	)

Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	130,774	$	146,314	$	(1,224	)	$	(1,342	)	$	3,946	$	2,453	$	(5,170	)	$	(3,795	)

Balance Sheet Location
Fixed maturities, available-for-sale	$	242	$	269	$	(1	)	$	(8	)	$	—	$	—	$	(1	)	$	(8	)
Other investments		54,875		24,006		2,236			390			2,940		492		(704	)		(102	)
Other liabilities		20,584		64,061		(777	)		(56	)		456		1,612		(1,233	)		(1,668	)
Consumer notes		39		64		(4	)		(5	)		—		—		(4	)		(5	)
Reinsurance recoverables		9,517		10,301		550			347			550		347		—			—
Other policyholder funds and benefits payable		45,517		47,613		(3,228	)		(2,010	)		—		2		(3,228	)		(2,012	)

Total derivatives	$	130,774	$	146,314	$	(1,224	)	$	(1,342	)	$	3,946	$	2,453	$	(5,170	)	$	(3,795	)


[1]		The derivative instruments related to these strategies are held for other investment purposes.

[2]		These derivatives are embedded within liabilities and are not held for risk management purposes.

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

5. Investments and Derivative Instruments (continued)

Change in Notional Amount

The net decrease in notional amount of derivatives since December 31, 2009, was primarily due to the following:

•

The Company terminated $6.4 billion notional of forward rate agreements. The $6.4 billion notional was comprised of a series of one month forward contracts that were hedging the variability of cash flows related to coupon payments on $555 of variable rate securities for consecutive monthly periods during 2010.

•

The notional amount related to the macro hedge program declined $5.2 billion primarily due to the expiration of certain equity index options during January of 2010 offset by the extension of the macro hedge program to 2011.

•

The GMWB product derivative notional declined $2.1 billion primarily as a result of policyholder lapses and withdrawals.

Change in Fair Value

The change in the total fair value of derivative instruments since December 31, 2009, was primarily related to the following:

•

The increase in fair value of the macro hedge program is primarily due to lower equity market valuation, appreciation of the Japanese yen, and purchases made in the first half of the year.

•

The decrease in the net fair value of GMWB product, reinsurance, and hedging derivatives was primarily due to higher implied market volatility and the general decrease in long-term interest rates.

•

The fair value related to credit derivatives that assume credit risk primarily decreased as a result of the Company adopting new accounting guidance related to the consolidation of VIEs; see Adoption of New Accounting Standards in Note 1. As a result of this new guidance, the Company has consolidated a Company sponsored CDO that included credit default swaps with a notional amount of $353 and a fair value of $(293) as of June 30, 2010. These swaps reference a standard market basket of corporate issuers.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of 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. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The following table presents the components of the gain or loss on derivatives that qualify as cash flow hedges:


Derivatives in Cash Flow Hedging Relationships
												Gain (Loss) Recognized in
		Gain (Loss) Recognized in OCI										Income on Derivative
		on Derivative (Effective Portion)										(Ineffective Portion)
		Three Months					Six Months					Three Months					Six Months
		Ended					Ended					Ended					Ended
		June 30,					June 30,					June 30,					June 30,
		2010		2009			2010		2009			2010		2009			2010		2009
Interest rate swaps	Net realized capital gains (losses)	$	260	$	(381	)	$	360	$	(466	)	$	4	$	(2	)	$	3	$	(3	)
Foreign currency swaps	Net realized capital gains (losses)		6		(154	)		15		(139	)		—		25			—		39