UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2007

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

For the transition period from                      to                     

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

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

As of July 20, 2007, there were outstanding 317,680,580 shares of Common Stock, $0.01 par value per share, of the registrant.

 

 

The Hartford Financial Services Group, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2007

Table of Contents

Item		Description		Page
		Part I. FINANCIAL INFORMATION
1.		Financial Statements
		Report of Independent Registered Public Accounting Firm			3
		Condensed Consolidated Statements of Operations — For the Three and Six Months Ended June 30, 2007 and 2006			4
		Condensed Consolidated Balance Sheets — As of June 30, 2007 and December 31, 2006			5
		Condensed Consolidated Statements of Changes in Stockholders’ Equity — For the Six Months Ended June 30, 2007 and 2006			6
		Condensed Consolidated Statements of Comprehensive Income (Loss) — For the Three and Six Months Ended June 30, 2007 and 2006			6
		Condensed Consolidated Statements of Cash Flows — For the Six Months Ended June 30, 2007 and 2006			7
		Notes to Condensed Consolidated Financial Statements			8
2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
3.		Quantitative and Qualitative Disclosures About Market Risk			96
4.		Controls and Procedures			96
		Part II. OTHER INFORMATION
1.		Legal Proceedings			96
1A.		Risk Factors			98
2.		Unregistered Sales of Equity Securities and Use of Proceeds			98
4.		Submission of Matters to a Vote of Security Holders			98
5.		Other Information			99
6.		Exhibits			99
		Signature			100
		Exhibits Index			101
EX-15.01: DELOITTE & TOUCHE LLP LETTER OF AWARENESS
EX-31.01: CERTIFICATION
EX-31.02: CERTIFICATION
EX-32.01: CERTIFICATION
EX-32.02: CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying condensed consolidated balance sheet of The Hartford Financial Services Group, Inc. and subsidiaries (the “Company”) as of June 30, 2007, and the related condensed consolidated statements of operations and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2007 and 2006, and changes in stockholders’ equity, and cash flows for the six-month periods ended June 30, 2007 and 2006. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2006, and the related consolidated statements of operations, changes in stockholders’ equity, comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2007 (which report includes an explanatory paragraph relating to the Company’s change in its method of accounting and reporting for defined benefit pension and other postretirement plans in 2006, and for certain nontraditional long-duration contracts and for separate accounts in 2004), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP
Hartford, Connecticut
July 24, 2007

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In millions, except for per share data)		2007				2006				2007				2006
		(Unaudited)								(Unaudited)
Revenues
Earned premiums		$	3,867			$	3,688			$	7,698			$	7,527
Fee income			1,346				1,159				2,628				2,280
Net investment income
Securities, available-for-sale and other			1,336				1,158				2,609				2,285
Equity securities, held for trading			1,234				(970	)			1,444				(516	)
Total net investment income			2,570				188				4,053				1,769
Other revenues			125				115				242				238
Net realized capital losses			(248	)			(179	)			(202	)			(300	)
Total revenues			7,660				4,971				14,419				11,514
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses			4,778				2,471				8,321				6,250
Amortization of deferred policy acquisition costs and present value of future profits			837				829				1,709				1,646
Insurance operating costs and expenses			965				799				1,853				1,526
Interest expense			66				71				129				137
Other expenses			177				196				358				366
Total benefits, losses and expenses			6,823				4,366				12,370				9,925
Income before income taxes			837				605				2,049				1,589
Income tax expense			210				129				546				385
Net income		$	627			$	476			$	1,503			$	1,204
Earnings per Share
Basic		$	1.98			$	1.57			$	4.72			$	3.98
Diluted		$	1.96			$	1.52			$	4.68			$	3.86
Weighted average common shares outstanding			316.8				303.3				318.2				302.8
Weighted average common shares outstanding and dilutive potential common shares			319.6				312.3				321.2				311.6
Cash dividends declared per share		$	0.50			$	0.40			$	1.00			$	0.80

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		June 30,				December 31,
(In millions, except for per share data)		2007				2006
		(Unaudited)
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost of $81,466 and $79,289)		$	81,636			$	80,755
Equity securities, held for trading, at fair value (cost of $25,314 and $23,668)			31,843				29,393
Equity securities, available-for-sale, at fair value (cost of $2,205 and $1,535)			2,390				1,739
Policy loans, at outstanding balance			2,052				2,051
Mortgage loans on real estate			4,891				3,318
Other investments			2,505				1,917
Total investments			125,317				119,173
Cash			1,624				1,424
Premiums receivable and agents’ balances			3,849				3,675
Reinsurance recoverables			5,131				5,571
Deferred policy acquisition costs and present value of future profits			10,729				10,268
Deferred income taxes			558				284
Goodwill			1,726				1,717
Property and equipment, net			910				791
Other assets			3,988				3,323
Separate account assets			191,814				180,484
Total assets		$	345,646			$	326,710
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
Property and casualty		$	21,990			$	21,991
Life			14,630				14,016
Other policyholder funds and benefits payable			74,796				71,311
Unearned premiums			5,704				5,620
Short-term debt			399				599
Long-term debt			4,119				3,504
Consumer notes			588				258
Other liabilities			12,958				10,051
Separate account liabilities			191,814				180,484
Total liabilities			326,998				307,834
Commitments and Contingencies (Note 7)
Stockholders’ Equity
Common stock - 750,000,000 shares authorized, 329,232,428 and 326,401,820 shares issued, $0.01 par value			3				3
Additional paid-in capital			6,541				6,321
Retained earnings			13,564				12,421
Treasury stock, at cost 11,655,772 and 3,086,429 shares			(859	)			(47	)
Accumulated other comprehensive income (loss), net of tax			(601	)			178
Total stockholders’ equity			18,648				18,876
Total liabilities and stockholders’ equity		$	345,646			$	326,710

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Six Months Ended
		June 30,
(In millions, except for share data)		2007				2006
		(Unaudited)
Common Stock and Additional Paid-in Capital
Balance at beginning of period		$	6,324			$	5,070
Issuance of shares under incentive and stock compensation plans and other			180				89
Tax benefit on employee stock options and awards			40				27
Balance at end of period			6,544				5,186
Retained Earnings
Balance at beginning of period, before cumulative effect of accounting changes, net of tax			12,421				10,207
Cumulative effect of accounting changes, net of tax			(41	)			—
Balance at beginning of period, as adjusted			12,380				10,207
Net income			1,503				1,204
Dividends declared on common stock			(319	)			(244	)
Balance at end of period			13,564				11,167
Treasury Stock, at Cost
Balance at beginning of period			(47	)			(42	)
Treasury stock acquired			(800	)			—
Return of shares under incentive and stock compensation plans to treasury stock			(12	)			(4	)
Balance at end of period			(859	)			(46	)
Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance at beginning of period			178				90
Total other comprehensive loss			(779	)			(1,014	)
Balance at end of period			(601	)			(924	)
Total stockholders’ equity		$	18,648			$	15,383
Outstanding Shares (in thousands)
Balance at beginning of period			323,315				302,152
Treasury stock acquired			(8,439	)			—
Issuance of shares under incentive and stock compensation plans and other			2,831				2,025
Return of shares under incentive and stock compensation plans to treasury stock			(130	)			(46	)
Balance at end of period			317,577				304,131

Condensed Consolidated Statements of Comprehensive Income (Loss)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in millions)		2007				2006				2007				2006
		(Unaudited)								(Unaudited)
Comprehensive Income (Loss)
Net income		$	627			$	476			$	1,503			$	1,204
Other Comprehensive Income (Loss)
Change in net unrealized gain/loss on securities			(700	)			(409	)			(746	)			(884	)
Change in net gain/loss on cash-flow hedging instruments			(95	)			(111	)			(68	)			(199	)
Change in foreign currency translation adjustments			2				53				11				69
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs			15				—				24				—
Total other comprehensive loss			(778	)			(467	)			(779	)			(1,014	)
Total comprehensive income (loss)		$	(151	)		$	9			$	724			$	190

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Condensed Consolidated Statements of Cash Flows

		Six Months Ended
		June 30,
(In millions)		2007				2006
		(Unaudited)
Operating Activities
Net income		$	1,503			$	1,204
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred policy acquisition costs and present value of future profits			1,709				1,646
Additions to deferred policy acquisition costs and present value of future profits			(2,117	)			(2,062	)
Change in:
Reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums			677				108
Reinsurance recoverables			425				1,092
Receivables and other assets			(408	)			(35	)
Payables and accruals			465				(470	)
Accrued and deferred income taxes			285				211
Net realized capital losses			202				300
Net receipts from investment contracts credited to policyholder accounts associated with equity securities, held for trading			3,790				1,966
Net increase in equity securities, held for trading			(3,532	)			(2,072	)
Depreciation and amortization			282				318
Other, net			(334	)			318
Net cash provided by operating activities			2,947				2,524
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale			18,897				16,165
Equity securities, available-for-sale			381				118
Mortgage loans			913				186
Partnerships			178				94
Payments for the purchase of:
Fixed maturities, available-for-sale			(21,022	)			(17,913	)
Equity securities, available-for-sale			(651	)			(299	)
Mortgage loans			(2,485	)			(1,008	)
Partnerships			(653	)			(500	)
Change in policy loans, net			—				(94	)
Change in payables for collateral under securities lending, net			1,729				408
Change in all other securities, net			(355	)			(481	)
Additions to property and equipment, net			(90	)			(65	)
Net cash used for investing activities			(3,158	)			(3,389	)
Financing Activities
Deposits and other additions to investment and universal life-type contracts			16,618				13,255
Withdrawals and other deductions from investment and universal life-type contracts			(15,101	)			(13,370	)
Net transfers from (to) separate accounts related to investment and universal life-type contracts			(683	)			846
Issuance of long-term debt			495				—
Repayment/maturity of long-term debt			—				(515	)
Change in short-term debt			(200	)			515
Proceeds from issuance of consumer notes			330				—
Proceeds from issuance of shares under incentive and stock compensation plans, net			144				75
Excess tax benefits on stock-based compensation			14				27
Treasury stock acquired			(800	)			—
Return of shares under incentive and stock compensation plans to treasury stock			(12	)			(4	)
Dividends paid			(323	)			(212	)
Net cash provided by financing activities			482				617
Foreign exchange rate effect on cash			(71	)			56
Net increase (decrease) in cash			200				(192	)
Cash — beginning of period			1,424				1,273
Cash — end of period		$	1,624			$	1,081
Supplemental Disclosure of Cash Flow Information:
Net Cash Paid During the Period For:
Income taxes		$	277			$	28
Interest		$	120			$	136

See Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollar amounts in millions except per share data unless otherwise stated)
(Unaudited)

1. Basis of Presentation and Accounting Policies

Basis of Presentation

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

The condensed consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America, which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

The accompanying condensed consolidated financial statements and notes as of June 30, 2007, and for the three and six months ended June 30, 2007 and 2006 are unaudited. These financial statements reflect all adjustments (consisting only of normal accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations, and cash flows for the interim periods. These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in The Hartford’s 2006 Form 10-K Annual Report. The results of operations for the interim periods should not be considered indicative of the results to be expected for the full year.

Consolidation

The condensed consolidated financial statements include the accounts of The Hartford Financial Services Group, Inc., companies in which the Company directly or indirectly has a controlling financial interest and those variable interest entities in which the Company is the primary beneficiary. The Company determines if it is the primary beneficiary using both qualitative and quantitative analyses. Entities in which The Hartford does not have a controlling financial interest but in which the Company has significant influence over the operating and financing decisions are reported using the equity method. All material intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated.

Reclassifications

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

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, 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 from those estimates.

The most significant estimates include those used in determining property and casualty reserves for unpaid losses and loss adjustment expenses, net of reinsurance; life estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; the evaluation of other-than-temporary impairments on investments in available-for-sale securities; living benefits required to be fair valued; pension and other postretirement benefit obligations; and contingencies relating to corporate litigation and regulatory matters.

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of Notes to Consolidated Financial Statements included in The Hartford’s 2006 Form 10-K Annual Report.

Adoption of New Accounting Standards

Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109

The Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), dated June 2006. FIN 48 requires companies to recognize the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained assuming examination by tax authorities. The amount recognized represents the largest amount of tax benefit that is greater than 50% likely of being realized. A liability is recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess.

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

1. Basis of Presentation and Accounting Policies (continued)

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the adoption, the Company recognized a $12 decrease in the liability for unrecognized tax benefits and a corresponding increase in the January 1, 2007 balance of retained earnings. The total amount of unrecognized tax benefits as of January 1, 2007 was $8 including an immaterial amount for interest. If these unrecognized tax benefits were recognized, they would have an immaterial effect on the Company’s effective tax rate. The Company does not believe it would be subject to any penalties in any open tax years and, therefore, has not booked any such amounts. The Company classifies interest and penalties (if applicable) as income tax expense in the financial statements.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. During 2005, the Internal Revenue Service (IRS) commenced an examination of the Company’s U.S. income tax returns for 2002 through 2003 that is anticipated to be completed by the end of 2007. The 2004 through 2005 examination is expected to begin by the end of 2007. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.

Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (“SFAS 155”). This statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and resolves issues addressed in SFAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets”. SFAS 155: (a) permits fair value remeasurement for any hybrid financial instrument (asset or liability) that contains an embedded derivative that otherwise would require bifurcation; (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; (c) establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (e) eliminates restrictions on a qualifying special purpose entity’s ability to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument. SFAS 155 also requires presentation within the financial statements that identifies those hybrid financial instruments for which the fair value election has been applied and information on the income statement impact of the changes in fair value of those instruments. The Company began applying SFAS 155 to all financial instruments acquired, issued or subject to a remeasurement event beginning January 1, 2007. SFAS 155 did not have an effect on the Company’s consolidated financial condition and results of operations upon adoption on January 1, 2007.

Accounting by Insurance Enterprises for Deferred Acquisition Costs (“DAC”) in Connection with Modifications or Exchanges of Insurance Contracts

In September 2005, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs (“DAC”) in Connection with Modifications or Exchanges of Insurance Contracts” (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts. An internal replacement is a modification in product benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. Modifications that result in a replacement contract that is substantially changed from the replaced contract should be accounted for as an extinguishment of the replaced contract. Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract must be written-off. Modifications that result in a contract that is substantially unchanged from the replaced contract should be accounted for as a continuation of the replaced contract. The Company adopted SOP 05-1 on January 1, 2007 and recognized the cumulative effect of the adoption of SOP 05-1 as a reduction in retained earnings of $53, after-tax.

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

1. Basis of Presentation and Accounting Policies (continued)

Future Adoption of New Accounting Standards

Clarification of the Scope of the Audit and Accounting Guide “Investment Companies” and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.

In June 2007, the AICPA issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (“the Guide”). This statement also addresses whether the specialized industry accounting principles of the Guide should be retained by a parent company in consolidation or by an investor that has the ability to exercise significant influence over the investment company and applies the equity method of accounting to its investment in the entity. In addition, SOP 07-1 includes certain disclosure requirements for parent companies and equity method investors in investment companies that retain investment company accounting in the parent company’s consolidated financial statements or the financial statements of an equity method investor. SOP 07-1 is effective for fiscal years beginning on or after December 15, 2007, with earlier application encouraged. SOP 07-1 is not expected to have a material impact on the Company’s consolidated financial condition and results of operations.

Income Taxes

The effective tax rate for the three months ended June 30, 2007 and 2006 was 25% and 21%, respectively. The effective tax rate for the six months ended June 30, 2007 and 2006 was 27% and 24%, respectively. The principal causes of the difference between the effective rate and the U.S. statutory rate of 35% were tax-exempt interest earned on invested assets and the separate account dividends received deduction (“DRD”).

The separate account DRD is estimated for the current year using information from the prior year-end, adjusted for current year equity market performance. The estimated DRD is generally updated in the third quarter for the provision-to-filed-return adjustments, and in the fourth quarter based on current year ultimate mutual fund distributions and fee income from the Company’s variable insurance products. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of distributions from these mutual funds, the utilization of capital loss carry forwards at the mutual fund level and appropriate levels of taxable income.

The Company receives a foreign tax credit (“FTC”) against its U.S. tax liability for foreign taxes paid by the Company including payments from its separate account assets. The separate account FTC is estimated for the current year using information from the most recent filed return, adjusted for the change in the allocation of separate accounts investments to the international equity markets during the current year. The actual current year FTC can vary from the estimates due to actual FTC’s passed through by the mutual funds.

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

2. Earnings Per Share

The following tables present a reconciliation of net income and shares used in calculating basic earnings per share to those used in calculating diluted earnings per share.

		Three Months Ended												Six Months Ended
		June 30, 2007												June 30, 2007
		Net								Per Share				Net								Per Share
		Income				Shares				Amount				Income				Shares				Amount
Basic Earnings per Share
Net income available to common shareholders		$	627				316.8			$	1.98			$	1,503				318.2			$	4.72
Diluted Earnings per Share
Stock compensation plans			—				2.8								—				3.0
Net income available to common shareholders plus assumed conversions		$	627				319.6			$	1.96			$	1,503				321.2			$	4.68

		Three Months Ended												Six Months Ended
		June 30, 2006												June 30, 2006
		Net								Per Share				Net								Per Share
		Income				Shares				Amount				Income				Shares				Amount
Basic Earnings per Share
Net income available to common shareholders		$	476				303.3			$	1.57			$	1,204				302.8			$	3.98
Diluted Earnings per Share
Stock compensation plans			—				3.0								—				3.0
Equity units			—				6.0								—				5.8
Net income available to common shareholders plus assumed conversions		$	476				312.3			$	1.52			$	1,204				311.6			$	3.86

3. Segment Information

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

Life

Life is organized into six reportable operating segments: Retail Products Group (“Retail”), Retirement Plans, Institutional Solutions Group (“Institutional”), Individual Life, Group Benefits and International.

The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies in Note 1. Life evaluates performance of its segments based on revenues, net income and the segment’s return on allocated capital. Each operating segment is allocated corporate surplus as needed to support its business. The Company charges direct operating expenses to the appropriate segment and allocates the majority of indirect expenses to the segments based on an intercompany expense arrangement. Intersegment revenues primarily occur between Life’s Other category and the operating segments. These amounts primarily include interest income on allocated surplus, interest charges on excess separate account surplus, the allocation of certain net realized capital gains and losses and the allocation of credit risk charges. For a discussion of segment allocations, see Note 3 of Notes to the Consolidated Financial Statements included in The Hartford’s 2006 Form 10-K Annual Report.

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

3. Segment Information (continued)

The positive (negative) impact on realized gains and losses of the segments for allocated interest rate related realized gains and losses and the allocation of credit risk charges were as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Retail
Realized gains (losses)		$	4			$	8			$	8			$	17
Credit risk fees			(6	)			(7	)			(13	)			(13	)
Retirement Plans
Realized gains (losses)			2				2				3				5
Credit risk fees			(2	)			(2	)			(4	)			(4	)
Institutional
Realized gains (losses)			4				4				9				8
Credit risk fees			(8	)			(5	)			(16	)			(11	)
Individual Life
Realized gains (losses)			1				2				1				5
Credit risk fees			(3	)			(1	)			(5	)			(3	)
Group Benefits
Realized gains (losses)			2				1				3				2
Credit risk fees			(3	)			(3	)			(6	)			(5	)
International
Realized gains (losses)			—				—				—				—
Credit risk fees			—				—				(1	)			(1	)
Other
Realized gains (losses)			(13	)			(17	)			(24	)			(37	)
Credit risk fees			22				18				45				37
Total		$	—			$	—			$	—			$	—

Property & Casualty

Property & Casualty is organized into four reportable operating segments: the underwriting segments of Business Insurance, Personal Lines, and Specialty Commercial (collectively “Ongoing Operations”); and the Other Operations segment. For the three months ended June 30, 2007 and 2006, AARP accounted for earned premiums of $663 and $612, respectively, in Personal Lines. For the six months ended June 30, 2007 and 2006, AARP accounted for earned premiums of $1.3 billion and $1.2 billion, respectively, in Personal Lines.

Through intersegment arrangements, Specialty Commercial reimburses Business Insurance and Personal Lines for certain losses, including, among other coverages, losses incurred from uncollectible reinsurance. In addition, the Company retains a portion of the risks ceded under the Company’s principal catastrophe reinsurance program and other reinsurance programs and the financial results of the Company’s retention are recorded in the Specialty Commercial segment. Apart from the Company’s retention, the amount of premiums ceded to third party reinsurers under the principal catastrophe reinsurance program and other reinsurance programs is allocated to the operating segments based on the risks written by each operating segment that are subject to the programs.

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

3. Segment Information (continued)

Earned premiums assumed (ceded) under the intersegment arrangements and retention were as follows:

Net assumed (ceded) earned premiums under		Three Months Ended								Six Months Ended
intersegment arrangements and retention		June 30,								June 30,
		2007				2006				2007				2006
Business Insurance		$	(14	)		$	(20	)		$	(28	)		$	(40	)
Personal Lines			(1	)			(5	)			(3	)			(12	)
Specialty Commercial			15				25				31				52
Total		$	—			$	—			$	—			$	—

Financial Measures and Other Segment Information

For further discussion of the types of products offered by each segment, see Note 3 of Notes to Consolidated Financial Statements included in The Hartford’s 2006 Form 10-K Annual Report.

The measure of profit or loss used by The Hartford’s management in evaluating the performance of its Life segments is net income. Within Property & Casualty, net income is the measure of profit or loss used in evaluating the performance of Ongoing Operations and the Other Operations segment. Within Ongoing Operations, the underwriting segments of Business Insurance, Personal Lines and Specialty Commercial are evaluated by The Hartford’s management primarily based upon underwriting results. Underwriting results represent premiums earned less incurred losses, loss adjustment expenses and underwriting expenses. The sum of underwriting results, net investment income, net realized capital gains and losses, net servicing and other income, other expenses, and related income taxes is net income.

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

3. Segment Information (continued)

The following tables present revenues and net income (loss). Underwriting results are presented for the Business Insurance, Personal Lines and Specialty Commercial segments, while net income is presented for each of Life’s reportable segments, Total Property & Casualty, Ongoing Operations, Other Operations and Corporate.

Revenues

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Life
Retail		$	965			$	867			$	1,869			$	1,717
Retirement Plans			150				131				293				268
Institutional			548				367				1,065				885
Individual Life			289				275				574				546
Group Benefits			1,207				1,129				2,408				2,261
International			216				184				422				364
Other			(126	)			(75	)			(21	)			(132	)
Total Life segment revenues			3,249				2,878				6,610				5,909
Net investment income on equity securities, held for trading [1]			1,234				(970	)			1,444				(516	)
Total Life			4,483				1,908				8,054				5,393
Property & Casualty
Ongoing Operations
Earned premiums
Business Insurance			1,281				1,268				2,573				2,531
Personal Lines			967				939				1,920				1,858
Specialty Commercial			373				399				751				782
Total Ongoing Operations earned premiums			2,621				2,606				5,244				5,171
Other Operations earned premiums			1				1				1				2
Net investment income			446				365				859				722
Other revenues [2]			124				114				242				237
Net realized capital losses			(24	)			(29	)			(1	)			(24	)
Total Property & Casualty			3,168				3,057				6,345				6,108
Corporate			9				6				20				13
Total		$	7,660			$	4,971			$	14,419			$	11,514

[1]		Management does not include net investment income and the mark-to-market effects of equity securities, held for trading, supporting the international variable annuity business in its International segment revenues since corresponding amounts credited to policyholders are included within benefits, losses and loss adjustment expenses.
[2]		Represents servicing revenue.

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

3. Segment Information (continued)

Net Income (Loss)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Life
Retail		$	199			$	166			$	388			$	342
Retirement Plans			26				22				49				43
Institutional			29				29				62				51
Individual Life			44				48				90				93
Group Benefits			87				74				153				142
International			59				52				113				98
Other			(126	)			(83	)			(99	)			(115	)
Total Life			318				308				756				654
Property & Casualty
Ongoing Operations
Underwriting results
Business Insurance			134				197				258				331
Personal Lines			84				126				214				232
Specialty Commercial			(1	)			(43	)			38				4
Total Ongoing Operations underwriting results			217				280				510				567
Net servicing and other income [1]			14				12				25				30
Net investment income			385				296				736				587
Net realized capital losses			(18	)			(31	)			(1	)			(26	)
Other expenses			(56	)			(75	)			(116	)			(128	)
Income tax expense			(158	)			(142	)			(341	)			(301	)
Ongoing Operations			384				340				813				729
Other Operations			(40	)			(124	)			(8	)			(89	)
Total Property & Casualty			344				216				805				640
Corporate			(35	)			(48	)			(58	)			(90	)
Net income		$	627			$	476			$	1,503			$	1,204

[1]		Net of expenses related to service business.

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

4. Investments and Derivative Instruments

		June 30, 2007																December 31, 2006
						Gross				Gross												Gross				Gross
		Amortized				Unrealized				Unrealized				Fair				Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
Bonds and Notes
Asset-backed securities (“ABS”)		$	9,666			$	38			$	(63	)		$	9,641			$	7,924			$	54			$	(53	)		$	7,925
Collateralized mortgage obligations (“CMOs”)
Agency backed			1,224				12				(10	)			1,226				1,184				17				(8	)			1,193
Non-agency backed			291				—				(3	)			288				116				—				(1	)			115
Commercial mortgage-backed securities (“CMBS”)
Agency backed			731				2				(11	)			722				756				12				(1	)			767
Non-agency backed			17,144				141				(338	)			16,947				15,823				220				(144	)			15,899
Corporate			33,158				838				(591	)			33,405				35,069				1,193				(371	)			35,891
Government/Government agencies
Foreign			977				53				(17	)			1,013				1,213				87				(6	)			1,294
United States			1,161				8				(16	)			1,153				848				5				(7	)			846
Mortgage-backed securities (“MBS”)
Agency backed			3,148				3				(78	)			3,073				2,742				5				(45	)			2,702
States, municipalities and political subdivisions			12,367				324				(122	)			12,569				11,897				536				(27	)			12,406
Redeemable preferred stock			9				—				—				9				36				—				—				36
Short-term			1,590				—				—				1,590				1,681				—				—				1,681
Total fixed maturities		$	81,466			$	1,419			$	(1,249	)		$	81,636			$	79,289			$	2,129			$	(663	)		$	80,755

As of June 30, 2007 and December 31, 2006, under terms of securities lending programs, the fair value of loaned securities was approximately $3.9 billion and $2.2 billion, respectively, and was included in fixed maturities in the condensed consolidated balance sheets.

Variable Interest Entities

During the three months ended June 30, 2007, the Company invested $120 in two newly established collateralized debt obligations (“CDOs”) where the Company is not the primary beneficiary and therefore is not required to consolidate these variable interest entities. Hartford Investment Management Company (“HIMCO”), a wholly-owned subsidiary of The Hartford, serves as collateral manager to the CDOs. The Company’s maximum exposure to loss is limited to its direct investment in those structures. Creditors have recourse only to the assets of the CDOs and not to the general credit of the Company. The Company’s maximum exposure to loss from consolidated and non-consolidated CDO VIEs managed by HIMCO was $386 as of June 30, 2007.

Derivative Instruments

The Company utilizes a variety of derivative instruments, including swaps, caps, floors, forwards, futures and options to achieve one of four Company-approved objectives: to hedge risk arising from interest rate, equity market, price or currency exchange rate risk or volatility; to manage liquidity; to control transaction costs; or to enter into replication transactions.

On the date the derivative contract is entered into, the Company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability (“fair-value” hedge), (2) a hedge of the variability of cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset or liability (“cash-flow” hedge), (3) a foreign-currency fair-value or cash-flow hedge (“foreign-currency” hedge), (4) a hedge of a net investment in a foreign operation (“net investment” hedge) or (5) held for other investment and risk management purposes, which primarily involve managing asset or liability related risks that do not qualify for hedge accounting.

The Company’s derivative transactions are used in strategies permitted under the derivatives use plans required by the State of Connecticut, the State of Illinois and the State of New York insurance departments.

For a detailed discussion of the Company’s use of derivative instruments, see Notes 1 and 4 of Notes to Consolidated Financial Statements included in The Hartford’s 2006 Form 10-K Annual Report.

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

4. Investments and Derivative Instruments (continued)

Derivative instruments are recorded in the condensed consolidated balance sheets at fair value. Asset and liability values are determined by calculating the net position for each derivative counterparty by legal entity and are presented as follows:

		June 30, 2007								December 31, 2006
		Asset				Liability				Asset				Liability
		Values				Values				Values				Values
Other investments		$	314			$	—			$	287			$	—
Reinsurance recoverables			20				—				—				22
Other policyholder funds and benefits payable			1				61				53				1
Other liabilities			—				984				—				772
Total		$	335			$	1,045			$	340			$	795

The following table summarizes the notional amount and fair value of derivatives by hedge designation as of June 30, 2007 and December 31, 2006. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not necessarily reflective of credit risk. The fair value amounts of derivative assets and liabilities are presented on a net basis in the following table.

		June 30, 2007								December 31, 2006
		Notional				Fair				Notional				Fair
		Amount				Value				Amount				Value
Cash-flow hedge		$	6,403			$	(462	)		$	7,964			$	(392	)
Fair-value hedge			5,022				44				4,338				1
Other investment and risk management activities			101,239				(292	)			73,542				(64	)
Total		$	112,664			$	(710	)		$	85,844			$	(455	)

The increase in notional amount since December 31, 2006, is primarily due to an increase in derivatives associated with the guaranteed minimum withdrawal benefit (“GMWB”) rider as a result of additional product sales as well as the related hedging derivatives. The Company offers certain variable annuity products with a GMWB rider, which is accounted for as an embedded derivative. For further discussion on the GMWB rider, refer to Note 6 of Notes to Condensed Consolidated Financial Statements.

During the three months ended June 30, 2007, the Company entered into a swap contract to hedge certain risk components for the remaining term of a block of non-reinsured GMWB riders. As of June 30, 2007, this swap had a notional value of $9 billion and a market value of $(21). Due to the significance of the non-observable inputs associated with pricing this derivative, the initial difference between the transaction price and modeled value was deferred in accordance with EITF No. 02-3 “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” and included in Other Assets in the Condensed Consolidated Financial Statements. The deferred loss of $32 will be recognized in retained earnings upon adoption of SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) or in earnings if the non-observable inputs in the derivative price become observable prior to the adoption of SFAS No. 157.

During the first quarter of 2007, the Company launched a new rider that is attached to certain Japanese variable annuity contracts that provide the contract holder a guaranteed minimum accumulation benefit (“GMAB”), which is accounted for as an embedded derivative. As of June 30, 2007, the notional related to the GMAB embedded derivatives was $1.3 billion with an asset value of $1, respectively.

The decrease in net fair value of derivative instruments since December 31, 2006 was primarily related to decreases in fair value of the embedded GMWB rider derivative and related hedging derivatives, derivatives hedging cash flow variability of floating rate securities, and the Japanese fixed annuity hedging instruments, partially offset by sales of certain foreign currency swaps that were in loss positions as well as the fair value associated with the initial cost of the put option agreement related to the Company’s contingent capital facility. The GMWB rider embedded derivative decreased in value primarily due to liability model assumption updates made during the second quarter to reflect newly reliable market inputs for volatility and model refinements. Derivatives hedging changes in cash flow variability of floating rate securities declined in value as a result of an increase in interest rates. The Japanese fixed annuity contract hedging instruments decreased in value primarily due to depreciation of the yen in comparison to the U.S. dollar as well as an increase in Japanese interest rates. The fair value of foreign currency swaps hedging foreign bonds increased primarily as a result of the sale of certain swaps that were in loss positions due to the weakening of the U.S. dollar in comparison to certain foreign currencies.

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

4. Investments and Derivative Instruments (continued)

For the three and six months ended June 30, 2007, after-tax net gains (losses) representing the total ineffectiveness of all cash-flow hedges were $(1) and less than $1, respectively. For the three and six months ended June 30, 2006, after-tax net losses representing the total ineffectiveness of all cash-flow hedges were $(5) and $(10), respectively. For the three and six months ended June 30, 2007, after-tax net losses representing the total ineffectiveness of all fair-value hedges were $(3). For the three and six months ended June 30, 2006, after-tax net gains representing the total ineffectiveness of all fair-value hedges were less than $1.

The total change in value for derivative-based strategies that do not qualify for hedge accounting treatment (“non-qualifying strategies”), including periodic derivative net coupon settlements, are reported in net realized capital gains (losses). These non-qualifying strategies resulted in after-tax net losses of $(168) and $(158), respectively, for the three and six months ended June 30, 2007. For the three and six months ended June 30, 2007, net losses were primarily comprised of net losses on GMWB rider embedded derivatives due to liability model assumption updates made during the second quarter to reflect newly reliable market inputs for volatility and model refinements, the Japanese fixed annuity hedging instruments due to the yen depreciating against the U.S. dollar as well as an increase in Japanese interest rates, and credit default swaps due to credit spread widening, partially offset by net gains on interest rate derivatives used to manage portfolio duration due to an increase in interest rates.

For the three and six months ended June 30, 2006, non-qualifying strategies resulted in after-tax net losses of $(20) and $(82), respectively. For the three months ended June 30, 2006, losses were predominantly comprised of net losses associated with GMWB rider and hedging derivatives primarily driven by modeling refinements and net losses on non-qualifying currency derivatives primarily due to the weakening of the U.S. dollar compared to other major currencies, partially offset by net gains on the Japanese fixed annuity hedging instruments primarily due to the yen strengthening against the U.S. dollar. For the six months ended June 30, 2006, losses were largely comprised of net losses on GMWB rider and hedging derivatives primarily driven by modeling refinements, losses on non-qualifying interest rate derivatives due to an increase in interest rates, losses on non-qualifying currency derivatives due to the U.S. dollar weakening against other major currencies, and net losses on the Japanese fixed annuity hedging instruments primarily due to an increase in Japan interest rates.

As of June 30, 2007, the after-tax deferred net losses on derivative instruments recorded in accumulated other comprehensive income (loss) (“AOCI”) that are expected to be reclassified to earnings during the next twelve months are $(19). This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to interest income over the term of the investment cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows (for all forecasted transactions, excluding interest payments on variable-rate debt) is twenty-four months. For the three and six months ended June 30, 2007 and 2006, the Company had less than $1 of net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

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

5. Deferred Policy Acquisition Costs and Present Value of Future Profits

Changes in deferred policy acquisition costs and present value of future profits by Life and Property & Casualty were as follows:

Life

		2007				2006
Balance, January 1, before cumulative effect of accounting change, pre-tax		$	9,071			$	8,568
Cumulative effect of accounting change, pre-tax (SOP 05-1) [1]			(79	)			—
Balance, January 1, as adjusted			8,992				8,568
Deferred costs			1,046				979
Amortization – Deferred policy acquisition costs and present value of future profits			(653	)			(605	)
Adjustments to unrealized gains and losses on securities, available-for-sale and other			186				377
Effect of currency translation adjustment			(54	)			44
Balance, June 30		$	9,517			$	9,363

[1]		The Company’s cumulative effect of accounting change includes an additional $(1), pre-tax, related to sales inducements.

Property & Casualty

		2007				2006
Balance, January 1		$	1,197			$	1,134
Deferred costs			1,071				1,083
Amortization – Deferred policy acquisition costs			(1,056	)			(1,041	)
Balance, June 30		$	1,212			$	1,176

6. Separate Accounts, Death Benefits and Living Benefit Features

The Company records the variable portion of individual variable annuities, 401(k), institutional, 403(b)/457, private placement life and variable life insurance products within separate account assets and liabilities, which are reported at fair value. Separate account assets are segregated from other investments. Investment income and gains and losses from those separate account assets, which accrue directly to, and whereby investment risk is borne by the policyholder, are offset by the related liability changes within the same line item in the condensed consolidated statements of operations. The fees earned for administrative and contract holder maintenance services performed for these separate accounts are included in fee income. For the three and six months ended June 30, 2007 and 2006, there were no gains or losses on transfers of assets from the general account to the separate account.

Many of the variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. Guaranteed minimum death and income benefits are offered in various forms as described in further detail throughout this Note. The Company currently reinsures a significant portion of the death benefit guarantees associated with its in-force block of business. Effective April 1, 2006, the Company began reinsuring certain of its death benefit guarantees associated with the in-force block of variable annuity products offered in Japan. Changes in the gross U.S. guaranteed minimum death benefit (“GMDB”) and Japan GMDB/guaranteed minimum income benefits (“GMIB”) liability balance sold with annuity products are as follows:

		U.S. GMDB [1]				Japan GMDB/GMIB [1]
Liability balance as of December 31, 2006		$	475			$	35
Incurred			72				8
Paid			(44	)			(1	)
Currency translation adjustment			—				(1	)
Liability balance as of June 30, 2007		$	503			$	41

[1]		The reinsurance recoverable asset related to the U.S. GMDB was $328 as of June 30, 2007. The reinsurance recoverable asset related to the Japan GMDB was $6 as of June 30, 2007.

		U.S. GMDB [1]				Japan GMDB/GMIB [1]
Liability balance as of December 31, 2005		$	158			$	50
Incurred			62				17
Paid			(55	)			(1	)
Currency translation adjustment			—				2
Liability balance as June 30, 2006		$	165			$	68

[1]		The reinsurance recoverable asset related to the U.S. GMDB was $35 as of June 30, 2006. The reinsurance recoverable asset related to the Japan GMDB was $2 as of June 30, 2006.

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

6. Separate Accounts, Death Benefits and Living Benefit Features (continued)

The net GMDB and GMIB liability is established by estimating the expected value of net reinsurance costs and death and income benefits in excess of the projected account balance. The excess death and income benefits and net reinsurance costs are recognized ratably over the accumulation period based on total expected assessments. The GMDB and GMIB liabilities are recorded in reserve for future policy benefits in the Company’s condensed consolidated balance sheets. Changes in the GMDB and GMIB liability are recorded in benefits, losses and loss adjustment expenses in the Company’s condensed consolidated statements of operations. In a manner consistent with the Company’s accounting policy for deferred acquisition costs, the Company regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised.

The following table provides details concerning GMDB and GMIB exposure as of June 30, 2007:

Breakdown of Variable Annuity Account Value by GMDB/GMIB Type
										Retained Net				Weighted Average
		Account				Net Amount				Amount				Attained Age of
Maximum anniversary value (“MAV”) [1]		Value				at Risk				at Risk				Annuitant
MAV only		$	52,277			$	3,183			$	289				65
With 5% rollup [2]			3,726				267				54				64
With Earnings Protection Benefit Rider (“EPB”) [3]			5,784				584				92				62
With 5% rollup & EPB			1,427				168				32				63
Total MAV			63,214				4,202				467
Asset Protection Benefit (“APB”) [4]			41,570				111				57				62
Lifetime Income Benefit (“LIB”) — Death Benefit [5]			7,371				22				22				61
Reset [6] (5-7 years)			6,690				132				132				66
Return of Premium [7]/Other			10,415				23				23				56
Subtotal U.S. Guaranteed Minimum Death Benefits			129,260				4,490				701				63
Japan Guaranteed Minimum Death and Income Benefit [8]			32,050				36				14				66
Total at June 30, 2007		$	161,310			$	4,526			$	715

[1]		MAV: the death benefit is the greatest of current account value, net premiums paid and the highest account value on any anniversary before age 80 (adjusted for withdrawals).
[2]		Rollup: the death benefit is the greatest of the MAV, current account value, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 or 100% of adjusted premiums.
[3]		EPB: the death benefit is the greatest of the MAV, current account value, or contract value plus a percentage of the contract’s growth. The contract’s growth is account value less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals.
[4]		APB: the death benefit is the greater of current account value or MAV, not to exceed current account value plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months).
[5]		LIB: the death benefit is the greatest of current account value or MAV, net premiums paid, or a benefit amount that ratchets over time, generally based on market performance.
[6]		Reset: the death benefit is the greatest of current account value, net premiums paid and the most recent five to seven year anniversary account value before age 80 (adjusted for withdrawals).
[7]		Return of premium: the death benefit is the greater of current account value and net premiums paid.
[8]		Death benefits include a Return of Premium and MAV (before age 80) paid in a single lump sum. The income benefit is a guarantee to return initial investment, adjusted for earnings liquidity, paid through a fixed annuity, after a minimum deferral period of 10, 15 or 20 years. The guaranteed remaining balance related to the Japan GMIB was $24.4 billion and $22.6 billion as of June 30, 2007 and December 31, 2006, respectively.

The Company offers certain variable annuity products with a GMWB rider. The GMWB provides the policyholder with a guaranteed remaining balance (“GRB”) if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. However, annual withdrawals that exceed a specific percentage of the premiums paid may reduce the GRB by an amount greater than the withdrawals and may also impact the guaranteed annual withdrawal amount that subsequently applies after the excess annual withdrawals occur. For certain of the withdrawal benefit features, the policyholder also has the option, after a specified time period, to reset the GRB to the then-current account value, if greater. In addition, the Company has introduced features, for contracts issued beginning in the fourth quarter of 2005, that allow policyholders to receive the guaranteed annual withdrawal amount for as long as they are alive. Through this feature, the policyholder or their beneficiary will receive the GRB and the GRB is reset on an annual basis to the maximum anniversary account value subject to a cap.

The GMWB represents an embedded derivative in the variable annuity contracts that is required to be reported separately from the host variable annuity contract. It is carried at fair value and reported in other policyholder funds. The fair value of the GMWB obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract

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

6. Separate Accounts, Death Benefits and Living Benefit Features (continued)

charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. Because of the dynamic and complex nature of these cash flows, best estimate assumptions and stochastic techniques under a variety of market return scenarios are
used. Estimating these cash flows involves numerous estimates and subjective judgments including those regarding expected market rates of return, market volatility, correlations of market returns and discount rates. At each valuation date, the Company assumes expected returns based on risk-free rates as represented by the current LIBOR forward curve rates; market volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility”; correlations of market returns across underlying indices based on actual observed market returns and relationships over the ten years preceding the valuation date; and current risk-free spot rates as represented by the current LIBOR spot curve to determine the present value of expected future cash flows produced in the stochastic projection process. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions. In addition, management regularly evaluates the valuation model, incorporating emerging valuation techniques where appropriate, including drawing on the expertise of market participants and valuation experts. During the second quarter of 2007, the Company reflected newly reliable market inputs for volatility on Standard and Poor’s (“S&P”) 500, National Association of Securities Dealers Automated Quotations (“NASDAQ”) and Europe, Australasia and Far East (“EAFE”) index options. The impact of reflecting the newly reliable market inputs for S&P 500, NASDAQ and EAFE index options resulted in an increase to the GMWB embedded derivative liability of $67, net of reinsurance. The impact to net income including other changes in assumptions and modeling refinements, including those for dynamic lapse behavior and correlations of market returns across underlying indices, and after DAC amortization and taxes was a loss of $37, net of reinsurance.

As of June 30, 2007 and December 31, 2006, the embedded derivative (liability) asset recorded for GMWB, before reinsurance or hedging, was $(56) and $53, respectively. For the six months ended June 30, 2007 and 2006, the change in value of the GMWB, before reinsurance and hedging, reported in realized (losses) gains was ($62) and $95, respectively. For the three months ended June 30, 2007 and 2006, the change in value of the GMWB, before reinsurance and hedging, reported in realized (losses) gains was ($128) and $11, respectively. There were no benefit payments made for the GMWB during 2007 or 2006.

As of June 30, 2007 and December 31, 2006, $43.9 billion, or 80%, and $37.3 billion, or 77%, respectively, of account value, representing substantially all of the contracts written after July 2003 with the GMWB feature were unreinsured. In order to minimize the volatility associated with the unreinsured GMWB liabilities, the Company has established a risk management strategy. During the second quarter of 2007 as part of the Company’s risk management strategy, the Company purchased a swap contract which hedges certain risk components associated with $9 billion of notional value of the GMWB liability. The Company also uses other derivative instruments to hedge its unreinsured GMWB exposure including interest rate futures, S&P and NASDAQ index options and futures contracts and EAFE Index swaps to hedge GMWB exposure to international equity markets. The total (reinsured and unreinsured) GRB as of June 30, 2007 and December 31, 2006 was $41.6 billion and $37.8 billion, respectively.

A contract is ‘in the money’ if the contract holder’s GRB is greater than the account value. For contracts that were ‘in the money’ the Company’s exposure, as of June 30, 2007 and December 31, 2006, was $10 and $8, respectively. However, the only ways the contract holder can monetize the excess of the GRB over the account value of the contract is upon death or if their account value is reduced to zero through a combination of a series of withdrawals that do not exceed a specific percentage of the premiums paid per year and market declines. If the account value is reduced to zero, the contract holder will receive a period certain annuity equal to the remaining GRB. As the amount of the excess of the GRB over the account value can fluctuate with equity market returns on a daily basis, the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than $10.

7. Commitments and Contingencies

Litigation

The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties discussed below under the caption “Asbestos and Environmental Claims,” management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of The Hartford.

The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These actions include, among others, putative state and federal class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile, property, life and inland marine; improper sales practices in connection

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

7. Commitments and Contingencies (continued)

with the sale of life insurance and other investment products; and improper fee arrangements in connection with mutual funds and structured settlements. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated results of operations or cash flows in particular quarterly or annual periods.

Broker Compensation Litigation – Following the New York Attorney General’s filing of a civil complaint against Marsh & McLennan Companies, Inc., and Marsh, Inc. (collectively, “Marsh”) in October 2004 alleging that certain insurance companies, including The Hartford, participated with Marsh in arrangements to submit inflated bids for business insurance and paid contingent commissions to ensure that Marsh would direct business to them, private plaintiffs brought several lawsuits against the Company predicated on the allegations in the Marsh complaint, to which the Company was not party. Among these is a multidistrict litigation in the United States District Court for the District of New Jersey. There are two consolidated amended complaints filed in the multidistrict litigation, one related to conduct in connection with the sale of property-casualty insurance and the other related to alleged conduct in connection with the sale of group benefits products. The Company and various of its subsidiaries are named in both complaints. The complaints assert, on behalf of a putative class of persons who purchased insurance through broker defendants, claims under the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), state law, and in the case of the group benefits complaint, claims under ERISA. The claims are predicated upon allegedly undisclosed or otherwise improper payments of contingent commissions to the broker defendants to steer business to the insurance company defendants. In April 2007, the district court granted the defendants’ motions to dismiss the Sherman Act and RICO claims, dismissed the consolidated actions without prejudice, and established a schedule for the plaintiffs to file any amended complaints. The plaintiffs filed their second consolidated amended complaints in May 2007, and the defendants thereafter renewed their motions to dismiss. The Company also has been named in two similar actions filed in state courts, which were removed to federal court and transferred to the court presiding over the multidistrict litigation. These actions have been stayed pending a decision on the renewed motions to dismiss in the multidistrict litigation.

The Company is also a defendant in two consolidated securities actions and two consolidated derivative actions filed in the United States District Court for the District of Connecticut. The consolidated securities actions assert claims on behalf of a putative class of shareholders alleging that the Company and certain of its executive officers violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by failing to disclose to the investing public that The Hartford’s business and growth was predicated on the unlawful activity alleged in the New York Attorney General’s complaint against Marsh. The consolidated derivative actions, brought by shareholders on behalf of the Company against its directors and an additional executive officer, allege that the defendants knew adverse non-public information about the activities alleged in the Marsh complaint and concealed and misappropriated that information to make profitable stock trades in violation of their duties to the Company. In July 2006, the district court granted defendants’ motion to dismiss the consolidated securities actions. The plaintiffs have appealed that decision. Defendants filed a motion to dismiss the consolidated derivative actions in May 2005, and the plaintiffs have agreed to stay further proceedings until after the resolution of the appeal from the dismissal of the securities action.

Fair Credit Reporting Act Class Action – In February 2007, the United States District Court for the District of Oregon gave final approval of the Company’s settlement of a lawsuit brought on behalf of a class of homeowners and automobile policy holders alleging that the Company willfully violated the Fair Credit Reporting Act by failing to send appropriate notices to new customers whose initial rates were higher than they would have been had the customer had a more favorable credit report. The settlement was made on a claim-in, nationwide-class basis and required eligible class members to return valid claim forms postmarked no later than June 28, 2007. Based on the number of claim forms received in connection with the settlement, management estimates that the Company will be required to establish a settlement fund of $90 in satisfaction of the Company’s obligations under the terms of the settlement. The Company has sought reimbursement from the Company’s Excess Professional Liability Insurance Program for the portion of the settlement in excess of the Company’s $10 self-insured retention. Certain insurance carriers participating in that program have disputed coverage for the settlement, but management believes it is probable that the Company’s coverage position ultimately will be sustained. In 2006, the Company accrued $10, the amount of the self-insured retention, which reflects the amount that management believes to be the Company’s ultimate liability under the settlement net of insurance.

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

7. Commitments and Contingencies (continued)

Call-Center Patent Litigation – In June 2007, the holder of twenty-one patents related to automated call flow processes, Ronald A. Katz Technology Licensing, LP (“Katz”), brought an action against the Company and various of its subsidiaries in the United States District Court for the Southern District of New York. The action alleges that the Company’s call centers use automated processes that willfully infringe the Katz patents. Katz previously has brought similar patent-infringement actions against a wide range of other companies, none of which has reached a final adjudication of the merits of the plaintiff’s claims, but many of which have resulted in settlements under which the defendants agreed to pay licensing fees. The case is being transferred to a multidistrict litigation in the United States District Court for the Central District of California, which is currently presiding over other Katz patent cases. The Company disputes the allegations and intends to defend this action vigorously.

Asbestos and Environmental Claims – As discussed in Note 12, Commitments and Contingencies, of the Notes to Consolidated Financial Statements under the caption “Asbestos and Environmental Claims”, included in the Company’s 2006 Form 10-K Annual Report, The Hartford continues to receive asbestos and environmental claims that involve significant uncertainty regarding policy coverage issues. Regarding these claims, The Hartford continually reviews its overall reserve levels and reinsurance coverages, as well as the methodologies it uses to estimate its exposures. Because of the significant uncertainties that limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses, particularly those related to asbestos, the ultimate liabilities may exceed the currently recorded reserves. Any such additional liability cannot be reasonably estimated now but could be material to The Hartford’s consolidated operating results, financial condition and liquidity.

Regulatory Developments

On July 23, 2007, the Company entered into an agreement (the “Agreement”) with the New York Attorney General’s Office, the Connecticut Attorney General’s Office, and the Illinois Attorney General’s Office to resolve (i) the previously disclosed investigations by these Attorneys General regarding the Company’s compensation agreements with brokers, alleged participation in arrangements to submit inflated bids, compensation arrangements in connection with the administration of workers compensation plans and reporting of workers compensation premium, participation in finite reinsurance transactions, sale of fixed and individual annuities used to fund structured settlements, and marketing and sale of individual and group variable annuity products and (ii) the previously disclosed investigation by the New York Attorney General’s Office of aspects of the Company’s variable annuity and mutual fund operations related to market timing. In light of the Agreement, the Staff of the Securities and Exchange Commission has informed the Company that it has determined to conclude its previously disclosed investigation into market timing without recommending any enforcement action.

Under the terms of the Agreement, the Company will pay $115, of which $84 represents restitution for market timing, $5 represents restitution for issues relating to the compensation of brokers, and $26 is a civil penalty. After taking into account previously established reserves, the Company incurred a charge of $30, after-tax, in the second quarter of 2007 for the costs associated with the settlement. Also pursuant to the terms of the Agreement, the Company agreed to certain conduct remedies, including, among other things, a ban on paying contingent compensation with respect to any line of property and casualty insurance in which insurers that do not pay contingent compensation, together with those that have entered into similar settlement agreements, collectively represent at least 65% of the market.

The Company has announced that it will implement a new program for 2008 to compensate property and casualty agents and brokers for their performance in personal and standard commercial lines of insurance. Under this new supplemental commission program, the Company will pay a fixed commission that is based, among other things, on the agent’s or broker’s past performance. At this time, it is not possible to predict with certainty the effect, if any, of this new commission program on the Company’s sales of insurance in these lines.

On May 22, 2007, the Company received a subpoena from the Connecticut Attorney General’s Office requesting information relating to the Company’s participation in certain reinsurance facilities. The Company exited the reinsurance market in 2003. The Company is cooperating fully with the Connecticut Attorney General’s Office in this matter.

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

8. Pension Plans and Postretirement Health Care and Life Insurance Benefit Plans

Components of Net Periodic Benefit Cost

Total net periodic benefit cost for the six months ended June 30, 2007 and 2006 include the following components:

		Pension Benefits								Other Postretirement Benefits
		2007				2006				2007				2006
Service cost		$	61			$	64			$	3			$	5
Interest cost			103				96				11				11
Expected return on plan assets			(140	)			(120	)			(4	)			(4	)
Amortization of prior service cost			(6	)			(7	)			(3	)			(11	)
Amortization of actuarial net losses			50				44				—				—
Net periodic benefit cost		$	68			$	77			$	7			$	1

Employer contributions

In May 2007, the Company, at its discretion, made a $120 contribution to the U.S. qualified defined benefit pension plan (the “Plan”). For 2007, the Company does not have a required minimum funding contribution for the Plan and the funding requirements for all of the pension plans is expected to be immaterial.

9. Stock Compensation Plans

The Company has two primary stock-based compensation plans, The Hartford 2005 Incentive Stock Plan and The Hartford Employee Stock Purchase Plan. For a description of these plans, see Note 18 of Notes to Consolidated Financial Statements included in The Hartford’s 2006 Form 10-K Annual Report.

Shares issued in satisfaction of stock-based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares purchased in the open market. The Company typically issues new shares in satisfaction of stock-based compensation. The compensation expense recognized for the stock-based compensation plans was $39 and $28 for the six months ended June 30, 2007 and 2006, respectively. The income tax benefit recognized for stock-based compensation plans was $13 and $9 for the six months ended June 30, 2007 and 2006, respectively. The Company did not capitalize any cost of stock-based compensation. As of June 30, 2007, the total compensation cost related to non-vested awards not yet recognized was $103, which is expected to be recognized over a weighted average period of 2.2 years.

10. Debt

On March 9, 2007, The Hartford issued $500 of 5.375% senior notes due March 15, 2017.

Consumer Notes

As of June 30, 2007, and December 31, 2006, $588 and $258 of consumer notes had been issued. As of June 30, 2007, these consumer notes have interest rates ranging from 4.4% to 6.3% for fixed notes and, for variable notes, either consumer price index plus 175 to 267 basis points, or indexed to the S&P 500, Dow Jones Industrials or the Nikkei 225. For the three and six months ended June 30, 2007, interest credited to holders of consumer notes was $6 and $11, respectively.

Capital Lease Obligation

In the second quarter of 2007, the Company recorded a capital lease of $114. The capital lease obligation is included in long-term debt in the condensed consolidated balance sheet as of June 30, 2007. The minimum lease payments under the capital lease arrangement are approximately $27 in each of 2008, 2009 and 2010 with a firm commitment to purchase the leased asset on January 1, 2010 for $46.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS