Hartford Insurance Group, Inc.: Form 10-Q for the period ended Sep 30, 2020

AND RESULTS OF OPERATIONS

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

The Hartford provides projections and other forward-looking information in the following discussions, which contain many forward-looking statements, particularly relating to the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the cautionary statements set forth on pages 4 and 5 of this Form 10-Q. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in the following discussion; Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q; Part I, Item 1A, Risk Factors in The Hartford’s 2019 Form 10-K Annual Report; and our other filings with the Securities and Exchange Commission. The Hartford undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

On September 30, 2020, the Company entered into a definitive agreement to sell all of the issued and outstanding equity of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. (“BDM”) and Assurances Contintales Contintale Verzekeringen N.V. (“ASCO”), (collectively referred to as "Continental Europe Operations"). For discussion of this transaction, see Note 2 - Business Acquisition and Disposition of Notes to Condensed Consolidated Financial Statements.

On May 23, 2019, the Company completed the acquisition of Navigators Group, a specialty underwriter. For discussion of this transaction, see Note 2 - Business Acquisition and Disposition of Notes to Condensed Consolidated Financial Statements.

Certain reclassifications have been made to historical financial information presented in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") to conform to the current period presentation.

The Hartford defines increases or decreases greater than or equal to 200% as “NM” or not meaningful.

INDEX

KEY PERFORMANCE MEASURES AND RATIOS

The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these ratios and measures are useful in understanding the underlying trends in The Hartford’s businesses. However, these key performance indicators should only be used in conjunction with, and not in lieu of, the results presented in the segment discussions that follow in this MD&A. These ratios and measures may not be comparable to other performance measures used by the Company’s competitors.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Definitions of Non-GAAP and Other Measures and Ratios

Assets Under Management ("AUM")- Include mutual fund and exchange-traded products ("ETP") assets. AUM is a measure used by the Company's Hartford Funds segment because a significant portion of the Company’s mutual fund and ETP revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

Book Value per Diluted Share excluding accumulated other comprehensive income ("AOCI")- This is a non-GAAP per share measure that is calculated by dividing (a) common stockholders' equity, excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Company provides this measure to enable investors to analyze the amount of the Company's net worth that is primarily attributable to the Company's business operations. The Company believes that excluding AOCI from the numerator is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable U.S. GAAP measure.

Combined Ratio- The sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses.

Core Earnings- The Hartford uses the non-GAAP measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain items. Therefore, the following items are excluded from core earnings:

• Certain realized capital gains and losses - Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income.
• Restructuring and other costs - Costs incurred as part of a restructuring plan are not a recurring operating expense of the business.
• Loss on extinguishment of debt - Largely consisting of make-whole payments or tender premiums upon paying debt off before maturity, these losses are not a recurring operating expense of the business.
• Gains and losses on reinsurance transactions - Gains or losses on reinsurance, such as those entered into upon sale of a business or to reinsure loss reserves, are not a recurring operating expense of the business.
• Integration and transaction costs in connection with an acquired business - As transaction costs are incurred upon acquisition of a business and integration costs are completed within a short period after an acquisition, they do not represent ongoing costs of the business.
• Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition.
• Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business.
• Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards.
• Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses.

In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding.

Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company’s performance.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Reconciliation of Net Income to Core Earnings

Core Earnings Margin- The Hartford uses the non-GAAP measure core earnings margin to evaluate, and believes it is an important measure of, the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding buyouts and realized gains (losses). Net income margin, calculated by dividing net income by revenues, is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses) as well as other items excluded in the calculation of core earnings. Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin is set forth in the Results of Operations section within MD&A - Group Benefits.

Current Accident Year Catastrophe Ratio- A component of the loss and loss adjustment expense ratio, represents the ratio of catastrophe losses incurred in the current accident year (net of reinsurance) to earned premiums. For U.S. events, a catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers, as defined by the Property Claim Service office of Verisk. For international events, the Company's approach is similar, informed, in part, by how Lloyd's of London defines catastrophes. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"). The current accident year catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums.

Expense Ratio- For the underwriting segments of Commercial Lines and Personal Lines is the ratio of underwriting

expenses less fee income, to earned premiums. Underwriting expenses include the amortization of deferred policy acquisition costs ("DAC") and insurance operating costs and expenses, including certain centralized services costs and bad debt expense. DAC include commissions, taxes, licenses and fees and other incremental direct underwriting expenses and are amortized over the policy term.

The expense ratio for Group Benefits is expressed as the ratio of insurance operating costs and other expenses including amortization of intangibles and amortization of DAC, to premiums and other considerations, excluding buyout premiums.

The expense ratio for Commercial Lines, Personal Lines and Group Benefits does not include integration and other transaction costs associated with an acquired business.

Fee Income- Is largely driven from amounts earned as a result of contractually defined percentages of assets under management in our Hartford Funds business. These fees are generally earned on a daily basis. Therefore, the growth in assets under management either through positive net flows or favorable market performance will have a favorable impact on fee income. Conversely, either negative net flows or unfavorable market performance will reduce fee income.

Loss and Loss Adjustment Expense Ratio- A measure of the cost of claims incurred in the calendar year divided by earned premium and includes losses and loss adjustment expenses incurred for both the current and prior accident years. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment.

The loss and loss adjustment expense ratio is affected by claim frequency and claim severity, particularly for shorter-tail property lines of business, where the emergence of claim frequency and severity is credible and likely indicative of ultimate

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

losses. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the rate-making process, adjust the assumption as appropriate for the particular state, product or coverage.

Loss and Loss Adjustment Expense Ratio before Catastrophes and Prior Accident Year Development- A measure of the cost of non-catastrophe loss and loss adjustment expenses incurred in the current accident year divided by earned premiums. Management believes that the current accident year loss and loss adjustment expense ratio before catastrophes is a performance measure that is useful to investors as it removes the impact of volatile and unpredictable catastrophe losses and prior accident year development.

Loss Ratio, excluding Buyouts- Utilized for the Group Benefits segment and is expressed as a ratio of benefits, losses and loss adjustment expenses, excluding those related to buyout premiums, to premiums and other considerations, excluding buyout premiums. Since Group Benefits occasionally buys a block of claims for a stated premium amount, the Company excludes this buyout from the loss ratio used for evaluating the profitability of the business as buyouts may distort the loss ratio. Buyout premiums represent takeover of open claim liabilities and other non-recurring premium amounts.

Mutual Fund and Exchange-Traded Product Assets- Are owned by the shareholders of those products and not by the Company and, therefore, are not reflected in the Company’s Condensed Consolidated Financial Statements except in instances where the Company seeds new investment products and holds an investment in the fund for a period of time. Mutual fund and ETP assets are a measure used by the Company primarily because a significant portion of the Company’s Hartford Funds segment revenues are based upon asset values. These revenues increase or decrease with a rise or fall in AUM whether caused by changes in the market or through net flows.

New Business Written Premium- Represents the amount of premiums charged for policies issued to customers who were not insured with the Company in the previous policy term. New business written premium plus renewal policy written premium equals total written premium.

Policies in Force- Represents the number of policies with coverage in effect as of the end of the period. The number of policies in force is a growth measure used for Personal Lines and standard commercial lines (small commercial and middle market lines within middle & large commercial) within Commercial Lines and is affected by both new business growth and policy count retention.

Premium Retention- Represents renewal premium written in the current period divided by total premium written in the prior period.

Policy Count Retention- Represents the ratio of the number of policies renewed during the period divided by the number of policies available to renew. The number of policies available to renew represents the number of policies, net of any cancellations, written in the previous policy term. Policy count retention is affected by a number of factors, including the percentage of renewal policy quotes accepted and decisions by the Company to non-renew policies because of specific policy underwriting concerns or because of a decision to reduce premium writings in certain classes of business or states. Policy count retention is also affected by advertising and rate actions taken by competitors.

Policyholder Dividend Ratio- The ratio of policyholder dividends to earned premium.

Prior Accident Year Loss and Loss Adjustment Expense Ratio- Represents the increase (decrease) in the estimated cost of settling catastrophe and non-catastrophe claims incurred in prior accident years as recorded in the current calendar year divided by earned premiums.

Reinstatement Premiums- Represents additional ceded premium paid for the reinstatement of the amount of reinsurance coverage that was reduced as a result of the Company ceding losses to reinsurers.

Renewal Earned Price Increase (Decrease)- Written premiums are earned over the policy term, which is six months for certain Personal Lines automobile business and twelve months for substantially all of the remainder of the Company’s Property and Casualty business. Since the Company earns premiums over the six to twelve month term of the policies, renewal earned price increases (decreases) lag renewal written price increases (decreases) by six to twelve months.

Renewal Written Price Increase (Decrease)- For Commercial Lines, represents the combined effect of rate changes, amount of insurance and individual risk pricing decisions per unit of exposure on standard commercial lines policies that renewed. For Personal Lines, renewal written price increases represent the total change in premium per policy since the prior year on those policies that renewed and includes the combined effect of rate changes, amount of insurance and other changes in exposure. For Personal Lines, other changes in exposure include, but are not limited to, the effect of changes in number of drivers, vehicles and incidents, as well as changes in customer policy elections, such as deductibles and limits. The rate component represents the change in rate filed with and approved by state regulators during the period and the amount of insurance represents the change in the value of the rating base, such as model year/vehicle symbol for automobiles, building replacement costs for property and wage inflation for workers’ compensation. A number of factors affect renewal written price increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Renewal written price changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss experience

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

has been favorable or when competition among insurance carriers increases. Renewal written price statistics are subject to change from period to period, based on a number of factors, including changes in actuarial estimates and the effect of subsequent cancellations and non-renewals, and modifications made to better reflect ultimate pricing achieved.

Return on Assets (“ROA”), Core Earnings- The Company uses this non-GAAP financial measure to evaluate, and believes is an important measure of, the Hartford Funds segment’s operating performance. ROA, core earnings is calculated by dividing annualized core earnings by a daily average AUM. ROA is the most directly comparable U.S. GAAP measure. The Company believes that ROA, core earnings, provides investors with a valuable measure of the performance of the Hartford Funds segment because it reveals trends in our business that may be obscured by the effect of items excluded in the calculation of core earnings. ROA, core earnings, should not be considered as a substitute for ROA and does not reflect the overall profitability of our Hartford Funds business. Therefore, the Company believes it is important for investors to evaluate both ROA, and ROA, core earnings when reviewing the Hartford Funds segment performance. A reconciliation of ROA to ROA, core earnings is set forth in the Results of Operations section within MD&A - Hartford Funds.

Underlying Combined Ratio- This non-GAAP financial measure of underwriting results represents the combined ratio before catastrophes, prior accident year development and current accident year change in loss reserves upon acquisition of a business. Combined ratio is the most directly comparable GAAP measure. The underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes and current accident year change in loss reserves upon acquisition of a business. The Company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve development. The changes to loss reserves upon acquisition of a business are excluded from underlying combined ratio because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition as such trends are valuable to our investors' ability to assess the Company's financial performance.

A reconciliation of combined ratio to underlying combined ratio is set forth in the Results of Operations section within MD&A - Commercial Lines and Personal Lines.

Underwriting Gain (Loss)- The Hartford's management evaluates profitability of the Commercial and Personal Lines segments primarily on the basis of underwriting gain or loss. Underwriting gain (loss) is a before tax non-GAAP measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. Underwriting gain (loss) is influenced significantly by earned premium growth and the adequacy of The Hartford's pricing. Underwriting profitability over time is also greatly influenced by The Hartford's underwriting discipline, as management strives to manage exposure to loss through favorable risk selection and diversification, effective management of claims, use of reinsurance and its ability to manage its expenses. The Hartford believes that the measure underwriting gain (loss) provides investors with a valuable measure of profitability, before tax, derived from underwriting activities, which are managed separately from the Company's investing activities.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Reconciliation of Net Income to Underwriting Gain (Loss)

Commercial Lines

Written and Earned Premiums- Written premium represents the amount of premiums charged for policies issued, net of reinsurance, during a fiscal period. Premiums are considered earned and are included in the financial results on a pro rata basis over the policy period. Management believes that written premium is a performance measure that is useful to investors as it reflects current trends in the Company’s sale of property and casualty insurance products. Written and earned premium are recorded net of ceded reinsurance premium.

Traditional life and disability insurance type products, such as those sold by Group Benefits, collect premiums from policyholders in exchange for financial protection for the policyholder from a specified insurable loss, such as death or disability. These premiums together with net investment income earned are used to pay the contractual obligations under these insurance contracts. Two major factors, new sales and persistency, impact premium growth. Sales can increase or decrease in a given year based on a number of factors, including but not limited to, customer demand for the Company’s product offerings, pricing competition, distribution channels and the Company’s reputation and ratings. Persistency refers to the percentage of premium remaining in-force from year-to-year.

THE HARTFORD’S OPERATIONS

The Hartford conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category. The Company includes in the Corporate category reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Corporate also includes investment management fees and expenses related to managing third party business, including management of the invested assets of Talcott Resolution Life, Inc. and its subsidiaries ("Talcott Resolution"). Talcott Resolution is the holding company of the life and annuity business that was sold in May 2018. In addition, Corporate

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

includes a 9.7% ownership interest in the legal entity that acquired the life and annuity business sold.

The Company derives its revenues principally from: (a) premiums earned for insurance coverage provided to insureds; (b) management fees on mutual fund and ETP assets; (c) net investment income; (d) fees earned for services provided to third parties; and (e) net realized capital gains and losses. Premiums charged for insurance coverage are earned principally on a pro rata basis over the terms of the related policies in-force.

The profitability of the Company's property and casualty insurance businesses over time is greatly influenced by the Company’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance, the size of its in force block, actual mortality and morbidity experience, and its ability to manage its expense ratio which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. Pricing adequacy depends on a number of factors, including the ability to obtain regulatory approval for rate changes, proper evaluation of underwriting risks, the ability to project future loss cost frequency and severity based on historical loss experience adjusted for known trends, the Company’s response to rate actions taken by competitors, its expense levels and expectations about regulatory and legal developments. The Company seeks to price its insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin. For many of its insurance products, the Company is required to obtain approval for its premium rates from state insurance departments and the Lloyd's Syndicate's ability to write business is subject to Lloyd's approval for its premium capacity each year. Most of Personal Lines written premium is associated with our exclusive licensing agreement with AARP. This agreement provides an important competitive advantage given the size of the 50 plus population and the strength of the AARP brand. During the second quarter of this year, the Company extended this agreement through December 31, 2032.

Similar to property and casualty, profitability of the group benefits business depends, in large part, on the ability to evaluate and price risks appropriately and make reliable estimates of mortality, morbidity, disability and longevity. To manage the pricing risk, Group Benefits generally offers term insurance policies, allowing for the adjustment of rates or policy terms in order to minimize the adverse effect of market trends, loss costs, declining interest rates and other factors. However, as policies are typically sold with rate guarantees of up to three years, pricing for the Company’s products could prove to be inadequate if loss and expense trends emerge adversely during the rate guarantee period or if investment returns are lower than expected at the time the products were sold. For some of its products, the Company is required to obtain approval for its premium rates from state insurance departments. New and renewal business for group benefits business, particularly for long-term disability, are priced using an assumption about expected investment yields over time. While the Company employs asset-liability duration matching strategies to mitigate risk and may use interest-rate sensitive derivatives to hedge its exposure in the Group Benefits investment portfolio, cash flow patterns related to the payment of benefits and claims are uncertain and actual investment yields could differ significantly

from expected investment yields, affecting profitability of the business. In addition to appropriately evaluating and pricing risks, the profitability of the Group Benefits business depends on other factors, including the Company’s response to pricing decisions and other actions taken by competitors, its ability to offer voluntary products and self-service capabilities, the persistency of its sold business and its ability to manage its expenses which it seeks to achieve through economies of scale and operating efficiencies.

The financial results of the Company’s mutual fund and ETP businesses depend largely on the amount of assets under management and the level of fees charged based, in part, on asset share class and product type. Changes in assets under management are driven by the two main factors of net flows and the market return of the funds, which are heavily influenced by the return realized in the equity and bond markets. Net flows are comprised of new sales less redemptions by mutual fund and ETP shareholders. Financial results are highly correlated to the growth in assets under management since these products generally earn fee income on a daily basis.

The investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits, losses and loss adjustment expenses are paid. Due to the need to maintain sufficient liquidity to satisfy claim obligations, the majority of the Company’s invested assets have been held in available-for-sale securities, including, among other asset classes, corporate bonds, municipal bonds, government debt, short-term debt, mortgage-backed securities, asset-backed securities and collateralized loan obligations. The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of invested assets, while generating sufficient net of tax income to meet policyholder and corporate obligations. Investment strategies are developed based on a variety of factors including business needs, regulatory requirements and tax considerations.

Impact of COVID-19 on our financial condition, results of operations and liquidity

Impact to revenues

Earned premiums

The COVID-19 pandemic has caused significant disruption to the economy of the U.S. and other countries in which we operate. Due to government restrictions that have prevented some businesses from offering goods and services to their customers and due to shelter-in-place guidelines that have reduced business activity, many of our customers, especially small businesses, have had to curtail their operations or have found they are unable to meet cash flow needs due to declining business volume, causing some to lay off workers. As one of the largest providers of small business insurance in the U.S., we experienced a 3% year over year decline in our small commercial written premium in the first nine months of 2020 though only a 1% decline in third quarter 2020. In addition to the expected decline in small commercial written and earned premium, other business lines in Commercial Lines have also been negatively affected due to government-

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

mandated restrictions and stay-at-home guidelines reducing business activity and due to consumers having less disposable income or less willingness to spend on the products and services that our commercial lines policyholders sell. Excluding the effect of the Navigators acquisition, Commercial Lines written premium declined $249, or 4%, year over year for the nine months ended September 30, 2020 and we expect written premium declines to continue for the remainder of 2020, driven by lower new business and due to endorsements or other changes to in-force policies that decrease premiums to reflect reduced exposures.

Within Commercial Lines, workers’ compensation written premium declined year over year in the nine month period and is expected to continue to decline over the remainder of 2020, partly due to declining payrolls as a result of the economic effects of COVID-19.

While the impact of the COVID-19 pandemic on Personal Lines written premium has been less than the effect in Commercial Lines, we expect written premium declines to continue for the remainder of 2020 in part due to increased shopping behaviors, and lower new business levels arising out of the competitive marketplace. In addition, The Hartford provided a 15 percent refund on policyholders’ April, May and June personal automobile insurance premiums which reduced Personal Lines written and earned premiums by $81 in the second quarter of 2020. In Group Benefits, we expect fully insured ongoing premium for 2020 to decline modestly year over year due to the economic downturn causing lower sales of new policies, declining payrolls reducing premiums on existing accounts and the potential that some employers may cancel coverage. Because of the economic stress caused by COVID-19, we also expect a higher amount of uncollectible premiums receivable. As a result, to reflect our higher expectation of credit losses, The Hartford increased its allowance for credit losses ("ACL") on premiums receivable by $55 in the nine months ended September 30, 2020.

Fee revenues

Our Hartford Funds segment revenues are based on average daily assets under management. While fee revenues have also been affected by a continued shift to lower fee generating funds, if daily average assets under management were to decrease due to a decline in markets over the balance of the year, we could experience a larger decrease in 2020 full year net income from our Hartford Funds segment relative to 2019 net income.

Net investment income and realized capital gains (losses)

Reflecting the trend year-to-date, we expect lower net investment income in 2020 than in 2019. In an effort to stimulate the economy, central banks have reduced benchmark interest rates to near zero, impacting our yields on floating rate securities and reinvestment rates. From late March to mid-May, 2020, the Company temporarily reinvested receipts of interest and proceeds from maturing fixed maturity investments in liquid, short-term investments. While the Company resumed investing in fixed maturities in May, 2020, lower interest rates since the pandemic began have generally resulted in lower investment yields on newly invested funds. Income or losses on investments in limited partnerships and other alternative investments are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. A prolonged period of lower interest rates could depress the Company's net investment income such that to earn the same

level of return on equity we may have to charge higher premiums for the insurance products we sell unless loss costs similarly lessen.

Net realized capital gains (losses) for the three and nine month periods included a total $42 and $(269) respectively, of before tax unrealized mark-to-market gains (losses) on equity securities held and net realized gains (losses) on equity securities sold, net of realized gains on equity derivative hedges. While equity markets in the second and third quarter of 2020 largely recovered the value they lost during the first quarter, economic conditions remain uncertain and if equity markets were to experience similar declines as occurred earlier this year, we may incur more net realized capital losses in future periods; however, the Company reduced its investments in public equity securities during March and April of 2020, with the fair value of equity securities declining from $1.7 billion as of December 31, 2019 to $819 as of September 30, 2020.

Net realized capital losses for the three and nine month periods also included ($4) and $52, respectively, of increases (decreases) in the allowance for credit losses, partially offset by reversals of the allowance due to improvements in market value or sales, and $0 and $5, respectively, of intent-to-sell impairments. The increase (decrease) in the allowance for credit losses in the three and nine month periods included increases of $1 and $33, respectively, on available for sale fixed maturities and increases (decreases) of ($5) and $19, respectively, on commercial mortgage loans. If it takes a prolonged period for the economy to recover or if the impacts of the economic downturn are deeper than anticipated, we could experience further credit losses and intent-to-sell impairments, particularly with highly leveraged companies and issuers in the energy, commercial real estate, and travel and leisure sectors, resulting in further net realized capital losses.

Impact to direct benefits, losses and loss adjustment expenses from COVID-19 claims

For the three and nine months ended September 30, 2020, we recorded direct COVID-19 incurred losses of $72 and $339, respectively, including $37 and $250, respectively, in P&C and $35 and $89, respectively, in Group Benefits, reflecting management’s best estimate of the ultimate cost of settling COVID-19 claims incurred. For the nine months ended September 30, 2020, COVID-19 incurred losses and loss adjustment expenses in P&C primarily included $141 for property claims, $52 for workers’ compensation, net of favorable frequency on other workers' compensation claims, and $57 of incurred losses largely concentrated in financial lines such as D&O and E&O and domestic wholesale. For the three months ended September 30, 2020, P&C incurred COVID-19 losses and loss adjustment expenses included $17 for workers’ compensation, net of favorable frequency, and $20 in financial lines and other.

Nearly all of our property insurance policies require direct physical loss or damage to property and contain standard exclusions that we believe preclude coverage for COVID-19 related claims, and the vast majority of such policies contain exclusions for virus-related losses. Included in the $141 of COVID-19 property incurred losses and loss adjustment expenses in the nine month period were $101 of losses arising from a small number of property policies that do not require

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

direct physical loss or damage and from policies intended to cover specific business needs, including crisis management and performance disruption. In addition, we recorded a reserve of $40 for legal defense costs. Given the significant business disruptions that have occurred due to the COVID-19 pandemic, the Company has experienced increased property claims, resulting in increased litigation activity and legal expenses. Within Property & Casualty, we incur COVID-19 workers’ compensation losses when it is determined that workers were exposed to COVID-19 out of and in the course of their employment and in other cases where states have passed laws providing for the presumption of coverage for certain industry classes, including health care and other essential workers. While current accident year losses for workers’ compensation in the three and nine months ended September 30, 2020 increased $65 and $140, respectively, due to COVID-19 claims, this has been partially offset by lower claim frequency of non-COVID-19 related workers’ compensation claims due to reduced business activity, resulting in a net increase in incurred losses of $17 and $52, respectively. Favorable non-COVID-19 workers’ compensation claim frequency could continue over the remainder of 2020 though possibly to a lesser extent if more business activity resumes. COVID-19 incurred losses in the three and nine month periods of $35 and $89, respectively, in Group Benefits consisted of $28 and $71, respectively, of losses on group life claims and $7 and $18, respectively, of losses on short-term disability and paid family leave claims. The Company could incur additional COVID-19 direct incurred losses over the remainder of 2020, particularly for workers’ compensation and financial lines within P&C and in group life.

Other impacts from COVID-19 and resulting economic downturn

Apart from impacts on the investment portfolio, net investment income and net realized capital gains (losses), in third quarter 2020, the Company incurred a number of other insurance business impacts from the COVID-19 pandemic and the resulting economic downturn as follows:

• For the three and nine months ended September 30, 2020, we recognized an estimated decrease in current accident incurred losses in Personal Lines automobile of $62 and $173, respectively, due to a significant reduction in miles driven since the pandemic began, though miles driven has begun to increase again. In the second quarter of 2020, Personal Lines written and earned premiums were reduced by $81 due to providing automobile policyholders with premium refunds or credits in recognition of the decrease in miles driven.
• The Company reduced audit premiums receivable by $100 in second quarter 2020 driven by the economic effects of COVID-19 reducing our insured exposures, principally in workers’ compensation. Net of a related reduction in estimated incurred losses and commissions attributable to the reduction in exposure, the net effect in second quarter was a $34 reduction in income before tax. In the third quarter of 2020, there was virtually no change in estimated audit premiums receivable due to COVID-19 though we continue to expect lower audit premiums based on expected lower exposures. Estimated audit premiums receivable could decrease over the remainder of 2020 with the magnitude of

the impact depending on how economic conditions change in the U.S. in the fourth quarter.

• From April through approximately July of 2020, the Company waived late payment fees for a period of time for business and personal insurance customers and temporarily suspended the policy cancellation process for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments with the period of policy cancellations for non-payment varying by state.
• Because of the economic stress caused by COVID-19 and partly due to the extension of billing terms, we expect a higher amount of uncollectible premiums receivable. As a result, to reflect our higher expectation of credit losses, The Hartford increased its ACL on premiums receivable by $55 in the nine months ended September 30, 2020. The allowance on premiums receivable decreased in the third quarter of 2020 as the provision required on premiums written in the quarter was more than offset by write-offs and a $9 reduction in the provision reflecting improved collection experience, largely in Group Benefits.
• Apart from the increase in the premiums receivable allowance, we have experienced a decline in insurance operating costs and other expenses partly due to lower acquisition-related and other operating costs associated with lower earned premium volumes and expect that trend to continue for the remainder of 2020.
• As a result of the effects of COVID-19 on our economy, we evaluated our goodwill and other intangible assets for impairment as of September 30, 2020 and determined that no impairments were necessary. The estimated fair values of reporting units with goodwill and of certain intangible assets are sensitive to changes in discount rates and are based on expected cash flows assuming improvement due to the gradual reopening of the economy continuing into 2021.

For information about additional resources the Company has to manage capital and liquidity during the COVID-19 pandemic and financial crisis, refer to the Capital Resources & Liquidity section of MD&A.

For additional information about the potential impacts of the COVID-19 pandemic and resulting economic crisis, see the risk factor "The pandemic caused by the spread of COVID-19 has disrupted our operations and may have a material adverse impact on our business results, financial condition, results of operations and/or liquidity" in Item 1A of Part II.

P&C combined ratios and Group Benefits margin

In 2020, we expect our combined ratio for Commercial Lines to be higher than the outlook range we provided in our 2019 Form 10-K, primarily due to COVID-19 incurred losses and higher than budgeted current accident year catastrophe losses, partially offset by net favorable prior accident year development. We expect the underlying combined ratio for Commercial Lines in 2020 to be higher due to COVID-19 incurred losses. In 2020, we expect our combined ratio for Personal Lines to be lower than the outlook range we provided in our 2019 Form 10-K, primarily due to favorable prior accident year catastrophe reserve development year-to-date, including a $260 subrogation recoverable from PG&E recorded in the second quarter, partially offset by higher than expected current accident year

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

catastrophes, and expect the underlying combined ratio for Personal lines to be lower primarily due to favorable automobile claim frequency and lower non-catastrophe homeowners’ claims, partially offset by $81 before tax of premium credits issued to policyholders in the second quarter.

Our net income margin and core earnings margin for Group Benefits has been trending toward the higher end of the outlook ranges we provided in our 2019 Form 10-K and will continue to be influenced by the net effect of COVID-19 group life claims and continued favorable emergence of claim incidence on group disability over the balance of 2020.

Common stockholders’ equity

Apart from the direct loss and premium impacts of COVID-19 on net income, we could also experience a reduction in AOCI within common stockholders’ equity. The net unrealized gain position on our portfolio of fixed maturities, AFS increased by $933 from December 31, 2019 to September 30, 2020, due to an increase in valuations resulting from a decline in interest rates, partially offset by wider credit spreads. If credit spreads widen going forward or if interest rates increase from the level they were at as of September 30, 2020, we would recognize a decline in the fair value of fixed maturities, AFS in future periods through a reduction of AOCI within common stockholders’ equity.

During the nine months ended September 30, 2020, the Company repurchased 2.7 million common shares for $150 under a $1.0 billion share repurchase authorization by the Board of Directors approved in February, 2019. Any repurchase of shares under the remaining equity repurchase authorization of $650 is dependent on market conditions and other factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity.

For further information on the Company's reporting segments refer to Part I, Item 1, Business - Reporting Segments in The Hartford’s 2019 Form 10-K Annual Report.

Operational Transformation and Cost Reduction Plan

In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020, the Company announced

an operational transformation and cost reduction plan it refers to as Hartford Next. Through reduction of its headcount, IT investments to further enhance our capabilities, and other activities, relative to 2019, the Company expects to achieve a reduction in annual insurance operating costs and other expenses of approximately $500 by 2022. The Hartford Next program will contribute to our goal of reducing the 2022 P&C expense ratio by about 2.0 to 2.5 points, reducing the 2022 Group Benefits expense ratio by about 1.5 to 2.0 points and reducing our 2022 claim expense ratio by 0.5 point.

To achieve those expected savings, we expect to spend approximately $360, with those costs expected to be approximately $156 over the last six months of 2020, $90 in 2021, $64 in 2022 and $50 after 2022. The estimated costs of approximately $360 includes an expected $60 in capitalized development costs for internal use software to be amortized over the useful life of the software, typically 3 years. Of the estimated costs of $360, approximately $310 would be recognized as an expense through the end of 2022, with $50 of IT asset amortization after 2022. Included in the estimated costs of $360, we expect to incur restructuring costs of approximately $150, including $78 of employee severance, and approximately $72 of other costs, including consulting expenses and the cost to retire certain IT applications. These estimated restructuring and other costs do not include all of the costs associated with a real estate consolidation plan as those plans are not yet sufficiently developed to provide a full estimate of those costs and related savings.

Restructuring costs are reported as a charge to net income but not in core earnings. All other costs of the Hartford Next program will be included in insurance operating costs and other expenses in the Condensed Consolidated Statement of Operations. Relative to 2019 full year actual expenses, the Company estimates a net increase in insurance operating costs and other expenses of approximately $81 over the last six months of 2020 and expects a net expense reduction of approximately $210 in 2021 and approximately $436 in 2022.

The following table shows the expected costs of the Hartford Next program, including restructuring costs, and expected expense savings through 2022:

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Hartford Next Expected Costs and Expense Savings

[1]Does not include approximately $50 of IT asset amortization after 2022.

[2] Includes $87 of restructuring costs incurred through September 30, 2020.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Highlights

Net Income Available to Common Stockholders Net Income Available to Common Stockholders per Diluted Share Book Value per Diluted Share

Investment Yield, After Tax Property & Casualty Combined Ratio Group Benefits Net Income Margin

68

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS

The Consolidated Results of Operations should be read in conjunction with the Company's Condensed Consolidated Financial Statements and the related Notes beginning on page 7 as well as with the segment operating results sections of MD&A.

Consolidated Results of Operations

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

Net income available to common stockholders decreased by $71, primarily driven by a $123 before tax increase in current accident year catastrophes, $87 before tax of restructuring costs in third quarter 2020, an $83 before tax decrease in net realized gains, $72 before tax in COVID-19 claims and a change from income to losses from the retained Talcott Resolution investment, partially offset by a $90 before tax loss on debt extinguishment in third quarter 2019, lower Personal Lines auto claim frequency, lower non-

catastrophe property losses in Commercial Lines, more favorable net prior accident year development and lower insurance operating costs across all segments.For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Revenue

Earned Premiums

[1] For the three months ended September 30, 2019, there was $4 in earned premiums recorded Corporate other revenue.

Earned premiums decreased primarily due to:

• A decline in P&C resulting from a decline of 3% in Personal Lines.
• Relatively flat earned premiums in Commercial Lines as the impact of the COVID-19 pandemic, including declines in new business, lower estimated audit premiums, endorsements reducing insured exposures and declines in policy retention, were offset by continued written pricing increases in all lines except workers' compensation.
• A decline in Group Benefits due to a 4% decline in group life.

Fee income decreased primarily due to lower fee income in Hartford Funds as a result of a shift in mix of assets to lower fee generating funds.

Other revenues decreased primarily due to a change from income to loss on the Talcott Resolution investment, the retained interest in the legal entity that acquired the life and annuity business sold in 2018.

Net Investment Income

Net investment income increased primarily due to:

• Higher income on limited partnerships and other alternative investments due to improved performance of certain equity and credit funds. Income (loss) from limited partnerships is generally reported on a three-month delay.
• Higher non-routine income in 2020, primarily make-whole payments on fixed maturities, and a higher level of invested assets.
• Partially offset by a lower yield on fixed maturity investments resulting from reinvesting at lower rates and a lower yield on floating rate investments.

Net realized capital gains decreased primarily driven by:

• Lower net gains on sales of fixed maturities
• A loss of $51, before tax, on sale of the Company’s Continental Europe Operations which the Company agreed to sell in September of 2020.
• Partially offset by greater gains on equity securities due to appreciation in valuation driven by an increase in equity market levels in third quarter 2020.

For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains and MD&A - Investment Results, Net Investment Income.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Benefits, losses and expenses

Losses and LAE Incurred for P&C

Benefits, losses and loss adjustment expenses increased due to:

• An increase in incurred losses for Property & Casualty, driven by:
• An increase in current accident year catastrophe losses of $123, before tax. Catastrophe losses in the third quarter of 2020 were primarily from wildfires in California and Oregon, hurricane Laura on the Gulf Coast, tropical storm Isaias on the East Coast, a Midwest derecho and other wind and hail events, mostly in the Central Plains. Catastrophe losses in 2019 were primarily from tornado, wind and hail events in various areas of the Midwest and Mountain West as well as losses from hurricanes and tropical storms in the Southeast. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.
• A decrease in Property & Casualty current accident year ("CAY") loss and loss adjustment expenses before catastrophes primarily due to lower non-COVID-19 non-catastrophe property losses and lower claim frequency in personal automobile due to shelter-in-place guidelines reducing miles driven and favorable frequency of non-COVID-19 workers' compensation claims due to reduced business activity and lower payrolls, partially offset by direct COVID-19 incurred losses and higher current accident year loss costs in global specialty international lines.
• More favorable Property & Casualty net prior accident year reserve development of $28, before tax. Prior accident year reserve development in third quarter 2020 was a net favorable $75 before tax and primarily included a reduction in reserves in workers’ compensation, personal auto, professional liability, and package business. Due to recognizing a deferred gain on

retroactive reinsurance, the $75 of net favorable reserve development in third quarter 2020 was net of $14 before tax of adverse development for Navigators related to 2018 and prior accident years even though that development has been economically ceded to NICO. Prior accident year development in the 2019 period primarily included a decrease in reserves for workers’ compensation, personal automobile liability and package business, partially offset by an increase in reserves for commercial automobile and general liability. For further discussion, see Note 10 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

Losses and LAE Incurred for Group Benefits

• Within Group Benefits, an increase due to COVID-19 incurred benefits and losses of $35 before tax, mostly driven by group life claims.

For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Amortization of deferred policy acquisition costs decreased from the prior year period with a decrease in Commercial Lines mostly due to lower commissions and a decrease in Personal Lines commensurate with the decline in earned premiums.

Insurance operating costs and other expenses decreased due to lower incentive compensation, lower employee travel expenses, and a decrease in Hartford Funds due to lower variable costs.

Restructuring and other costs are due to the Company's Hartford Next operational transformation and cost reduction plan which includes $78 of accrued severance costs.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

For further discussion of impacts resulting from the Hartford Next initiative, see MD&A - The Hartford's Operations, Operational Transformation and Cost Reduction Plan and Note 18 - Restructuring and Other Costs of Notes to Condensed Consolidated Financial Statements.

Income tax expense decreased primarily due to a decrease in income before tax. For further discussion of income taxes, see Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

Net income available to common stockholders decreased by $337 primarily driven by a $448 before tax change from net realized capital gains in the 2019 period to net realized capital losses in the 2020 period, $339 before tax in COVID-19 claims in the 2020 period, a $203 before tax increase in current accident year catastrophes, a $158 before tax decrease in net investment income, and $87 before tax of restructuring costs in third quarter 2020, partially offset by more favorable P&C prior accident year development, the Navigators ADC premium paid of $91 before tax in the 2019 period, a $90 before tax loss on debt extinguishment in the 2019 period, lower Personal Lines auto claim frequency in the 2020 period net of premium credits given to policyholders in second quarter 2020, the effect of lower claim incidence and higher recoveries on non-COVID group disability claims and lower non-catastrophe property losses in Commercial Lines.

For a discussion of the Company's operating results by segment, see MD&A - Segment Operating Summaries. In addition, for further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Revenue

Earned Premiums

[1] For the nine months ended September 30, 2020, the total includes $9 in Corporate. For the nine months ended September 30,2019, there was $5 of earned premiums recorded in Corporate other revenue.

Earned premiums increased primarily due to:

• An increase in Property and Casualty reflecting an 11% increase in Commercial Lines driven by the Navigators Group acquisition, partially offset by a 6% decline in Personal Lines. Driving part of the decrease in Personal Lines earned premiums for the nine month period was the impact of the Company offering a 15 percent credit on policyholders’ April, May and June personal automobile insurance premiums totaling $81.
• A 1% decrease in Group Benefits, principally driven by a decline in group life.

Fee income decreased due to:

• Lower fee income in Hartford Funds largely due to a shift in mix of assets to lower fee generating funds and, to a lesser extent, lower installment fee income in P&C.

Other revenues decreased primarily due to less transition services revenue received in the current year related to the sale of the life and annuity business in 2018.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Investment Income

Net investment income decreased primarily due to:

• Lower returns on limited partnership and other alternative investments in 2020 due primarily to lower valuations of the underlying fund investments as a result of the economic impacts of the COVID-19 pandemic. Income (loss) from limited partnerships is generally reported on a three-month delay.
• A lower yield on fixed maturity investments resulting from reinvesting at lower rates and a lower yield on floating rate investments.
• Partially offset by a higher level of invested assets, due in part to the acquisition of Navigators Group.

Net realized capital gains (losses) decreased from net gains in the 2019 period to net losses in the 2020 period, primarily driven by:

• Depreciation in the value of equity securities due to the significant decline in equity market levels in the first quarter of 2020 as well as realized losses upon sales of equity securities.
• A loss of $51, before tax, on sale of the Company’s Continental Europe Operations, which the Company agreed to sell in September of 2020, partially offset by gains realized upon termination of derivatives used to hedge against declines in equity market levels and, to a lesser extent, slightly higher net gains on sales of fixed maturity securities in 2020, primarily driven by trades to manage duration and credit.

For further discussion of investment results, see MD&A - Investment Results, Net Realized Capital Gains and MD&A - Investment Results, Net Investment Income.

Benefits, losses and expenses

Losses and LAE Incurred for P&C

Benefits, losses and loss adjustment expenses increased due to:

An increase in incurred losses for Property & Casualty which was driven by an increase in Commercial Lines, partially offset by a decrease in Personal Lines, and was attributable to:

• An increase in Property & Casualty current accident year ("CAY") loss and loss adjustment expenses before catastrophes due to the effect on incurred losses of earned premium from the Navigators Group acquisition, and COVID-19 incurred losses of $250. Also contributing were higher current accident year loss costs in international lines, more than offset by lower weather-related non-COVID-19 non-catastrophe property claims and lower claim frequency in personal automobile due to shelter-in-place guidelines reducing miles driven. COVID-19 incurred losses are net of favorable frequency of workers’ compensation claims due to reduced business activity and lower payrolls.
• An increase in current accident year catastrophe losses of $203, before tax. Catastrophe losses in the 2020 period were primarily from wildfires in California and Oregon, Tropical Storm Isaias and Hurricane Laura

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

losses in third quarter 2020, the civil unrest during the second quarter of 2020 and from tornado, wind and hail events in the South, Midwest and Central Plains. Catastrophe losses in the 2019 period were primarily from tornado, wind and hail events in the South, Midwest and Mountain West and winter storms across the country as well as from hurricanes and tropical storms in the Southeast. For additional information, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

• More favorable Property & Casualty net prior accident year reserve development of $297, before tax. Prior accident year reserve development in the 2020 period was a favorable $320 before tax, driven by $413 of reserve reductions related to catastrophes, including decreases in estimated losses arising from wind and hail events in 2018 and 2019 and from the 2017 and 2018 California wildfires, including a $289 before tax subrogation benefit from PG&E. Apart from catastrophes, reserve development in the nine months ended September 30, 2020 primarily included a $129 before tax reserve increase for sexual molestation and abuse claims and $97 before tax of adverse development for Navigators related to 2018 and prior accident years. While the Navigators’ reserve development has been economically ceded to NICO, the Company recognized a deferred gain under retroactive reinsurance accounting. Prior accident year development in the 2019 period primarily included reserve decreases for workers’ compensation, catastrophes, and package business, partially offset by increases in general liability and professional liability, including increases in Navigators Group reserves upon acquisition of the business. For further discussion, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

Losses and LAE Incurred for Group Benefits

• Partially offsetting the increase in Property & Casualty was a decrease in Group Benefits driven by a lower group disability

loss ratio including an increase in favorable prior incurral year development, partially offset by $89 before tax of COVID-19 incurred benefits and losses.

For further discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Amortization of deferred policy acquisition costs increased from the prior year period primarily due to an increase in Commercial Lines primarily due to the impact of the Navigators Group acquisition, partially offset by a decrease in Personal Lines, with Group Benefits down slightly from the prior year period.

Insurance operating costs and other expenses increased due to:

• Higher information technology costs in Group Benefits.
• A full nine months of operating costs incurred in the 2020 period due to the Navigators Group acquisition in May of 2019, partially offset by lower integration and transaction costs in the nine months ended September 30, 2020.
• A $55 before tax increase in the ACL on uncollectible premiums receivable in 2020 due to the economic impacts of COVID-19.
• Partially offsetting the increase in expenses was a decrease in Hartford Funds due to lower variable costs and a reduction in incentive compensation and employee travel costs.

Restructuring and other costs are due to the Company's Hartford Next operational transformation and cost reduction plan which includes $78 of accrued severance costs.

For further discussion of impacts resulting from the Hartford Next initiative, see MD&A - The Hartford's Operations, Operational Transformation and Cost Reduction Plan and Note 18 - Restructuring and Other Costs of Notes to Condensed Consolidated Financial Statements.

Income tax expense decreased primarily due to a decrease in income before tax.

For further discussion of income taxes, see Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INVESTMENT RESULTS

Composition of Invested Assets

[1]Primarily consists of consolidated investment funds and derivative instruments which are carried at fair value.

September 30, 2020 compared to December 31, 2019

Fixed maturities, AFS increased primarily due to net additions of corporate securities and an increase in valuations as a result of a decline in interest rates, partially offset by wider credit spreads.

Equity Securities, at fair value decreased primarily due to sales of equity securities during March and April.

Short-term investments increased due to actions taken in the first half of the year to increase liquidity, primarily by reinvesting principal and interest, as well as proceeds from sales, into short-term instruments, partially offset by the March 2020 pay down of $500 of senior notes at maturity and the return of collateral related to a decline in the Company's security lending program.

Net Investment Income

[1]Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost, as applicable, excluding repurchase agreement and securities lending collateral, if any, and derivatives book value.

[2]Includes net investment income on short-term investments.

[3]Primarily includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Total net investment income increased slightly for the three months ended September 30, 2020 as a result of higher income from limited partnerships and other alternative investments driven by improved performance of certain equity and credit funds, largely offset by lower income from fixed maturities. Income from fixed maturities declined as a result of reinvesting at lower rates and lower yields on floating rate investments, partially offset by higher income from non-routine income items, which primarily include make-whole payments, and higher asset levels.

Total net investment income decreased for the nine months ended September 30, 2020, primarily due to lower income from limited partnerships and other alternative investments in the second quarter of 2020, which was a result of unfavorable impact on valuations from the economic impacts of the COVID-19 pandemic. Also contributing to the decrease was a lower yield on fixed maturity investments resulting from lower reinvestment rates and lower yields on floating rate securities, partially offset by a higher level of invested assets, due in part to the acquisition of Navigators Group.

Annualized net investment income yield, excluding limited partnerships and other alternative investments and non-routine items which primarily include make-whole payments on fixed maturities was down primarily due to lower reinvestment and short-term rates.

Average reinvestment rates on fixed maturities and mortgage loans, excluding certain U.S. Treasury securities, for the three and nine month periods ended September 30, 2020, were 2.1% and 2.5%, respectively, which were below the average yield of sales and maturities of 3.5% for the same periods. Average reinvestment rates for the three and nine month periods ended September 30, 2019, were 3.1% and 3.5%, respectively, which were below the average yield of sales and maturities of 4.1% and 4.0%, respectively.

We expect the annualized net investment income yield for the year ended December 31, 2020, excluding limited partnerships and other alternative investments, to be lower than the portfolio yield earned for the year ended December 31, 2019, due to a lower yield on short-term investments, lower reinvestment rates, lower prepayment penalties on mortgage loans, and greater liquidity in the portfolio as a percentage of total investments. The estimated impact on net investment income yield is subject to change due to evolving market conditions and active portfolio management.

Net Realized Capital Gains (Losses)

[1] The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2020, were $36 and $6 for the three and nine months ended September 30, 2020, respectively. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of September 30, 2019, were $17 and $100 for the three and nine months ended September 30, 2019, respectively.

[2]Due to the adoption of accounting guidance for credit losses on January 1, 2020, realized capital losses previously reported as OTTI are now presented as credit losses which are net of any recoveries. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. In addition, see Credit Losses on Fixed Maturities, AFS within the Investment Portfolio Risks and Risk Management section of the MD&A.

[3]Represents the change in ACL recorded during the period following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies. In addition, see ACL on Mortgage Loans within the Investment Portfolio Risks and Risk Management section of the MD&A.

[4]See Intent-to-Sell Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A.

[5]Primarily includes loss of $51 from the sale of the Continental Europe Operations for the three and nine months ended September 30, 2020. Also includes gains (losses) from transactional foreign currency revaluation of $(4) and $6 for the three and nine months ended September 30, 2020, respectively. Additionally, for the same periods, includes gains (losses) on non-qualifying derivatives of $(2) and $97, respectively. For the three and nine months ended September 30, 2019, includes gains (losses) on non-qualifying derivatives of $(5) and $3, respectively.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Three and nine months ended September 30, 2020

Gross gains and losses on sales were primarily driven by sales of U.S. treasury securities for duration and/or liquidity management and issuer-specific sales of corporate securities and tax-exempt municipal bonds.

Equity securities net gains for the three month period ended September 30, 2020 were primarily driven by mark-to-market gains due to an increase in equity market levels. For the nine month period ended September 30, 2020, net losses were driven by mark-to-market losses due to the decline in equity market levels in the first quarter and losses incurred on sales across multiple issuers as the Company reduced its exposure to equity securities.

Other, net gains for the three month period are primarily due to a loss of $51, before tax, on sale of the Company’s Continental Europe Operations which the Company agreed to sell in September of 2020, while the nine month period also includes $75 of realized gains on terminated derivatives used to hedge against a decline in equity market levels and $21 of gains on interest rate derivatives due to a decline in interest rates.

Three and nine months ended September 30, 2019

Gross gains and losses on sales were primarily the result of duration, liquidity and credit management within U.S. treasury securities, corporate securities, and tax-exempt municipal bonds.

Equity securities net gains were primarily driven by appreciation of equity securities due to higher equity market levels.

Other, net gains for the three month period were primarily due to losses on interest rate derivatives of $5 due to a decline in interest rates. Gains for the nine month period were primarily due to gains on credit derivatives of $26 driven by credit spread tightening, partially offset by losses on interest rate derivatives of $20 due to a decline in interest rates.

CRITICAL ACCOUNTING ESTIMATES

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

The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

• property and casualty insurance product reserves, net of reinsurance;
• group benefit long-term disability (LTD) reserves, net of reinsurance;
• evaluation of goodwill for impairment;
• valuation of investments and derivative instruments including evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans;
• 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. In developing these estimates, management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the financial statements.

The Company’s critical accounting estimates are discussed in Part II, Item 7 MD&A in the Company’s 2019 Form 10-K Annual Report. In addition, Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in the Company's 2019 Form 10-K Annual Report should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. The following discussion updates certain of the Company’s critical accounting estimates as of September 30, 2020.

Property & Casualty Insurance Product Reserves, Net of Reinsurance

P&C Loss and Loss Adjustment Expense Reserves, Net of Reinsurance, by Segment as of September 30, 2020

Based on the results of the quarterly reserve review process, the Company determines the appropriate reserve adjustments, if any, to record. Recorded reserve estimates are adjusted after consideration of numerous factors, including but not limited to,

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

the magnitude of the difference between the actuarial indication and the recorded reserves, improvement or deterioration of actuarial indications in the period, the maturity of the accident year, trends observed over the recent past and the level of volatility within a particular line of business. In general, adjustments are made more quickly to more mature accident years and less volatile lines of business. Such adjustments of reserves are referred to as “prior accident year development”. Increases in previous estimates of ultimate loss costs are referred

to as either an increase in prior accident year reserves or as unfavorable reserve development. Decreases in previous estimates of ultimate loss costs are referred to as either a decrease in prior accident year reserves or as favorable reserve development. Reserve development can influence the comparability of year over year underwriting results and is set forth in the paragraphs and tables that follow.

Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2020

[1]Commercial Lines includes Y-Risk reserve activity that was previously included in Corporate.

[2] Reflects a cumulative effect adjustment of $1 and $(1) for Commercial Lines and Property & Casualty Other Operations respectively, representing an adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. See Note 1 - Basis of Presentation and Significant Accounting Policies for further information.

[3]Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators adverse development cover ("Navigators ADC") which, under retroactive reinsurance accounting, is deferred and recognized over the period the ceded losses are recovered in cash from NICO. For additional information regarding the Navigators ADC agreement, please refer to Note 10 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

[4]The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.

[5]“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

In December, 2019, the judge overseeing the bankruptcy of PG&E Corporation and Pacific Gas and Electric Company (together, “PG&E”) approved an $11 billion settlement of insurance subrogation claims to resolve all such claims arising from the 2017 Northern California wildfires and 2018 Camp wildfire. That settlement was contingent upon, among other things, the judge entering an order confirming PG&E’s chapter 11 bankruptcy plan (“PG&E Plan”) incorporating the settlement agreement. On June 20, 2020, the bankruptcy court judge approved the PG&E Plan and PG&E subsequently transferred the

$11 billion settlement amount to a trust designed to allocate and distribute the settlement among subrogation holders, including certain of the Company’s insurance subsidiaries. In the second quarter of 2020, the Company recorded an estimated $289 subrogation benefit though the ultimate amount it collects will depend on how the Company’s ultimate paid claims subject to subrogation compare to other insurers’ ultimate paid claims subject to subrogation. On July 24, 2020, the Company received an initial distribution, net of attorney costs, of $216.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Current Accident Year Catastrophe Losses for the Nine Months Ended September 30, 2020, Net of Reinsurance

Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2020

79

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2020

80

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Rollforward of Property and Casualty Insurance Product Liabilities for Unpaid Losses and LAE for the Nine Months Ended September 30, 2019

[1]The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.

[2]“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.

Current Accident Year Catastrophe Losses for the Nine Months Ended September 30, 2019, Net of Reinsurance

81

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unfavorable (Favorable) Prior Accident Year Development for the Three Months Ended September 30, 2019

Unfavorable (Favorable) Prior Accident Year Development for the Nine Months Ended September 30, 2019

For discussion of the factors contributing to unfavorable (favorable) prior accident year reserve development, please refer to Note 10 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

Current Trends Contributing to Reserve Uncertainty

As discussed in our 2019 Form 10-K, as market conditions and loss trends develop, management must assess whether those

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

conditions constitute a long-term trend that should result in a reserving action (i.e., increasing or decreasing property and casualty reserve). The Company has exposure to general liability claims, including from bodily injury, property damage and product liability and to workers’ compensation claims, including from injury, illness or disability to an insured’s employee while at work. Benefits paid under workers’ compensation policies may include reimbursement of medical care costs, replacement income and compensation for permanent injuries and benefits to survivors. Reserves for these exposures can be particularly difficult to estimate due to the long development pattern and uncertainty about how cases will settle.

As further explained under "Impacts of COVID-19" within The Hartford's Operations section of MD&A, through September 30, 2020, the Company incurred $250 of COVID-19 claims in P&C, including in workers' compensation, property and financial lines. Under workers’ compensation, we could experience a continuation of COVID-19 incurred losses, particularly due to laws or directives in certain states that require coverage of COVID-19 claims for health care and other essential workers based on a presumption that they contracted the virus while working. We could also incur losses on general liability policies if claimants can successfully assert that insureds were negligent from protecting employees, customers and others from exposure though we do not expect this exposure to be significant. Under commercial property policies, we have reserved for business interruption claims that pertain to policies in middle & large commercial and in global specialty which do not require direct physical loss or property damage. In other cases, particularly in small commercial, where there are policy exclusions and the general requirement that there be direct physical loss or damage to the property, we have not recorded loss reserves as there is no coverage though we have recorded a reserve for legal defense costs. In our commercial surety lines, there continues to be the potential for elevated frequency and severity due to an increase in the number of bankruptcies, especially in small businesses and impacted industries such as hospitality, entertainment and transportation. In construction surety, there is the potential for continued elevated losses from contractors who experience project shutdowns or payment delays, which negatively impact their cash flows, or result in disruptions in their supply chains, labor shortages or inflation in the cost of materials. We have also experienced an increase in COVID-19 related claims under director’s and officers’ insurance policies.

Reserve estimates for COVID-19 claims are difficult to estimate. In establishing reserves for COVID-19 incurred claims through September 30, 2020, we have provided IBNR at a higher percentage of ultimate estimated incurred losses than usual as we expect longer claim reporting patterns given the economic effects of COVID-19. For example, we expect longer delays than usual between the time a worker is treated and the date the claim is eventually submitted for workers' compensation coverage. Reserve estimates for D&O, E&O and employment practices liability are subject to significant uncertainty given that estimates must be made of the expected ultimate severity of claims that have just recently been reported

Group Benefit Reserves

The Company establishes reserves for group life and accident & health contracts, including long-term disability coverage, for both reported claims and claims related to insured events that the Company estimates have been incurred but have not yet been reported. As long-term disability reserves are long-tail claim liabilities, they are discounted because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The Company held $6,551 and $6,616 of LTD unpaid losses and loss adjustment expenses, net of reinsurance, as of September 30, 2020 and December 31, 2019, respectively.

Impact of COVID-19 on 2020 Results of Operations

Due to the COVID-19 pandemic, the Company is exposed to short-term disability claims and group life claims. Through September 30, 2020, the Company had incurred short-term disability claims and claims for extended benefits under New York's paid family leave and disability programs totaling $18, before tax and group life claims of $71 before tax.

Current Trends Contributing to Reserve Uncertainty

We hedge our interest rate exposure over a three year period at the time we price and sell long-term disability policies and our weighted average discount rate assumption for the 2020 incurral year is down slightly from that of the 2019 incurral year.

While we have not seen a significant change in claim recovery patterns to date, in future periods, because of COVID-19, we could experience a delay in the Social Security Administration’s processing of disability claims and a delay in physicians approving a disability claimant’s ability to return to work, resulting in lower expected claim terminations or recoveries, including Social Security offsets. Also, due to the effects on the economy, including higher unemployment, we could experience an increase in claim incidence on long-term disability claims.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Evaluation of Goodwill for Impairment

Goodwill balances are reviewed for impairment at least annually, or more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred. Effective January 1, 2020, the Company adopted updated accounting guidance on recognition and measurement of goodwill impairment, as required. The updated guidance requires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reporting unit over its estimated fair value, up to the amount of the reporting unit’s goodwill.

The estimated fair value of each reporting unit incorporates multiple inputs into discounted cash flow calculations including assumptions that market participants would make in valuing the reporting unit. Assumptions include levels of economic capital, future business growth, earnings projections, assets under management for Hartford Funds and the weighted average cost of capital used for purposes of discounting. Decreases in business growth, decreases in earnings projections and increases in the weighted average cost of capital will all cause a reporting unit’s fair value to decrease, increasing the possibility of impairment.

A reporting unit is defined as an operating segment or one level below an operating segment. The Company’s reporting units for which goodwill has been allocated consist of Commercial Lines, Personal Lines, Group Benefits and Hartford Funds.

The carrying value of goodwill was $1,911 as of September 30, 2020 and was comprised of $659 for Commercial Lines, $119 for

Personal Lines, $861 for Group Benefits and $272 for Hartford Funds.

Due to changes in the economy because of the COVID-19 pandemic, the weighted average cost of capital used to discount expected cash flows under the Company’s test for impairment increased in 2020 for most reporting units, which reduces estimated fair values of those reporting units.

Since the pandemic began, near-term expected net cash flows over the forecast period have reflected lower revenues arising from the economic effects of COVID-19 and, for Commercial Lines and Group Benefits, an expected continuation of COVID-19 claims.

Considering the impacts of COVID-19, the Company evaluated the impact of market factors on the fair value of the reporting units using the income approach and determined the estimated fair values do not indicate a goodwill impairment for any reporting unit. If the weighted average cost of capital used for purposes of discounting increases significantly or if the economic downturn worsens or persists for an extended period and the Company’s actual and forecasted operating results deteriorate, the Company may determine it is more likely than not that a reporting unit’s fair value is below its carrying value, including goodwill, which could result in an impairment of goodwill. The Hartford will perform its annual impairment test on October 31st for all reporting units.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SEGMENT OPERATING SUMMARIES

COMMERCIAL LINES

Underwriting Summary

[1]For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves Development, Net of Reinsurance and Note 10 - Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Condensed Consolidated Financial Statements.

[2]For discussion of consolidated investment results, see MD&A - Investment Results. The three months ended September 30, 2020, net realized capital losses included a $51 before-tax loss on sale of Continental Europe Operations.

[3]For discussion of income taxes, see Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Premium Measures

[1]Middle market disclosures exclude loss sensitive and programs businesses.

[2]Small commercial and middle market lines within middle & large commercial are generally referred to as standard commercial lines.

Underwriting Ratios

[1]Upon acquisition of Navigators Group and a review of Navigators Insurers reserves, the nine months ended September 30, 2019 included $68 of prior accident year reserve increases and $29 of current accident year reserve increases which were excluded for the purposes of the underlying combined ratio calculation.

Net Income

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net income decreased for the three month period primarily due to a change from net realized capital gains in 2019 to net realized capital losses in 2020, largely offset by higher net investment income and a higher underwriting gain. The higher underwriting gain was driven by an increase in net favorable prior accident year development and lower underwriting expenses, including amortization of DAC, largely offset by higher current accident year losses, including higher catastrophes.

Net income decreased for the nine month period primarily due to a change from an underwriting gain in 2019 to an underwriting loss in 2020, a change from net realized capital gains in 2019 to net realized capital losses in 2020 and lower net investment income, primarily driven by losses on investments in

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

limited partnerships and other alternative investments in the second quarter of 2020. Partially offsetting the decline in net income was $91 before tax of ADC ceded premium in the prior year period. For further discussion of investment results, see MD&A - Investment Results.

Underwriting Gain (Loss)

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Underwriting gain increased in the three month period primarily due to lower underwriting expenses, including amortization of DAC, an increase in favorable prior accident year development and lower non-catastrophe property losses, largely offset by COVID-19 incurred losses in workers’ compensation and financial lines and higher current accident year catastrophes. Underwriting expenses were down year over year driven by lower commissions and a reduction in travel and incentive compensation expenses.

Underwriting loss in the 2020 nine month period compared with an underwriting gain in the 2019 nine month period with the underwriting loss in 2020 primarily due to COVID-19 incurred losses in property, workers’ compensation and financial lines, higher current accident year catastrophes, a change from net favorable prior accident year development in 2019 to net unfavorable prior accident year development in 2020 and the effect of lower earned premiums excluding the effect of the Navigators acquisition. The increase in underwriting expenses, including amortization of DAC, for the nine month period was driven by including Navigators for a full nine months in 2020. Apart from the effect of the Navigators acquisition, underwriting expenses decreased as the effect of lower commissions and a reduction in travel and incentive compensation expenses was partially offset by an increase in the ACL on premiums receivable in 2020 due to the economic impacts of COVID-19 and the effect of a reduction in state taxes and assessments in first quarter 2019. In the nine month period of 2020, the acquisition of Navigators Group contributed to an

increase in earned premiums with a corresponding increase to losses and loss adjustment expenses, amortization of DAC and underwriting expenses.

Earned Premiums

[1] Other of $11 and $12 for the three months ended September 30, 2019, and 2020, respectively, and $33 for the nine months ended September 30, 2019 and 2020, is included in the total.

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Earned premiums decreased for the three month period and increased for the nine month period ended September 30, 2020, with the increase in the nine month period reflecting a full nine months of premium from the acquisition of Navigators Group. Excluding Navigators, earned premiums declined in both the three and nine month periods, with the decrease in the three month period primarily in middle and large commercial and the decrease in the nine month period in both small commercial and middle and large commercial.

Written premiums decreased in the three month period and increased in the nine month period ended September 30, 2020 with the growth in the nine month period attributable to the acquisition of Navigators Group. Excluding Navigators, written premiums declined in both the three and nine month periods due to the economic impacts of COVID-19, including lower new business across most lines as well as reductions in estimated audit premiums and endorsements reducing premium in workers’ compensation due to a declining exposure base, partially offset by

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

continued written pricing increases in all lines except workers' compensation.

In standard commercial lines, renewal written price increases were higher in 2020 than 2019 for both the three and nine month periods, including double digit rate increases in middle market automobile and specialty excess liability lines and mid-single digit to low double-digit rate increases in most other standard commercial lines. Small commercial workers’ compensation written pricing continued to decrease in both the three and nine month periods, with larger decreases in the third quarter. In Global Specialty, our US Wholesale book achieved an approximate 26% renewal written price increase, led by excess casualty, property and automobile. The International lines also achieved strong price increases, led by D&O.

New business premium decreased in both the three and nine month periods in most lines driven by lower quote volume due to the economic effects of COVID-19 and a competitive pricing environment, though there was some improvement in the third quarter of 2020 compared to second quarter of 2020. Also contributing to the decrease in new business in Small Commercial was the effect of new business from the 2018 Foremost renewal rights agreement of $9 and $69 in the 2019 three and nine month periods, respectively.

• Small commercial written premium declined for both the three and nine month periods driven by a decrease in workers’ compensation, partially offset by growth in package business.
• Middle & large commercial written premium decreased for both the three and nine month periods driven by lower new business and premium retention across all lines, partially offset in the nine month period by the acquisition of Navigators Group. Middle & large commercial premium decreases in the three and nine month periods were primarily driven by declines in general industries, driven by underwriting actions to improve the profitability of that book, as well as in industry verticals and national accounts, partially offset by growth in specialty and commercial excess lines.
• Global specialty written premium decreased slightly for the three month period and increased for the nine month period with the increase in the nine month period driven by the acquisition of Navigators Group. Global specialty written premium decreased in the three month period due to a decline in international and bond business, partially offset by growth in wholesale and professional liability. Apart from Navigators Group, written premium decreased in the nine month period due to a decline in wholesale and bond business, partially offset by growth in professional liability.

Current Accident Year Loss and LAE Ratio before Catastrophes

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Current accident year loss and LAE ratio before catastrophes increased for both the three and nine months ended September 30, 2020, primarily due to COVID-19 incurred losses, net of favorable non-COVID-19 workers' compensation frequency and, for the nine month period, higher current accident year loss costs in global specialty international lines, partially offset by both the three and nine-month periods benefiting from lower non-catastrophe property losses.

The three month period in 2020 included COVID-19 incurred losses of $37 before tax, including $17 of losses in workers' compensation, net of favorable frequency on other workers' compensation claims, and $20 of losses in financial and other lines. The nine month period in 2020 included COVID-19 incurred losses of $250 before tax, including losses of $141 in property, $52 in workers’ compensation, net of favorable frequency on other workers' compensation claims, and $57 in financial and other lines.

Included in the $141 of COVID-19 property incurred losses and loss adjustment expenses in the nine month period were $101 of losses arising from a small number of property policies that do not require direct physical loss or damage and from policies intended to cover specific business needs, including crisis management and performance disruption. In addition, we recorded a reserve of $40 for legal defense costs in the nine month period. Workers’ compensation COVID-19 incurred losses in the three and nine month periods were driven by claims in both states with presumptive coverage and in other states where the claimant must prove their COVID-19 illness was contracted at work. Financial lines COVID-19 claims in the three and nine month periods were primarily driven by exposures in D&O, E&O and employment practices liability and the recessionary impacts on the surety book of business.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Catastrophes and Unfavorable (Favorable) Prior Accident Year Development

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Current accident year catastrophe losses for the three months ended September 30, 2020 included losses from hurricane Laura, Pacific Coast wildfires, tropical storm Isaias, a Midwest derecho, and other wind and hail events mostly in the Central Plains.

Current accident year catastrophe losses for the three months ended September 30, 2019 were primarily related to wind and hail events in various areas of the Midwest and Mountain West as well as from hurricane Dorian and tropical storm Imelda.

Current accident year catastrophe losses for the nine months ended September 30, 2020 were primarily from civil unrest, hurricane Laura, Pacific Coast wildfires, tropical storm Isaias and from tornado, wind and hail events in the South, Midwest and Central Plains.

Current accident year catastrophe losses for the nine months ended September 30, 2019 were primarily from winter storms in the northern plains, Midwest and Northeast as well as tornado, wind and hail events in various areas of the Midwest, Mountain West and South.

Prior accident year development was a net favorable $57 before tax in the 2020 three month period compared to a net favorable $19 before tax in the comparable 2019 period. Net favorable reserve development for the three month period included reserve decreases for workers' compensation, package business and professional liability. Net reserve increases were $61 before tax in the 2020 nine month period compared to a net favorable $7 before tax in the comparable 2019 period. Net unfavorable reserve development for the nine months ended September 30, 2020 included reserve increases for general liability driven primarily by increases in reserves for sexual molestation and abuse claims, and increases in commercial automobile liability reserves, partially offset by reserve decreases for workers' compensation, catastrophes and package business. Favorable development on prior year catastrophe reserves in the nine month period was due to recognizing a $29 before tax subrogation benefit from a settlement with PG&E over certain of the 2017 and 2018 California wildfires and a reduction in estimated catastrophe losses from a number of wind and hail events that occurred in 2018 and 2019. Prior accident year development in the three and nine month periods of 2020 also included $14 million and $97 million, respectively, of reserve increases related to Navigators Group on 2018 and prior accident years that was economically ceded to NICO but for which the benefit was not recognized in earnings as it has been recorded as a deferred gain on retroactive reinsurance.

Net reserve decreases for the three month period in 2019 were primarily related to lower loss reserve estimates for workers' compensation claims and package business reserves, partially offset by increases in reserves for auto liability and general liability. Net reserve decreases for the nine months ended September 30, 2019 were primarily related to lower loss reserve estimates for workers' compensation claims, catastrophes and package business reserves, largely offset by a $68 before tax increase to Navigators reserves upon acquisition of the business and increases in reserves for auto liability and general liability. The increase in Navigators reserves upon acquisition of the business principally related to higher reserve estimates for general liability, professional liability and marine.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PERSONAL LINES

Underwriting Summary

[1]For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.

[2]Includes servicing revenues of $23 for the three months ended September 30, 2020 and 2019 and $63 and $65 for the nine months ended September 30, 2020 and 2019, respectively. Includes servicing expenses of $18 and $19 for the three months ended September 30, 2020 and 2019, respectively, and $53 and $54 for the nine months ended September 30, 2020 and 2019.

[3]For discussion of consolidated investment results, see MD&A - Investment Results.

[4]For discussion of income taxes, see Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Written and Earned Premiums

90

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Premium Measures

[1]Policy count retention decreased in the three month period ended September 30, 2020 largely due to policy cancellations for non-payment of premium that had been temporarily suspended to provide policyholders additional time to pay their premium (until May 31, 2020 in most states).

[2]Premium retention for automobile decreased in the nine month period ended September 30, 2020 largely due to $81 of premium credits given to automobile policyholders. Excluding the impact of the premium credits, automobile premium retention would have been 86% in the nine month period ended September 30, 2020.

Underwriting Ratios

91

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Product Combined Ratios

Net Income

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net income decreased by $15 for the three months ended September 30, 2020, primarily due to higher current accident year catastrophe losses, lower net realized capital gains and lower net investment income, largely offset by lower current accident year losses in automobile due to effects of the COVID-19 pandemic that has resulted in a reduction in claim frequency associated with insureds driving less due to shelter-in-place guidelines as well as lower underwriting expenses, including amortization of DAC.

Net income increased by $296 for the nine month period, primarily due to favorable prior accident year development in the 2020 period, lower current accident year losses in automobile due to effects of the COVID-19 pandemic, and lower underwriting expenses, partially offset by a reduction in earned premium, including the effect of $81 in premium credits given to automobile policyholders in the second quarter of 2020, a change to net realized capital losses in the 2020 period and lower net investment income, primarily driven by lower income from limited partnerships and other alternative investments.

Underwriting Gain

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Underwriting gain decreased for the three months ended September 30, 2020, primarily due to higher current accident year catastrophe losses, largely offset by lower current accident year losses in automobile due to effects of the COVID-19 pandemic as well as lower underwriting expenses, including amortization of DAC.

Underwriting gain increased for the nine months ended September 30, 2020, primarily due to favorable prior accident year development in the 2020 period driven by a reduction in prior year catastrophe reserves, lower current accident year losses in automobile due to effects of the COVID-19 pandemic, and lower underwriting expenses, partially offset by a reduction in earned premium, including the effect of $81 in premium credits given to automobile policyholders in the second quarter of 2020.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Earned Premiums

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Earned premiums decreased in both the three and nine month periods ending September 30, 2020, reflecting a decline in written premium over the prior twelve months in both Agency channels and in AARP Direct and, for the nine month period, the effect of $81 of premium credits given to automobile policyholders in the second quarter of 2020 in recognition of shelter-in-place guidelines that have resulted in a decline in miles driven.

Written premiums decreased in both the three and nine month periods in AARP Direct and both Agency channels. For automobile, written premium in the nine month period in 2020 included a reduction for the $81 of premium credits given to policyholders in the second quarter. Written premium for both automobile and homeowners declined as the amount of non-renewed premium exceeded the new business premium.

Renewal written pricing increases for both the three and nine month periods were lower in 2020 in automobile in response to moderating loss cost trends. For homeowners, while written pricing increases had moderated during the first half of 2020, written pricing increases were higher in third quarter 2020 due to the rate need arising from catastrophe and other property claims experience.

Policy count retention decreased in both automobile and homeowners in third quarter 2020, partly due to policy cancellations for non-payment that had been temporarily suspended in second quarter 2020. Policy count retention increased for both auto and homeowners in the nine month

period reflecting the effect of moderating renewal written price increases.

Premium retention for automobile decreased in the three month period, reflecting the decrease in policy count retention and decreased in the nine month period mostly due to the $81 of automobile premium credits given to policyholders in the second quarter of 2020. Premium retention for homeowners improved in both the three and nine month periods driven by renewal rate increases, partially offset by a decline in policy count retention for the three month period.

Policies in-force decreased in 2020 in both automobile and homeowners, driven by not generating enough new business to offset the loss of non-renewed policies.

Current Accident Year Loss and LAE Ratio before Catastrophes

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Current accident year Loss and LAE ratio before catastrophes decreased for the three and nine months ended September 30, 2020 in both automobile and homeowners. For automobile, the loss and loss adjustment expense ratio benefited from earned pricing increases and from lower claim frequency, primarily driven by shelter-in-place guidelines due to the COVID-19 pandemic. For homeowners, in both the three and nine month periods, the primary driver was fewer non-catastrophe weather claims.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Current Accident Year Catastrophes and Unfavorable (Favorable) Prior Accident Year Development

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Current accident year catastrophe losses for the three months ended September 30, 2020 were primarily from Pacific Coast wildfires, tropical storm Isaias, hurricane Laura, a Midwest derecho, and other wind and hail events, mostly in the Central Plains. Current accident year catastrophe losses for the three months ended September 30, 2019 were primarily from wind and hail events in the Midwest and Mountain West and losses from hurricane Dorian and tropical storm Imelda.

Current accident year catastrophe losses for the nine months ended September 30, 2020 were primarily from Pacific Coast wildfires, tropical storm Isaias, hurricane Laura and various tornado, wind and hail events in the South, Midwest, and Central Plains. Catastrophe losses for the nine months ended September 30, 2019 primarily included winter storms across the country and tornado, wind and hail events in the South, Midwest, and Mountain West.

Prior accident year development was favorable in both the three and nine month periods, with the favorable development in the nine month period principally due to a reduction in catastrophe loss reserves. Prior accident year development for both the three and nine month periods included reserve decreases from lower estimated automobile liability claim severity for the 2017 and 2018 accident years. The reduction in catastrophe loss reserves for the nine month period was driven by lower estimated losses for the 2017 and 2018 California wildfires, including a $260 subrogation benefit from PG&E, as well as a reduction in losses for various 2018 and 2019 wind and hail events. Prior accident year development was favorable in both the three and nine months ended September 30, 2019 primarily due to a decrease in automobile liability reserves for the 2017 accident year.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PROPERTY & CASUALTY OTHER OPERATIONS

Underwriting Summary

[1]For discussion of prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance.

[2]For discussion of consolidated investment results, see MD&A - Investment Results.

[3]For discussion of income taxes, see Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

Net income

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net income decreased for both the three and nine month periods, primarily due to an increase in net unfavorable prior accident year development, a decrease in net investment income and, for the nine month period, a change from net realized capital gains to net realized capital losses.

Underwriting loss increased for both the three and nine month periods, primarily due to an increase in net unfavorable prior accident year development. Net unfavorable prior accident year reserve development in the 2020 periods included reserve increases for sexual molestation and assumed reinsurance.

Asbestos and environmental reserve comprehensive annual reviews will occur in the fourth quarter of 2020. For information on A&E reserves, see MD&A - Critical Accounting Estimates, Asbestos and Environmental Reserves included in the Company's 2019 Form 10-K Annual Report.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

GROUP BENEFITS

Results of Operations

Operating Summary

[1]For discussion of consolidated investment results, see MD&A - Investment Results.

[2]For discussion of income taxes, see Note 13 - Income Taxes of Notes to the Condensed Consolidated Financial Statements.

Premiums and Other Considerations

Ratios, Excluding Buyouts

[1] Integration and transaction costs related to the acquisition of Aetna's U.S. group life and disability business are not included in the expense ratio.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Margin

Net Income

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net income decreased for the three and nine month periods, primarily due to COVID-19 benefits and incurred losses in 2020, lower net investment income, lower net realized capital gains and, for the nine month period, higher insurance operating costs and other expenses, partially offset by higher recoveries and lower claim incidence on group disability claims. Also contributing to the decrease for the three month period was an increase in prior incurral year group life reserves for late reported claims and less favorable prior incurral year development for disability, largely due to a change to recovery assumptions on long-term disability claims in third quarter 2019 that reduced losses in that period. COVID-19 incurred benefits and losses in the three and nine months ended September 30, 2020 included $28 and $71, respectively, of group life claims and $7 and $18, respectively, of incurred losses on short-term disability and New York paid family leave claims. Lower net investment income was primarily driven by lower reinvestment rates and lower income from limited partnership and other alternative investments.

Insurance operating costs and other expenses decreased in the three month period and increased

in the nine month period. The three month period benefited from lower incentive compensation and travel costs as well as a reduction in the allowance for credit losses on premiums receivable. The increase in expenses for the nine month period included higher information technology ("IT") and other costs related to improving the customer experience, partially offset by lower incentive compensation and travel costs. Both the three month and nine month periods also benefited from lower integration costs.

Fully Insured Ongoing Premiums

[1] Other of $64 and $70 is included in the three months ended September 30, 2019, and 2020, respectively, and $187 and $200 for the nine months ended September 30, 2019, and 2020 is included in the total.

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Fully insured ongoing premiums decreased for the three and nine month periods, principally driven by a decrease in group life and, for the nine month period, a decrease in group

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

disability with the declines resulting primarily from lower insured exposure on in-force policies. Premiums for voluntary business increased in both the three and nine month periods, primarily due to strong sales and persistency.

Fully insured ongoing sales, excluding buyouts increased in both the three and nine month periods with increases in both group disability and group life.

Ratios

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Total loss ratio increased 2.7 points for the three month period due to an increase in both the life and disability loss ratio. The group life loss ratio increased 6.7 points with increases in both the current and prior incurral years. The current incurral year loss ratio increased 1.8 points due to COVID-19 life claims of 4.7 points (or $28) in the third quarter of 2020, partially offset by favorable non-COVID-19 life mortality. Prior incurral year development for group life was unfavorable to third quarter 2019, primarily due to updating reserve assumptions related to late reported death claims. The disability loss ratio increased 0.9

points in third quarter 2020 with 4.7 points of less favorable prior incurral year development, partially offset by a lower current incurral year loss ratio of 3.5 points. Prior incurral year development in third quarter 2019 included a 2.7 point benefit from favorable changes in long-term disability reserve assumptions and a 1.1 point benefit from an experience refund related to the New York Paid Family Leave product. The favorable change in long-term disability reserve assumptions in third quarter 2019 was largely driven from updating our claim recovery probabilities to more recent experience. The current incurral year disability loss ratio decreased primarily due to lower claim incidence, partially offset by 1.0 points (or $7) of COVID-19 short-term disability claims.

Total loss ratio decreased 0.9 points for the nine month period reflecting a lower group disability loss ratio, partially offset by a higher group life ratio. The group life loss ratio increased 2.6 points for the nine month period primarily due to a higher current incurral year loss ratio driven by 3.9 points (or $71) of COVID-19 life claims. Prior incurral year development for group life was more favorable due to favorable mortality emergence on the prior incurral year recognized in the three month period ended March 31, 2020, partially offset by the reserve assumption update related to late reported death claims. The group disability loss ratio decreased 2.6 points for the nine month period with a 1.1 point improvement in the current incurral year loss ratio and 1.2 points of more favorable prior incurral year development. The current incurral year group disability loss ratio improved1.1 points as lower claim incidence more than offset 0.9 points ($18) of COVID-19 short-term disability and New York Paid Family Leave claims. The more favorable prior incurral year development in group disability was driven by higher claim recoveries and continued improving claim incidence, partially offset by the favorable impacts in 2019 from the long term disability reserve assumption update.

Expense ratio decreased 0.6 points in the three month period and increased 1.3 points for the nine month period. The three month period benefited from lower incentive compensation and travel costs as well as a reduction in the allowance for credit losses on premiums receivable. The expense ratio increased for the nine month period driven by higher IT and other costs related to improving the customer experience, partially offset by lower incentive compensation and travel costs.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

HARTFORD FUNDS

Operating Summary

[1]For discussion of income taxes, see Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements.

[2]Represents annualized earnings divided by a daily average of assets under management, as measured in basis points.

Hartford Funds Segment AUM

[1]Represents AUM of the life and annuity business sold in May 2018 that is still managed by the Company's Hartford Funds segment.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Mutual Fund and ETP AUM by Asset Class

[1]Includes balanced, allocation, and alternative investment products.

Net Income

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net income increased for the three month period due to an increase in net realized capital gains due to mark-to-market gains on Company assets invested in some of the funds and lower operating costs, largely offset by a decrease in fee income. Net income increased for the nine month period due to lower operating costs, including a reduction in contingent consideration of $12 before tax associated with the acquisition of Lattice, partly offset by a decrease in fee income and a decrease in net investment income. The decrease in investment management fee revenue in the three and nine months ended September 30, 2020 was primarily the result of a continued shift to lower fee

generating assets. See Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements for additional information regarding contingent consideration payable.

Hartford Funds AUM

September 30, 2020 compared to September 30, 2019

Hartford Funds AUM increased compared to the prior

year due to an increase in market values, partially offset by net outflows, along with the continued runoff of AUM related to the Talcott Resolution life and annuity separate account AUM. Net flows from mutual funds and ETP were outflows of $3.4 billion in first nine months of 2020 compared to outflows of $31 in first nine months of 2019.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CORPORATE

Operating Summary

[1]Includes benefits expense on life and annuity business previously underwritten by the Company.

[2] For discussion of debt, see Note 12 - Debt of Notes to Condensed Consolidated Financial Statements and Note 13- Debt of Notes to Consolidated Financial Statement in The Hartford's 2019 Form 10-K Annual Report.

[3] For discussion of income taxes, see Note 13 - Income Taxes of Notes to the Condensed Consolidated Financial Statements.

Net Loss

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net loss increased for the three month period, primarily due to restructuring costs of $87 before tax in third quarter 2020 in connection with the Company’s Hartford Next operational transformation and cost reduction plan, a change from income to losses from the Company's retained equity interest in the former life and annuity operations included in other income, largely offset by a $90 before tax loss on extinguishment of debt in third quarter 2019. In addition, a decrease in interest expense and increase in net realized capital gains was partly offset by lower net investment income.

Net loss increased for the nine month period primarily due to restructuring costs of $87 before tax, lower net investment income, a change from net realized capital gains to net realized capital losses and lower transition services revenue, partially offset by a $90 before tax loss on extinguishment of debt in 2019, transaction costs incurred in 2019 in connection with the acquisition of Navigators Group and lower interest expense.

Income (loss) before tax from the Company's retained equity interest in the former life and annuity operations was ($21) and $43, respectively for the three and nine months ended September 30, 2020 and was $14 and $45, respectively, for the three and nine months ended September 30, 2019. Net income declined in

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

both the three and nine-month periods primarily due to a lower yield on short-term investments.

Interest Expense

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Interest expense decreased for both the three and nine month periods primarily due to the repayment of our 5.5% senior notes in March of 2020.

ENTERPRISE RISK MANAGEMENT

The Company’s Board of Directors has ultimate responsibility for risk oversight, as described more fully in our Proxy Statement, while management is tasked with the day-to-day management of the Company’s risks.

The Company manages and monitors risk through risk policies, controls and limits. At the senior management level, an Enterprise Risk and Capital Committee (“ERCC”) oversees the risk profile and risk management practices of the Company.

The Company's enterprise risk management ("ERM") function supports the ERCC and functional committees, and is tasked with, among other things:

• risk identification and assessment;
• the development of risk appetites, tolerances, and limits;
• risk monitoring; and
• internal and external risk reporting.

The Company categorizes its main risks as insurance risk, operational risk and financial risk. Insurance risk and financial risk are described in more detail below. Operational risk and specific risk tolerances for natural catastrophes and pandemic risk are described in the ERM section of the MD&A in The Hartford’s 2019 Form 10-K Annual Report.

Insurance Risk

Insurance risk is the risk of losses of both a catastrophic and non-catastrophic nature on the P&C and Group Benefits products the Company has sold. Catastrophe insurance risk is the exposure arising from both natural (e.g., weather, earthquakes, wildfires, pandemics) and man-made catastrophes (e.g., terrorism, cyber-attacks) that create a concentration or aggregation of loss across the Company's insurance or asset portfolios.

Sources of Insurance Risk Non-catastrophe insurance risks exist within each of the Company's segments except Hartford Funds and include:

• Property- Risk of loss to personal or commercial property from automobile related accidents, weather, explosions, smoke, shaking, fire, theft, vandalism, inadequate installation, faulty equipment, collisions and falling objects, and/or machinery mechanical breakdown resulting in physical damage and other covered perils.
• Liability- Risk of loss from automobile related accidents, uninsured and underinsured drivers, lawsuits from accidents, defective products, breach of warranty, negligent acts by professional practitioners, environmental claims, latent exposures, fraud, coercion, forgery, failure to fulfill obligations per contract surety, liability from errors and omissions, losses from political and credit coverages, losses from derivative lawsuits, and other securities actions and covered perils.
• Mortality- Risk of loss from unexpected trends in insured deaths impacting timing of payouts from group life insurance, personal or commercial automobile related accidents, and death of employees or executives during the course of employment, while on disability, or while collecting workers compensation benefits.
• Morbidity- Risk of loss to an insured from illness incurred during the course of employment or illness from other covered perils.
• Disability- Risk of loss incurred from personal or commercial automobile related losses, accidents arising outside of the workplace, injuries or accidents incurred during the course of employment, or from equipment, with each loss resulting in short term or long-term disability payments.
• Longevity- Risk of loss from increased life expectancy trends among policyholders receiving long-term benefit payments.
• Cyber Insurance- Risk of loss to property, breach of data and business interruption from various types of cyber-attacks.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Catastrophe risk primarily arises in the property, automobile, workers' compensation, casualty, group life, and group disability lines of business.

Impact Non-catastrophe insurance risk can arise from unexpected loss experience, underpriced business and/or

underestimation of loss reserves and can have significant effects on the Company’s earnings. Catastrophe insurance risk can arise from various unpredictable events and can have significant effects on the Company's earnings and may result in losses that could constrain its liquidity.

Management The Company's policies and procedures for managing these risks include disciplined underwriting protocols, exposure controls, sophisticated risk-based pricing, risk modeling, risk transfer, and capital management strategies. The Company has established underwriting guidelines for both individual risks, including individual policy limits, and risks in the aggregate, including aggregate exposure limits by geographic zone and peril. The Company uses both internal and third-party models to estimate the potential loss resulting from various catastrophe events and the potential financial impact those events would have on the Company's financial position and results of operations across its businesses.

In addition, certain insurance products offered by The Hartford provide coverage for losses incurred due to cyber events and the Company has assessed and modeled how those products would respond to different events in order to manage its aggregate exposure to losses incurred under the insurance policies we sell. The Company models numerous deterministic scenarios including losses caused by malware, data breach, distributed denial of service attacks, intrusions of cloud environments and attacks of power grids.

Among specific risk tolerances set by the Company, risk limits are set for natural catastrophes, terrorism risk and pandemic risk.

Reinsurance as a Risk Management Strategy

The Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers' compensation exposures, and individual risk (including facultative reinsurance) or quota share

arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial. The Hartford also participates in governmentally administered reinsurance facilities such as the Florida Hurricane Catastrophe Fund (“FHCF”), the Terrorism Risk Insurance Program (“TRIPRA”) and other reinsurance programs relating to particular risks or specific lines of business.

Reinsurance for Catastrophes- The Company utilizes various reinsurance programs to mitigate catastrophe losses including excess of loss occurrence-based treaties covering property and workers’ compensation, and an aggregate property catastrophe treaty as well as individual risk agreements (including facultative reinsurance) that reinsure losses from specific classes or lines of business. The aggregate property catastrophe treaty covers the aggregate of catastrophe events designated by the Property Claim Services office of Verisk and, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand, in excess of a $700 retention. The occurrence-based property catastrophe treaties respond in excess of $150 per occurrence for all perils other than named storm and earthquake. Pandemic is not excluded from the catastrophe treaties, so there could be reinsurance coverage for COVID-19 if related losses exceed the retentions and fall within the terms and conditions of the contract, including that losses are sustained by the Company during a 168 hour period. Because of the level of the retentions and the Company’s current loss estimates, the Company expects limited reinsurance recovery from COVID-19 related losses under the per-occurrence catastrophe treaties. In addition to catastrophe reinsurance, the Company has per risk and quota share reinsurance that would respond to certain COVID-19 related losses; however, the reinsurance market has shifted to require communicable disease exclusions on certain treaties that have renewed subsequent to 7/1/20. The Company has reinsurance in place to cover individual group life losses in excess of $1 per person. With respect to recent civil unrest, losses relating to civil unrest designated by the Property Claim Services office of Verisk as a catastrophe event will cede to our property catastrophe aggregate cover. Such losses are not expected to be covered by the property catastrophe occurrence treaties because the unrest occurred in non-contiguous areas though the Company has property per risk and property quota share reinsurance that would cover certain losses related to the civil unrest.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Primary Catastrophe Treaty Reinsurance Coverages as of September 30, 2020 [1]

[1] As of January 1, 2020 Navigators Group (Global Specialty) is included in the Corporate Property Catastrophe treaties. These treaties do not cover the assumed reinsurance business which purchases its own retrocessional coverage.

[2]In addition to the Property Occurrence Treaty, for Florida wind events, The Hartford has purchased the mandatory FHCF reinsurance for the annual period starting at 6/1. Retention and coverage varies by writing company. The writing company with the largest coverage under FHCF is Hartford Insurance Company of the Midwest, with coverage estimated at approximately $67 of per event losses in excess of a $27 retention (estimates are based on best available information at this time and are periodically updated as information is made available by Florida).

[3]Portions of this layer of coverage extend beyond a traditional one year term.

[4]The aggregate treaty is not limited to a single event; rather, it is designed to provide reinsurance protection for the aggregate of all catastrophe events (up to $350 per event), either designated by the Property Claim Services office of Verisk or, for international business, net losses arising from two or more risks involved in the same loss occurrence totaling at least $500 thousand. All catastrophe losses apply toward satisfying the $700 attachment point under the aggregate treaty.

[5]In addition to the limits shown, the workers' compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of $30 in per event losses in excess of a $20 retention.

In addition to the property catastrophe reinsurance coverage described in the above table, the Company has other reinsurance agreements that cover property catastrophe losses. The Per Occurrence Property Catastrophe Treaty, and Workers' Compensation Catastrophe Treaty include a provision to reinstate one limit in the event that a catastrophe loss exhausts limits on one or more layers under the treaties.

Reinsurance for Terrorism- For the risk of terrorism, private sector catastrophe reinsurance capacity is generally limited and largely unavailable for terrorism losses caused by nuclear, biological, chemical or radiological attacks. As such, the Company's principal reinsurance protection against large-scale terrorist attacks is the coverage currently provided through TRIPRA to the end of 2027.

TRIPRA provides a backstop for insurance-related losses resulting from any “act of terrorism”, which is certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General, for losses that exceed a threshold of industry losses of $200 million. Under the program, in any one calendar year, the federal government will pay a percentage of losses incurred from a certified act of terrorism after an insurer's losses exceed 20% of the Company's eligible direct commercial earned premiums of the prior calendar year up to a combined annual aggregate limit for the federal government and all insurers of $100 billion. The percentage of losses paid by the federal government is 80%. The Company's

estimated deductible under the program is $1.5 billion for 2020. If an act of terrorism or acts of terrorism result in covered losses exceeding the $100 billion annual industry aggregate limit, Congress would be responsible for determining how additional losses in excess of $100 billion will be paid.

Reinsurance for A&E and Navigators Group Reserve Development - The Company has two adverse development cover (“ADC”) reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all A&E reserve development for 2016 and prior accident years (the “A&E ADC”) and the other covers substantially all reserve development of Navigators Insurance Company and certain of its affiliates for 2018 and prior accident years (“Navigators ADC”). For more information on the A&E ADC and the Navigators ADC, see Note - 1, Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements, included in The Hartford's 2019 Form 10-K Annual Report and Note -10, Reserve for Unpaid Losses and Loss Adjustment Expenses of this Form 10-Q.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from external events.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Sources of Operational Risk Operational risk is inherent in the Company's business and functional areas. Operational risks include: compliance with laws and regulation, cybersecurity, business disruption, technology failure, inadequate execution or process management, reliance on model and data analytics, internal fraud, external fraud, third party dependency and attraction and retention of talent.

Impact Operational risk can result in financial loss, disruption

of our business, regulatory actions or damage to our reputation.

Management Responsibility for day-to-day management of operational risk lies within each business unit and functional area. ERM provides an enterprise-wide view of the Company's operational risk on an aggregate basis. ERM is responsible for establishing, maintaining and communicating the framework, principles and guidelines of the Company's operational risk management program.

In response to COVID-19 the Company has implemented a number of mitigation strategies to address potential operational impacts, including:

• Activated our cross-functional Crisis Management Team (CMT) comprising of representatives from areas such as the Business Resiliency Office, IT, Corporate Health & Well-being, Employee Relations, Security, Facilities and Communications
• Enabled the vast majority of employees to work from home with no material impacts to operations; for employees in the office, various protocols have been implemented to promote employee health and safety including, but not limited to, the use of personal protective equipment, practicing social distancing and enhanced cleaning
• Strengthened technology infrastructure and expanded policies for accessing the Company’s network remotely
• Actively worked with sourcing partners to ensure they were implementing their business continuity plans
• Provided support to employees through our Corporate, Health & Well-being team comprised of healthcare professionals to identify and isolate employees with potential COVID-19 exposure.

Financial Risk

Financial risks include direct and indirect risks to the Company's financial objectives from events that impact financial market conditions and the value of financial assets. Some events may cause correlated movement in multiple risk factors. The primary sources of financial risks are the Company's invested assets.

Consistent with its risk appetite, the Company establishes financial risk limits to control potential loss on a U.S. GAAP, statutory, and economic basis. Exposures are actively monitored and managed, with risks mitigated where appropriate. The Company uses various risk management strategies, including limiting aggregation of risk, portfolio re-balancing and hedging with over-the-counter and exchange-traded derivatives with counterparties meeting the appropriate regulatory and due diligence requirements. Derivatives are utilized to achieve one of four Company-approved objectives: hedging risk arising from interest rate, equity market, commodity market, credit spread

and issuer default, price or currency exchange rate risk or volatility; managing liquidity; controlling transaction costs; or entering into synthetic replication transactions. Derivative activities are monitored and evaluated by the Company’s compliance and risk management teams and reviewed by senior management. The Company identifies different categories of financial risk, including liquidity, credit, interest rate, equity and foreign currency exchange.

Liquidity Risk

Liquidity risk is the risk to current or prospective earnings or capital arising from the Company's inability or perceived inability to meet its contractual funding obligations as they come due.

Sources of Liquidity Risk Sources of liquidity risk include funding risk, company-specific liquidity risk and market liquidity risk resulting from differences in the amount and timing of sources and uses of cash as well as company-specific and general market conditions. Stressed market conditions may impact the ability to sell assets or otherwise transact business and may result in a significant loss in value.

Impact Inadequate capital resources and liquidity could negatively affect the Company’s overall financial strength and its ability to generate cash flows from its businesses, borrow funds at competitive rates, and raise new capital to meet operating and growth needs.

Management The Company has defined ongoing monitoring and reporting requirements to assess liquidity across the enterprise under both current and stressed market conditions. The Company measures and manages liquidity risk exposures and funding needs within prescribed limits across legal entities, taking into account legal, regulatory and operational limitations to the transferability liquidity. The Company also monitors internal and external conditions, and identifies material risk changes and emerging risks that may impact operating cash flows or liquid assets. The liquidity requirements of the Holding Company have been and will continue to be met by the Holding Company's fixed maturities, short-term investments and cash, and dividends from its subsidiaries, principally its insurance operations, as well as the issuance of common stock, debt or other capital securities and borrowings from its credit facilities as needed. The Company maintains multiple sources of contingent liquidity including a revolving credit facility, a commercial paper program, an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates, and access to collateralized advances from the Federal Home Loan Bank of Boston ("FHLBB") for certain affiliates. The Company's CFO has primary responsibility for liquidity risk.

Refer to the Capital Resources & Liquidity section of MD&A for the discussion of what the Company is doing to manage liquidity during the COVID-19 pandemic.

Credit Risk and Counterparty Risk

Credit risk is the risk to earnings or capital due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with contractually agreed upon terms. Credit risk is comprised of three major factors: the risk of change in credit quality, or credit migration risk; the risk of default; and the risk of a change in value due to changes in credit spreads.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Sources of Credit Risk The majority of the Company’s credit risk is concentrated in its investment holdings and use of derivatives, but it is also present in the Company’s ceded reinsurance activities and various insurance products.

Impact A decline in creditworthiness is typically reflected as an increase in an investment’s credit spread and an associated decline in the investment's fair value, potentially resulting in recording an ACL and an increased probability of a realized loss upon sale. In certain instances, counterparties may default on their obligations and the Company may realize a loss on default. Premiums receivable, including premiums for retrospectively rated plans, reinsurance recoverable and deductible losses recoverable are also subject to credit risk based on the counterparty’s unwillingness or inability to pay.

For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Management The objective of the Company’s enterprise credit risk management strategy is to identify, quantify and manage credit risk in aggregate and to limit potential losses in accordance with the Company's credit risk management policy. The Company manages its credit risk by managing aggregations of risk, holding a diversified mix of issuers and counterparties across its investment, reinsurance and insurance portfolios and limiting exposure to any specific reinsurer or counterparty. Potential credit losses can be mitigated through diversification (e.g., geographic regions, asset types, industry sectors), hedging and the use of collateral to reduce net credit exposure.

The Company manages credit risk through the use of various surveillance, analyses and governance processes. The investment, derivatives and reinsurance areas have formal policies and procedures for counterparty approvals and authorizations, which establish criteria defining minimum levels of creditworthiness and financial stability for eligible counterparties. Credits considered for investment are subject to underwriting reviews and private securities are subject to management approval. Mitigation strategies vary across the three sources of credit risk, but may include:

• Investing in a portfolio of high-quality and diverse securities;
• Selling investments subject to credit risk;
• Hedging through use of credit default swaps;
• Clearing transactions through central clearing houses that require daily variation margin;
• Entering into contracts only with strong creditworthy institutions;
• Requiring collateral; and
• Non-renewing policies/contracts or reinsurance treaties.

The Company has developed credit exposure thresholds which are based upon counterparty ratings. Aggregate counterparty credit quality and exposure are monitored on a daily basis utilizing an enterprise-wide credit exposure information system that contains data on issuers, ratings, exposures, and credit limits. Exposures are tracked on a current and potential basis and aggregated by ultimate parent of the counterparty across

investments, reinsurance receivables, insurance products with credit risk, and derivatives.

As of September 30, 2020, the Company had no investment exposure to any credit concentration risk of a single issuer or counterparty greater than 10% of the Company’s stockholders' equity, other than the U.S. government and certain U.S. government agencies. For further discussion of concentration of credit risk in the investment portfolio, see the Concentration of Credit Risk section in Note 6 - Investments of Notes to Condensed Consolidated Financial Statements.

Credit Risk of Derivatives

The Company uses various derivative counterparties in executing its derivative transactions. The use of counterparties creates credit risk that the counterparty may not perform in accordance with the terms of the derivative transaction.

Downgrades to the credit ratings of the Company’s insurance operating companies may have adverse implications for its use of derivatives. In some cases, downgrades may give derivative counterparties for over-the-counter ("OTC") derivatives and clearing brokers for OTC-cleared derivatives the right to cancel and settle outstanding derivative trades or require additional collateral to be posted. In addition, downgrades may result in counterparties and clearing brokers becoming unwilling to engage in or clear additional derivatives or may require additional collateralization before entering into any new trades.

The Company also has derivative counterparty exposure policies which limit the Company’s exposure to credit risk. Credit exposures are generally quantified based on the prior business day’s net fair value, including income accruals, of all derivative positions transacted with a single counterparty for each separate legal entity. The Company enters into collateral arrangements in connection with its derivatives positions and collateral is pledged to or held by, or on behalf of, the Company to the extent the exposure is greater than zero, subject to minimum transfer thresholds. For the nine months ended September 30, 2020, the Company incurred no losses on derivative instruments due to counterparty default. For further discussion, see the Derivative Commitments section of Note 14 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.

Use of Credit Derivatives

The Company may also use credit default swaps to manage credit exposure or to assume credit risk to enhance yield.

Credit Risk Reduced Through Credit Derivatives

The Company uses credit derivatives to purchase credit protection with respect to a single entity or referenced index. The Company purchases credit protection through credit default swaps to economically hedge and manage credit risk of certain fixed maturity investments across multiple sectors of the investment portfolio.

Credit Risk Assumed Through Credit Derivatives

The Company also enters into credit default swaps that assume credit risk as part of replication transactions. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies. These swaps primarily reference investment grade single corporate issuers and indexes.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

For further information on credit derivatives, see Note 7 - Derivatives of Notes to Condensed Consolidated Financial Statements.

Credit Risk of Business Operations

The Company is subject to credit risk related to the company's commercial business that is written with large deductible policies or retrospectively-rated plans. The Company’s results of operations could be adversely affected if a significant portion of such contract holders failed to reimburse the Company for the deductible amount or the retrospectively rated policyholders failed to pay additional premiums owed. While the Company attempts to manage the risks discussed above through underwriting, credit analysis, collateral requirements, provision for bad debt, and other oversight mechanisms, the Company’s efforts may not be successful.

Interest Rate Risk

Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities arising from movements in interest rates. Interest rate risk encompasses exposures with respect to changes in the level of interest rates, the shape of the term structure of rates and the volatility of interest rates. Interest rate risk does not include exposure to changes in credit spreads.

Sources of Interest Rate Risk The Company has exposure to interest rate risk arising from its fixed maturity investments, commercial mortgage loans, capital securities issued by the Company and discount rate assumptions associated with the Company’s claim reserves and pension and other post-retirement benefit obligations as well as from assets that support the Company's pension and other post-retirement benefit plans.

Impact Changes in interest rates from current levels can have both favorable and unfavorable effects for the Company.

For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Management The Company manages its exposure to interest rate risk by constructing investment portfolios that seek to protect the firm from the economic impact associated with changes in interest rates by setting portfolio duration targets that are aligned with the duration of the liabilities that they support. The Company analyzes interest rate risk using various models including parametric models and cash flow simulation under various market scenarios of the liabilities and their supporting investment portfolios. Key metrics that the Company uses to quantify its exposure to interest rate risk inherent in its invested assets and the associated liabilities include duration, convexity and key rate duration.

The Company utilizes a variety of derivative instruments to mitigate interest rate risk associated with its investment portfolio or to hedge liabilities. Interest rate caps, floors, swaps, swaptions, and futures may be used to manage portfolio duration.

Equity Risk

Equity risk is the risk of financial loss due to changes in the value of global equities or equity indices.

Sources of Equity Risk The Company has exposure to equity risk from invested assets, assets that support the Company’s pension and other post-retirement benefit plans, and fee income derived from Hartford Funds assets under management. In addition, the Company has equity exposure through its 9.7% ownership interest in the limited partnership, Hopmeadow Holdings LP, that owns the life and annuity business sold in 2018. For further information, see Note 21 - Business Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements included in the Company’s 2019 Form 10-K Annual Report.

Impact The investment portfolio is exposed to losses from market declines affecting equity securities and derivatives, which could negatively impact the Company's reported earnings. In addition, investments in limited partnerships and other alternative investments generally have a level of correlation to domestic equity market levels and can expose the Company to losses in earnings if valuations decline; however, earnings impacts are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. For assets supporting pension and other post-retirement benefit plans, the Company may be required to make additional plan contributions if equity investments in the plan portfolios decline in value. Hartford Funds earnings are also significantly influenced by the U.S. and other equity markets. Generally, declines in equity markets will reduce the value of assets under management and the amount of fee income generated from those assets. Increases in equity markets will generally have the inverse impact.

In addition, since our Hartford Funds segment revenues are based on average daily assets under management, a decline in equity markets could reduce assets under management and, in such case, would reduce our fee income from that segment.

For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Management The Company uses various approaches in managing its equity exposure, including limits on the proportion of assets invested in equities, diversification of the equity portfolio, and hedging of changes in equity indices. Early in the second quarter of 2020, the Company reduced its exposure to equity securities through sales. For assets supporting pension and other post-retirement benefit plans, the asset allocation mix is reviewed on a periodic basis. In order to minimize risk, the pension plans maintain a listing of permissible and prohibited investments and impose concentration limits and investment quality requirements on permissible investment options.

Equity Sensitivity

Investment portfolio and the assets supporting pension and other post-retirement benefit plans

Included in the following tables are the estimated before tax change in the economic value of the Company’s invested assets and assets supporting pension and other post-retirement benefit plans with sensitivity to equity risk. The calculation of the hypothetical change in economic value below assumes a 20% upward and downward shock to the Standard & Poor's 500 Composite Price Index ("S&P 500"). For limited partnerships and other alternative investments, the movement in economic value is

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

calculated using a beta analysis largely derived from historical experience relative to the S&P 500.

The selection of the 20% shock to the S&P 500 was made only as an illustration to the potential hypothetical impact of such an event and should not be construed as a prediction of future

market events. Actual results could differ materially from those illustrated below due to the nature of the estimates and assumptions used in the analysis. These calculations do not capture the impact of portfolio re-allocations.

Equity Sensitivity [1]

[1]Table excludes the Company's investment in Hopmeadow Holdings LP which is reported in other assets on the Company's Condensed Consolidated Balance Sheets.

Hartford Funds assets under management

Hartford Funds earnings are significantly influenced by the U.S. and other equity markets. If equity markets were to hypothetically decline 20% and remain depressed for one year, the estimated before tax impact on reported earnings for that one year period is a decrease of $50 as of September 30, 2020. The selection of the 20% shock to the S&P 500 was made only as an illustration to the potential hypothetical impact of such an event and should not be construed as a prediction of future market events. Actual results could differ materially due to the nature of the estimates and assumptions used in the analysis.

Foreign Currency Exchange Risk

Sources of Currency Risk Foreign currency exchange risk is the risk of financial loss due to changes in the relative value between currencies.

The Company has foreign currency exchange risk in non-U.S. dollar denominated cash, fixed maturities, equities, and derivative instruments. In addition, the Company has non-U.S. subsidiaries, some with functional currencies other than U.S. dollar, and which transact business in multiple currencies resulting in assets and liabilities denominated in foreign currencies.

Impact Changes in relative values between currencies can create variability in cash flows and realized or unrealized gains and losses on changes in the fair value of assets and liabilities.

Management The Company manages its foreign currency exchange risk primarily through asset-liability matching and through the use of derivative instruments. However, legal entity capital is invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations. The foreign currency exposure of non-U.S. dollar denominated investments will most commonly be reduced through the sale of the assets or through hedges using foreign currency swaps and forwards.

Investment Portfolio Risk

The following table presents the Company’s fixed maturities, AFS, by credit quality. The credit ratings referenced throughout this section are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. Accrued interest receivable related to fixed maturities are recorded in other assets on the Condensed Consolidated Balance Sheets and are not included in the amortized cost or fair value of the fixed maturities. For further information refer to Note 6 - Investments of Notes to Condensed Consolidated Financial Statements.

Fixed Maturities, AFS by Credit Quality

108

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The fair value of fixed maturities, AFS increased as compared to December 31, 2019, primarily due to net additions of corporate securities and an increase in valuations as a result of a decline in interest rates, partially offset by wider credit spreads. Fixed Maturities, FVO, are not included in the preceding table. For

further discussion on FVO securities, see Note 5 - Fair Value Measurements of Notes to Condensed Consolidated Financial Statements.

Fixed Maturities, AFS by Type

[1]Represents the ACL recorded following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.

[2] Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government.

The fair value of fixed maturities, AFS increased as compared with December 31, 2019, primarily due to net additions of corporate securities and an increase in valuations as a result of a decline in interest rates, partially offset by wider credit spreads. The Company increased holdings in consumer cyclical and non-

cyclical, financial services and technology/communication corporate bonds as well as in CLOs and taxable municipal bonds, while simultaneously reducing holdings in tax-exempt municipal bonds and RMBS.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Energy Exposure

Oil prices came under significant pressure during the first half of 2020, particularly during March and April, largely due to the unprecedented reduction in demand stemming from the global pandemic as well as a decision by Saudi Arabia to raise production despite declining demand. The uncertain outlook caused credit spreads to widen for corporate and sovereign issuers that participate in the exploration, production, transportation and refining of oil and gas. Subsequently, OPEC Plus' agreement to reduce production in combination with recovering demand from economic re-openings has contributed to a recovery in oil prices, although still to historically low levels. With the stabilization of oil prices, credit spreads have recovered meaningfully. Ultimately, the impact of the price volatility in the energy sector on the

Company’s invested assets, will be determined by the severity and duration of the decline in energy prices and the ability of the issuers to maintain liquidity, manage their indebtedness, and navigate the growing consolidation trends within the industry.

The Company's direct exposure within its investment portfolio to the energy sector totals approximately 3% of invested assets as of September 30, 2020 and is primarily comprised of investment grade corporate debt. These investments are diversified by issuer and different sub-sectors of the energy market, with the highest exposure to the midstream industry and the lowest to refining services. The following table summarizes the Company's exposure to the energy sector by security type and credit quality.

Exposure to Energy

The Company manages the credit risk associated with the energy sector within the investment portfolio on an on-going basis using macroeconomic analysis and issuer credit analysis. The Company considers alternate scenarios including oil prices remaining at low levels for an extended period and/or declining significantly below current levels. For additional details regarding the Company’s management of credit risks, see the Credit Risk Section of this MD&A. The Company has evaluated available-for-sale securities with exposure to energy for a potential ACL as of September 30, 2020 and concluded that for the securities in an unrealized loss position, it is more likely than not that the Company will recover the entire amortized cost basis of the securities. In addition, no

other securities in the table above have been identified as intent-to-sell, nor is the Company required to sell. For additional details regarding the Company’s impairment process, see the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments section below.

Commercial & Residential Real Estate

The following table presents the Company’s exposure to CMBS and RMBS by current credit quality included in the preceding Securities by Type table.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Exposure to CMBS & RMBS Bonds as of September 30, 2020

Exposure to CMBS & RMBS Bonds as of December 31, 2019

[1]Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government.

The Company also has exposure to commercial mortgage loans. These loans are collateralized by real estate properties that are diversified both geographically throughout the United States and by property type. These commercial loans are originated by the Company as high quality whole loans, and the Company may sell participation interests in one or more loans to third parties. A loan participation interest represents a pro-rata share in interest and principal payments generated by the participated loan, and the relationship between the Company as loan originator, lead participant and servicer and the third party as a participant are governed by a participation agreement.

As of September 30, 2020, mortgage loans had an amortized cost

of $4.5 billion and carrying value of $4.5 billion, with an ACL of $38. As of December 31, 2019, mortgage loans had an amortized cost of $4.2 billion and carrying value of $4.2 billion, with no valuation allowance. The increase in the allowance is attributable to both the recognition of an ACL in connection with the adoption of accounting guidance for credit losses on January 1, 2020 and the result of the COVID-19 pandemic and its impacts on the economic forecasts, as well as lower estimated property values and operating income as compared to the prior year. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company funded $498 of commercial mortgage loans with a weighted average loan-to-value (“LTV”) ratio of 58% and a weighted average yield of 3.2% during the nine months ended September 30, 2020. The Company continues to originate commercial mortgage loans in high growth markets across the country focusing primarily on institutional-quality industrial and multi-family properties with strong LTV ratios. There were no mortgage loans held for sale as of September 30, 2020 or

December 31, 2019.

Municipal Bonds

The following table presents the Company's exposure to municipal bonds by type and weighted average credit quality included in the preceding Securities by Type table.

Available For Sale Investments in Municipal Bonds

[1]Pre-refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the remaining payments of principal and interest.

[2]Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual appropriation by the municipality or the municipality may be obligated to appropriate general tax revenues to make lease payments.

As of both September 30, 2020 and December 31, 2019, the largest issuer concentrations were the New York City Transitional Finance Authority, the Commonwealth of Massachusetts, and the New York Dormitory Authority, which each comprised less than 3% of the municipal bond portfolio and were primarily comprised of general obligation and revenue bonds. In total, municipal bonds make up 17% of the fair value of the Company's investment portfolio. While COVID-19 has had an impact on many municipal issuers, the average credit quality of the Company’s holdings is AA-, and the Company believes the issuers in which it invests have multiple levers to maintain the strength of their credit profile.

Limited Partnerships and Other Alternative Investments

The following table presents the Company’s investments in limited partnerships and other alternative investments which include hedge funds, real estate funds, and private equity funds. Real estate funds consist of investments primarily in real estate

joint ventures and, to a lesser extent, equity funds. Private equity funds primarily consist of investments in funds whose assets typically consist of a diversified pool of investments in small to mid-sized non-public businesses with high growth potential, and strong owner sponsorship, as well as limited exposure to public markets.

Income or losses on investments in limited partnerships and alternative investments are recognized on a lag as results from private equity investments and other funds are generally reported on a three-month delay. For a discussion of impacts resulting from the COVID-19 pandemic and recent economic conditions, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Limited Partnerships and Other Alternative Investments - Net Investment Income

Investments in Limited Partnerships and Other Alternative Investments

[1] Consists of an insurer-owned life insurance policy which is invested in hedge funds and other investments.

Fixed Maturities, AFS — Unrealized Loss Aging

The total gross unrealized losses were $142 as of September 30, 2020 and have increased $87, from December 31, 2019, primarily due to wider credit spreads, partially offset by lower interest rates. As of September 30, 2020, $116 of the gross unrealized losses were associated with fixed maturities, AFS depressed less than 20% of amortized cost. The remaining $26 of gross unrealized losses were associated with fixed maturities, AFS depressed greater than 20%. The fixed maturities, AFS depressed more than 20% are primarily related to one variable-rate coupon corporate issuer with a long-dated maturity date and two corporate issuers within the energy industry, which are depressed primarily due to wider credit spreads since the securities were purchased.

As part of the Company’s ongoing security monitoring process, the Company has reviewed its fixed maturities, AFS securities in an unrealized loss position and concluded that these fixed maturities are temporarily depressed and are expected to recover in value as the securities approach maturity or as market spreads tighten. For these fixed maturities in an unrealized loss position where an ACL has not been recorded, the Company’s best estimate of expected future cash flows are sufficient to recover the amortized cost basis of the security. Furthermore, the Company neither has an intention to sell nor does it expect to be required to sell these securities. For further information regarding the Company’s ACL analysis, see the Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments section below.

Unrealized Loss Aging for Fixed Maturities, AFS Securities

113

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unrealized Loss Aging for Fixed Maturities, AFS Continuously Depressed Over 20%

Credit Losses on Fixed Maturities, AFS and Intent-to-Sell Impairments

Three and nine months ended September 30, 2020

The Company recorded net credit losses on fixed maturities, AFS of $1 and $33, respectively, for the three and nine months ended September 30, 2020. The losses for the three months ended September 30, 2020, were primarily attributable to one tax-exempt municipal bond impacted by COVID-19, partially offset by increases in the fair value of securities that had an ACL recorded in prior periods. For the nine months ended September 30, 2020, net credit losses primarily include an increase in ACL for corporate fixed maturities, mainly one private regional and commercial aircraft lessor and one cruise line issuer. Unrealized losses on securities with ACL recognized in other comprehensive income were $0 and $1 for the three and nine months ended September 30, 2020. For further information, refer to Note 6 - Investments of Notes to Condensed Consolidated Financial Statements.

Intent-to-sell impairments were $0 and $5 for the three and nine months ended September 30, 2020, respectively, with impairments in the nine month period primarily related to one corporate issuer in the energy sector and one issuer with exposure to India.

The Company incorporates its best estimate of future performance using internal assumptions and judgments that are informed by economic and industry specific trends, as well as our expectations with respect to security specific developments.

Future impairments may develop as the result of changes in intent-to-sell specific securities that are in an unrealized loss position or if modeling assumptions, such as macroeconomic factors or security specific developments, change unfavorably from our current modeling assumptions, resulting in lower cash flow expectations. For a discussion of impacts resulting from the COVID-19 pandemic, refer to the Impact of COVID-19 on our financial condition, results of operations and liquidity section of this MD&A.

Three and nine months ended September 30, 2019

Impairments recognized in earnings were comprised of credit impairments of $1 and $3 for the three and nine months ended

September 30, 2019. The credit impairments were primarily related to two corporate securities experiencing issuer-specific financial difficulties.

Non-credit impairments recognized in other comprehensive income were $0 and $2 for the three and nine months ended September 30, 2019, respectively.

ACL on Mortgage Loans

The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized capital gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. For further information, refer to Note 6 - Investments of Notes to Condensed Consolidated Financial Statements.

For the three and nine months ended September 30, 2020, the Company recorded a decrease in the ACL on mortgage loans of $5 and an increase of $38, respectively. The decrease in the allowance for the three months ended September 30, 2020, was the result of improved property valuations in certain industry sectors that have been less impacted by the COVID-19 pandemic and modestly improved economic forecasts as compared to the prior quarter. The increase in the allowance for the nine months ended September 30, 2020, was due to the effects of the COVID-19 pandemic and its impacts on the economic forecasts, as well as lower estimated property values and operating income as compared to the prior year. The Company did not record an ACL on any individual mortgage loans.

CAPITAL RESOURCES AND LIQUIDITY

The following section discusses the overall financial strength of The Hartford and its insurance operations including their ability to generate cash flows from each of their business segments, borrow funds at competitive rates and raise new capital to meet operating and growth needs over the next twelve months.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SUMMARY OF CAPITAL RESOURCES AND LIQUIDITY

Capital available to the holding company as of September 30, 2020:

• $1.6 billion in fixed maturities, short-term investments, investment sales receivable and cash at The Hartford Financial Services Group, Inc, ("HFSG Holding Company").
• A senior unsecured five-year revolving credit facility that provides for borrowing capacity up to $750 of unsecured credit through March 29, 2023.
• Borrowings available under a commercial paper program to a maximum of $750. As of September 30, 2020, there was no commercial paper outstanding.
• An intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes.

2020 expected dividends and other sources of capital:

The future payment of dividends from our subsidiaries is dependent on several factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity.

• P&C - The Company's U.S. property and casualty insurance subsidiaries have dividend capacity of $1.6 billion for 2020, with $870 to $900 of net dividends expected in 2020 including $714 paid to HFSG Holding Company through September 30, 2020.
• Group Benefits - HLA has dividend capacity of $534 in 2020 with $330 to $350 of dividends expected in 2020 including $280 paid to HFSG Holding Company through September 30, 2020.
• Hartford Funds - HFSG Holding Company expects to receive $120 to $130 in dividends from Hartford Funds in 2020 including $92 received through September 30, 2020.
• Cash tax receipts of approximately $530, including realization of net operating losses and AMT credits. Through September 30, 2020, HFSG Holding Company has received cash tax receipts of $489.
• In September 2020, the Company received a $30 dividend from its retained equity interest in the legal entity that acquired the life and annuity business sold in May 2018.

Expected liquidity requirements for the next twelve months as of September 30, 2020:

• $215 of interest on debt.
• $21 dividends on preferred stock, subject to the discretion of the Board of Directors.
• $470 of common stockholders' dividends, subject to the discretion of the Board of Directors and before share repurchases.

Equity repurchase program:

Under a $1.0 billion share repurchase authorization by the Board of Directors in February 2019, during the nine months ended September 30, 2020, the Company repurchased 2.7 million common shares for $150. During the period from April 1, 2020 to October 27, 2020, the Company did not repurchase any common shares under this authorization. Any repurchase of shares under the remaining equity repurchase authorization of $650 is dependent on market conditions and other factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity.

Liquidity Requirements and Sources of Capital

The Hartford Financial Services Group, Inc. (" HFSG Holding Company")

The liquidity requirements of the holding company of The Hartford Financial Services Group, Inc. have been and will continue to be met by HFSG Holding Company’s fixed maturities; short-term investments and cash; dividends, principally from its subsidiaries; and tax receipts, including realization of net operating losses and refunds of prior period AMT credits available to the HFSG Holding Company.

The Company maintains sufficient liquidity and has a variety of contingent liquidity resources to manage liquidity across a range of economic scenarios. To date, the impact of the pandemic and resulting economic downturn on net operating cash flows have been relatively modest with net operating cash flows increasing by $209 in the first nine months of 2020 compared to the first nine months of 2019, driven by the inclusion of Navigators Group for a full nine months in 2020, and a decrease in claims paid for both Group Benefits and P&C excluding Navigators, partially offset by lower P&C premiums received excluding Navigators and a decrease in refunds of AMT credits. Over the remainder of 2020, we expect moderate impacts to net operating cash flow as lower claim frequency excluding COVID-19 losses will likely continue to offset the lower premium receipts and COVID-19 losses arising from the effects of the pandemic. The amount of such impacts will ultimately depend on the length and severity of the pandemic and its effects on the economy. While those impacts could continue into 2021, we continue to expect to successfully manage our liquidity throughout the pandemic.

The Company has waived late payment fees for a period of time for business and personal insurance customers and temporarily suspended the policy cancellation process for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments. Due to those actions and the economic effects of the pandemic, we have experienced an increase in uncollectible premiums receivable and, accordingly, increased our current expected credit loss allowance on premiums receivable by $55 before tax for the nine months ended September 30, 2020.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The HFSG Holding Company expects to continue to receive dividends from its operating subsidiaries in the future and manages the capital and surplus in each of its operating subsidiaries to be sufficient under significant economic stress scenarios.

Under significant economic stress scenarios that could arise due to the COVID-19 pandemic, the Company has the ability to meet short-term cash requirements, if needed, by borrowing under its revolving credit facility and commercial paper program or by having its insurance subsidiaries take collateralized advances under a facility with the Federal Home Loan Bank of Boston (“FHLBB”). The Company could also choose to have its insurance subsidiaries sell certain highly liquid, high quality fixed maturities or the Company could issue debt in the public markets under its shelf registration. No borrowings or advances have occurred to date.

During the second quarter of 2020, fixed maturities, with a value of $63 as of September 30, 2020, were deposited by Hartford Fire Insurance Company into a Lloyd’s of London ("Lloyd's") trust account to provide required capital to The Hartford’s Lloyd’s Syndicate. This replaced $26 of the capital previously contributed by HFSG Holding Company to the Lloyd’s corporate member in the second quarter of 2020 for the benefit of the syndicate and which was returned to the HFSG Holding Company in July 2020. During the fourth quarter of 2020, we will reevaluate the capital requirements of the Hartford's Lloyd's Syndicate in accordance with Lloyd's Coming into Line process. Additionally, the amount of letters of credit under the Lloyd’s Letter of Credit Facility permitted to support Lloyd's capital requirements will be reduced by the end of 2020, which will require the Company to seek alternative means of supporting its obligations at Lloyd's. As a result, an additional contribution is expected to be made in the fourth quarter of 2020 and will be funded either with cash from HFSG Holding Company or with assets pledged by Hartford Fire Insurance Company.

In July 2020, the Company contributed €18 million to Navigators Holdings (Europe) N.V., a Belgium holding company.

Debt

On March 30, 2020, The Hartford repaid at maturity the $500 principal amount of its 5.5% senior notes.

Equity

Under a $1.0 billion share repurchase authorization by the Board of Directors in February, 2019, during the nine months ended September 30, 2020, the Company repurchased 2.7 million common shares for $150. During the period from April 1, 2020 to October 27, 2020, the Company did not repurchase any common shares under this authorization. Any repurchase of shares under the remaining equity repurchase authorization of $650 is dependent on market conditions and other factors including the extent to which COVID-19 impacts our business, results of operations, financial condition and liquidity.

For further information about equity repurchases, see Part II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Dividends

The Hartford's Board of Directors declared the following quarterly dividends since July 1, 2020:

Common Stock Dividends

Preferred Stock Dividends

There are no current restrictions on the HFSG Holding Company's ability to pay dividends to its stockholders.

For a discussion of restrictions on dividends to the HFSG Holding Company from its insurance subsidiaries, see the following "Dividends from Subsidiaries" discussion. For a discussion of potential restrictions on the HFSG Holding Company's ability to pay dividends, see the risk factor "Our ability to declare and pay dividends is subject to limitations" in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Pension Plans and Other Postretirement Benefits

The Company does not have a 2020 required minimum funding contribution for the U.S. qualified defined benefit pension plan and the funding requirements for all pension plans are expected to be immaterial. The Company contributed $70 in September 2020 to its U.S. qualified defined benefit pension plan.

Dividends from Subsidiaries

Dividends to HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. Upon the acquisition of Navigators Group, the Company’s principal insurance subsidiaries are domiciled in the United States, the United Kingdom, and Belgium.

The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s statutory policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner.

Property casualty insurers domiciled in New York, including Navigators Insurance Company ("NIC") and Navigators Specialty Insurance Company ("NSIC"), generally may not, without notice to and approval by the state insurance commissioner, pay dividends out of earned surplus in any twelve‑month period that exceeds the lesser of (i) 10% of the insurer’s statutory

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

policyholders’ surplus as of the most recent financial statement on file, or (ii) 100% of its adjusted net investment income, as defined, for the same twelve month period. As part of the New York state insurance commissioner's approval of the Navigators Group acquisition, and as is common practice, any dividend from NIC and NSIC before May 2021 will require prior approval from the state insurance commissioner.

The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when determining dividends from subsidiaries. These considerations include, but are not limited to, expected earnings and capitalization of the subsidiaries, regulatory capital requirements and liquidity requirements of the individual operating company.

Corporate members of Lloyd's Syndicates may pay dividends to its parent to the extent of available profits that have been distributed from the syndicate in excess of the Funds at Lloyd's ("FAL") capital requirement. The FAL is determined based on the syndicate’s solvency capital requirement under the E.U.'s Solvency II capital adequacy model, plus a Lloyd’s specific economic capital assessment.

Insurers domiciled in the United Kingdom may pay dividends to their parent out of their statutory profits subject to restrictions imposed under U.K. Company law and European Insurance regulation (Solvency II). Belgium domiciled insurers may only pay dividends if, at the end of their previous fiscal year, the total amount of their assets, as reduced by its provisions and debts, are in excess of certain minimum capital thresholds calculated under Belgian law.

Through the first nine months of 2020, HFSG Holding Company received $1,086 of net dividends, including $714 from its U.S. P&C subsidiaries, $280 from HLA and $92 from Hartford Funds.

Over the remainder of 2020, the Company anticipates receiving approximately $155 to $185 of net dividends from its U.S. P&C subsidiaries, $50 to $70 of dividends from HLA and $25 to $35 of dividends from Hartford Funds.

Other Sources of Capital for the HFSG Holding Company

The Hartford endeavors to maintain a capital structure that provides financial and operational flexibility to its insurance subsidiaries, ratings that support its competitive position in the financial services marketplace (see the "Ratings" section below for further discussion), and stockholder returns. As a result, the Company may from time to time raise capital from the issuance of debt, common equity, preferred stock, equity-related debt or other capital securities and is continuously evaluating strategic opportunities. The issuance of debt, common equity, equity-related debt or other capital securities could result in the dilution of stockholder interests or reduced net income due to additional interest expense.

Shelf Registrations

The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on May 17,

2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement.

Revolving Credit Facilities

The Company has a senior unsecured five-year revolving credit facility (the "Credit Facility") that provides up to $750 of unsecured credit through March 29, 2023. As of September 30, 2020, no borrowings were outstanding and no letters of credit were issued under the Credit Facility and the Company was in compliance with all financial covenants.

Commercial Paper

The availability of the Company's commercial paper program is dependent upon a variety of factors including the Company's ratings and market conditions. As of September 30, 2020, The Hartford's maximum borrowings available under its commercial paper program is $750 and there was no commercial paper outstanding.

Intercompany Liquidity Agreements

The Company has $2.0 billion available under an intercompany liquidity agreement that allows for short-term advances of funds among the HFSG Holding Company and certain affiliates of up to $2.0 billion for liquidity and other general corporate purposes. The Connecticut Department of Insurance ("CTDOI") granted approval for certain affiliated insurance companies that are parties to the agreement to treat receivables from a parent, including the HFSG Holding Company, as admitted assets for statutory accounting purposes.

As of September 30, 2020 there were no amounts outstanding at the HFSG Holding Company.

Collateralized Advances with Federal Home Loan Bank of Boston

The Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and Hartford Life and Accident Insurance Company (“HLA”), are members of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. Advances may be used to support general corporate purposes, which would be presented as short- or long-term debt, or to earn incremental investment income, which would be presented in other liabilities consistent with other collateralized financing transactions. As of September 30, 2020, there were no advances outstanding.

For further information regarding collateralized advances with Federal Home Loan Bank of Boston, see Note 13 - Debt of Notes to Consolidated Financial Statements included in the Company’s 2019 Form 10-K Annual Report.

Lloyd's Letter of Credit Facilities

As a result of the acquisition of Navigators Group, The Hartford has two letter of credit facility agreements: the Club Facility and the Bilateral Facility, which are used to provide a portion of the capital requirements at Lloyd's. As of September 30, 2020, uncollateralized letters of credit with an aggregate face amount of $165 and £60 million were outstanding under the Club Facility and £18 million was outstanding under the Bilateral Facility. As of September 30, 2020, the Bilateral Facility has unused capacity of $2 for issuance of additional letters of credit. Among other covenants, the Club Facility and Bilateral Facility contain financial covenants regarding tangible net worth and Funds at Lloyd's

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

("FAL"). As of September 30, 2020, Navigators Group was in compliance with all financial covenants.

Derivative Commitments

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical rating agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand either immediate and ongoing full collateralization or immediate termination and settlement of the outstanding net derivative positions transacted under each agreement. For further information, refer to Note 14 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements.

As of September 30, 2020, no derivative positions would be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings. This could change as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated.

Insurance Operations

While subject to variability period to period, underwriting and investment cash flows continue to provide sufficient liquidity to meet anticipated demands over the next twelve months. For information about the impact of COVID-19 on the Company's cash flows see the Risk Factors disclosed in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as amended in Part II Item 1A herein. For a discussion and tabular presentation of the Company’s contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A included in The Hartford’s 2019 Form 10-K Annual Report.

The principal sources of operating funds are premiums, fees earned from assets under management and investment income, while investing cash flows primarily originate from maturities and sales of invested assets. The primary uses of funds are to pay claims, claim adjustment expenses, commissions and other underwriting and insurance operating costs, to pay taxes, to purchase new investments and to make dividend payments to the HFSG Holding Company.

The Company’s insurance operations consist of property and casualty insurance products (collectively referred to as “Property & Casualty Operations”) and Group Benefits.

The Company's insurance operations hold fixed maturity securities including a significant short-term investment position (securities with maturities of one year or less at the time of purchase) to meet liquidity needs. Liquidity requirements that are unable to be funded by the Company's insurance operations' short-term investments would be satisfied with current operating funds, including premiums or investing cash flows, which includes proceeds received through the sale of invested assets. A sale of invested assets could result in significant realized capital losses.

The following tables represent the fixed maturity holdings, including the aforementioned cash and short-term investments available to meet liquidity needs, for each of the Company’s insurance operations.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

There have been no material changes to the Company’s off-balance sheet arrangements and aggregate contractual obligations since the filing of the Company’s 2019 Form 10-K Annual Report.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Capitalization

Capital Structure

Total capitalization increased $1,035, or 5%, as of September 30, 2020 compared to December 31, 2019 primarily due to an increase in AOCI and net income in excess of stockholder dividends.

For additional information on AOCI, net of tax, including unrealized capital gains from securities, see Note 16 - Changes In

and Reclassifications From Accumulated Other Comprehensive Income (Loss) and Note 6 - Investments of Notes to Condensed Consolidated Financial Statements. For additional information on debt, see Note 12 - Debt of Notes to Condensed Consolidated Financial Statements.

Cash Flow[1]

[1] Cash activities in 2020 include cash flows related to Continental Europe Operations classified as held for sale beginning in the third quarter of 2020. See Note 2 - Business Acquisition and Disposition of Notes to Condensed Consolidated Financial Statements for discussion of this transaction.

Cash provided by operating activities increased in 2020 as compared to the prior year period primarily driven by the inclusion of Navigators Group for the full nine months in 2020 and a decrease in claims paid for Group Benefits and P&C excluding Navigators, partially offset by lower P&C premiums received excluding Navigators and a lower refund of AMT credits.

Cash used for investing activities decreased primarily due to the acquisition of Navigators Group for $1.9 billion in 2019, lower net purchases of fixed maturities and an increase in net proceeds from equity securities, partially offset by a change from net proceeds to net payments from short-term investments, and an increase in net purchases of partnerships.

Cash used for financing activities increased primarily due to an increase in the net repayment from issuance and retirement of debt, a larger net decrease in securities loaned or sold under agreements to repurchase and an increase in the repurchase of common shares.

Operating cash flow for the nine months ended September 30, 2020 have been adequate to meet liquidity requirements.

Equity Markets

For a discussion of the potential impact of the equity markets on capital and liquidity, see the Financial Risk section in this MD&A and the Financial Risk on Statutory Capital section of the MD&A in the Company's 2019 Form 10-K Annual Report.

Ratings

Ratings are an important factor in establishing a competitive position in the insurance marketplace and impact the Company's ability to access financing and its cost of borrowing. There can be no assurance that the Company’s ratings will continue for any given period of time, or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s competitive position, ability to access financing, and its cost of borrowing, may be adversely impacted.

On June 19, 2020, A.M. Best raised its financial strength rating on Hartford Life and Accident Insurance Company (“HLA”) to A+ from A. The upgrade is reflective of the support provided by The Hartford, as well as the group benefits business’ growing contribution to consolidated revenue and earnings and the overall diversification it provides.

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Insurance Financial Strength Ratings as of October 27, 2020

These ratings are not a recommendation to buy or hold any of The Hartford’s securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

The agencies consider many factors in determining the final rating of an insurance company. One consideration is the relative level of statutory capital and surplus (referred to collectively as "statutory capital") necessary to support the business written and is reported in accordance with accounting practices prescribed by the applicable state insurance department.

Statutory Capital

U.S. Statutory Capital Rollforward for the Company's Insurance Subsidiaries

[1]The statutory capital for property and casualty insurance subsidiaries in this table does not include the value of an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company.

[2]Excludes insurance operations in the U.K. and continental Europe.

Contingencies

Legal Proceedings

For a discussion regarding contingencies related to The Hartford’s legal proceedings, please see the information contained under “Litigation” and "Run-off Asbestos and Environmental Claims" in Note 14 - Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements and Part II, Item 1 Legal Proceedings, which are incorporated herein by reference.

Legislative and Regulatory Developments

COVID-19 Global Pandemic

State retroactive business interruption coverage and other insurance regulatory relief initiatives-

State lawmakers are actively considering legislation and regulation in response to COVID-19. There have been proposals to impose retroactive coverage of COVID-19 claims under existing business interruption coverage provisions. If such proposals were enacted, they could represent a material exposure for the Company. Further, some states have adopted, or are considering incorporating, a presumption that if certain

workers become infected with COVID-19, such infection would constitute an occupational disease triggering workers’ compensation coverage. In addition, state insurance regulators, including California, New Jersey and New York, have been encouraging (and in some cases requiring) insurers to offer immediate relief to policyholders including refunding and offering discounts for drivers, incorporating flexible payment solutions for families, individuals, and businesses, providing additional time to make payments, waiving insurance premium late fees, pausing cancellation of coverage for personal and commercial policies due to non-payment and policy expiration, and suspending personal automobile exclusions for restaurant employees who are transitioning to meal delivery services using their personal automobile policy as coverage. The Hartford has offered consumer financial relief including a 15 percent refund on policyholders’ April, May and June personal automobile insurance premiums, waived late payments fees for a period of time for business and personal insurance customers and temporarily suspended policy cancellations for policyholders of our Commercial Lines, Personal Lines and Group Benefits segments. As the COVID-19 global pandemic continues, regulators may require us to or we may elect to provide additional consumer and/or business financial relief. The duration and scope of such regulatory/Company actions are uncertain, and the impacts of

Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

such actions could adversely affect the Company’s insurance business.

Federal retroactive business interruption coverage- Congress continues to focus on supporting small businesses in the wake of COVID-19. Legislation has been introduced in the U.S. House of Representatives to force retroactive coverage of COVID-19 claims under future business interruption coverage provisions and would seek to nullify existing contracts. If such proposals were enacted, they could represent a material exposure for the Company. The Senate has not introduced any companion legislation to date. Potential action on such legislation is unclear at this time.

Federal pandemic risk insurance- Congress is considering possible action for future pandemic risk insurance coverage through a risk sharing mechanism between insurers and the federal government. Timing for any Congressional action with respect to these efforts is uncertain at this time. If such a program were to be enacted, it could represent a significant obligation for the company in terms of deductible and co-share obligations.

Federal emergency leave legislation- On March 18, 2020, the Families First Coronavirus Response Act was signed into law by the President. This legislation included a number of funding provisions and worker protections including mandated emergency paid sick leave and paid family and medical leave programs. For private employers with fewer than 500 employees and most public employers, new programs were put in place to guarantee individuals 10 days of paid sick leave, and up to 10 weeks of paid family and medical leave to deal directly with COVID-19. Eligible employers have access to a tax credit to reimburse for costs related to the emergency leave programs. The Hartford is providing support for the administration of the family and medical leave component of the Families First Coronavirus Response Act for our Group Benefits customers. Congress also approved a $2 trillion Coronavirus Aid, Relief and Economic Security ("CARES") Act. The bill signed into law on March 27, 2020 focused on providing financial support for small businesses, individuals, emergency workers, airlines and other industries of national security. The CARES Act included several technical corrections to the emergency leave programs and created advance refunding credits, which allow the U.S. Treasury to develop regulations or guidance to permit advancement of the tax credit for both the emergency paid sick leave and paid family and medical leave. As Congress considers future legislation in response to COVID-19, it is possible that lawmakers look to expand the scope of eligibility and use of emergency leaves. This change in the law could trigger a significant increase in claims volume and compliance requirements for Group Benefits. The timing of such legislation is unclear at this time.

Federal tax legislation- In response to the COVID-19 Global Pandemic, Congress and other global jurisdictions have passed various pieces of legislation which contain various changes to the tax laws in order to aid impacted businesses and individuals, as well as provide economic stimulus. The deferral of the employer’s portion of the Social Security tax on wages has been extended from March 27, 2020 to year-end 2020. Such deferred amounts would be due and payable over a two-year period, 50% by December 31, 2021 and 50% by December 31, 2022. Refer to Note 13 - Income Taxes of Notes to Condensed Consolidated Financial Statements for information about the impact of these new tax laws on the Company. The U.S. Treasury and IRS continue

to develop guidance implementing these new tax law provisions, and Congress may consider additional technical corrections to these laws. Tax proposals and regulatory initiatives which have been or are being considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear.

Patient Protection and Affordable Care Act of 2010 (the "Affordable Care Act")

It is unclear whether the Administration, Congress or the courts will seek to reverse, amend or alter the ongoing operation of the Affordable Care Act ("ACA"). If such actions were to occur, they may have an impact on various aspects of our business, including our insurance businesses. It is unclear what an amended ACA would entail, and to what extent there may be a transition period for the phase out of the ACA. The impact to The Hartford as an employer would be consistent with other large employers. The Hartford’s core business does not involve the issuance of health insurance, and we have not observed any material impacts on the Company’s workers’ compensation business or group benefits business from the enactment of the ACA. We will continue to monitor the impact of the ACA and any reforms on consumer, broker and medical provider behavior for leading indicators of changes in medical costs or loss payments primarily on the Company's workers' compensation and disability liabilities.

Tax Reform

At the end of 2017, Congress passed and the president signed, the Tax Cuts and Jobs Act of 2017 ("Tax Reform"), which enacted significant reforms to the U.S. tax code. The major areas of interest to the Company included the reduction of the corporate tax rate from 35% to 21% and the repeal of the corporate alternative minimum tax (AMT) and the refunding of AMT credits. The U.S. Treasury and IRS continue to develop guidance implementing Tax Reform, and Congress may consider additional technical corrections to the law. Tax proposals and regulatory initiatives which have been or are being considered by Congress

and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear. For additional information on risks to the Company related to Tax Reform, please see the risk factor entitled "Changes in federal or state tax laws could adversely affect our business, financial condition, results of operations and liquidity" under "Risk Factors" in Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 as amended in Part II Item 1A herein.

IMPACT OF NEW ACCOUNTING STANDARDS

For a discussion of accounting standards, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements included in The Hartford’s 2019 Form 10-K Annual Report and Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) have concluded that the Company’s disclosure controls and procedures are effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of September 30, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting that occurred during the Company's current fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most employees of the Company and of our vendors have had to work from home during the COVID-19 pandemic though we will continue to assess the impact on the design and operating effectiveness of our internal controls.

Investing in The Hartford involves risk. In deciding whether to invest in The Hartford, you should carefully consider the risk factors disclosed in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as amended and updated by Item 1A of Part II of the Company's Form 10-Q for the period ended March 31, 2020, which is incorporated herein by reference, any of which could have a significant or material adverse effect on the business, financial condition, operating results or liquidity of The Hartford. This information should be considered carefully together with the other information contained in this report and the other reports and materials filed by The Hartford with the SEC.