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 March 31, 2008

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) (Zip Code)

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

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

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

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

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

As of April 21, 2008, there were outstanding 314,712,088 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 MARCH 31, 2008

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 Months Ended March 31, 2008 and 2007			4
		Condensed Consolidated Balance Sheets — As of March 31, 2008 and December 31, 2007			5
		Condensed Consolidated Statements of Changes in Stockholders’ Equity — For the Three Months Ended March 31, 2008 and 2007			6
		Condensed Consolidated Statements of Comprehensive Income (Loss) — For the Three months ended March 31, 2008 and 2007			6
		Condensed Consolidated Statements of Cash Flows — For the Three Months ended March 31, 2008 and 2007			7
		Notes to Condensed Consolidated Financial Statements			8
2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
3.		Quantitative and Qualitative Disclosures About Market Risk			115
4.		Controls and Procedures			115
		Part II. OTHER INFORMATION
1.		Legal Proceedings			115
1A.		Risk Factors			117
2.		Unregistered Sales of Equity Securities and Use of Proceeds			118
3.		Defaults Upon Senior Securities			118
4.		Submission of Matters to a Vote of Security Holders			118
5.		Other Information			118
6.		Exhibits			118
		Signature			119
		Exhibits Index			120
Exhibit 15.01
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02

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 March 31, 2008, and the related condensed consolidated statements of operations and comprehensive income (loss) for the three-month period ended March 31, 2008 and 2007, and changes in stockholders’ equity, and cash flows for the three-month periods ended March 31, 2008 and 2007. 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, 2007, 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 20, 2008 (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), 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, 2007 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
April 24, 2008

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended
		March 31,
(In millions, except for per share data)		2008				2007
		(Unaudited)
Revenues
Earned premiums		$	3,843			$	3,831
Fee income			1,337				1,282
Net investment income (loss)
Securities available-for-sale and other			1,193				1,273
Equity securities held for trading			(3,578	)			210
Total net investment income (loss)			(2,385	)			1,483
Other revenues			120				117
Net realized capital gains (losses)			(1,371	)			46
Total revenues			1,544				6,759
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses			3,357				3,333
Benefits, losses and loss adjustment expenses — returns credited on International variable annuities			(3,578	)			210
Amortization of deferred policy acquisition costs and present value of future profits			468				872
Insurance operating costs and expenses			950				888
Interest expense			67				63
Other expenses			189				181
Total benefits, losses and expenses			1,453				5,547
Income before income taxes			91				1,212
Income tax expense (benefit)			(54	)			336
Net income		$	145			$	876
Earnings per share
Basic		$	0.46			$	2.74
Diluted		$	0.46			$	2.71
Weighted average common shares outstanding			313.8				319.6
Weighted average common shares outstanding and dilutive potential common shares			315.7				322.7
Cash dividends declared per share		$	0.53			$	0.50

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		March 31,				December 31,
(In millions, except for per share data)		2008				2007
		(Unaudited)
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost of $79,792 and $80,724)		$	76,611			$	80,055
Equity securities, held for trading, at fair value (cost of $35,055 and $30,489)			37,406				36,182
Equity securities, available-for-sale, at fair value (cost of $2,706 and $2,611)			2,463				2,595
Policy loans, at outstanding balance			2,118				2,061
Mortgage loans on real estate			5,503				5,410
Other investments			3,806				3,181
Short-term investments			3,568				1,602
Total investments			131,475				131,086
Cash			2,248				2,011
Premiums receivable and agents’ balances			3,676				3,681
Reinsurance recoverables			5,210				5,150
Deferred policy acquisition costs and present value of future profits			12,819				11,742
Deferred income taxes			956				308
Goodwill			1,788				1,726
Property and equipment, net			994				972
Other assets			3,729				3,739
Separate account assets			181,273				199,946
Total assets		$	344,168			$	360,361
Liabilities
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
Property and casualty		$	22,150			$	22,153
Life			15,544				15,331
Other policyholder funds and benefits payable			46,460				44,190
Other policyholder funds and benefits payable — International variable annuities			37,376				36,152
Unearned premiums			5,551				5,545
Short-term debt			1,364				1,365
Long-term debt			3,618				3,142
Consumer notes			971				809
Other liabilities			12,025				12,524
Separate account liabilities			181,273				199,946
Total liabilities			326,332				341,157
Commitments and Contingencies (Note 8)
Stockholders’ Equity
Common stock, $0.01 par value — 750,000,000 shares authorized, 329,943,243 and 329,951,138 shares issued			3				3
Additional paid-in capital			6,581				6,627
Retained earnings			14,661				14,686
Treasury stock, at cost — 15,408,078 and 16,108,895 shares			(1,184	)			(1,254	)
Accumulated other comprehensive loss, net of tax			(2,225	)			(858	)
Total stockholders’ equity			17,836				19,204
Total liabilities and stockholders’ equity		$	344,168			$	360,361

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended
		March 31,
(In millions, except for share data)		2008				2007
		(Unaudited)
Common Stock and Additional Paid-in Capital
Balance at beginning of period		$	6,630			$	6,324
Issuance of shares under incentive and stock compensation plans			(50	)			92
Tax benefit on employee stock options and awards			4				22
Balance at end of period			6,584				6,438
Retained Earnings
Balance at beginning of period, before cumulative effect of accounting changes, net of tax			14,686				12,421
Cumulative effect of accounting changes, net of tax			(3	)			(41	)
Balance at beginning of period, as adjusted			14,683				12,380
Net income			145				876
Dividends declared on common stock			(167	)			(161	)
Balance at end of period			14,661				13,095
Treasury Stock, at Cost
Balance at beginning of period			(1,254	)			(47	)
Treasury stock acquired			—				(800	)
Issuance of shares under incentive and stock compensation plans from treasury stock			87				—
Return of shares under incentive and stock compensation plans to treasury stock			(17	)			(12	)
Balance at end of period			(1,184	)			(859	)
Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance at beginning of period			(858	)			178
Total other comprehensive loss			(1,367	)			(1	)
Balance at end of period			(2,225	)			177
Total stockholders’ equity		$	17,836			$	18,851
Outstanding Shares (in thousands)
Balance at beginning of period			313,842				323,315
Treasury stock acquired			—				(8,439	)
Issuance of shares under incentive and stock compensation plans			930				1,620
Return of shares under incentive and stock compensation plans to treasury stock			(237	)			(125	)
Balance at end of period			314,535				316,371

Condensed Consolidated Statements of Comprehensive Income (Loss)

		Three Months Ended
		March 31,
(in millions)		2008				2007
		(Unaudited)
Comprehensive Income (Loss)
Net income		$	145			$	876
Other comprehensive income (loss)
Change in net unrealized gain/loss on securities			(1,606	)			(46	)
Change in net gain/loss on cash-flow hedging instruments			90				27
Change in foreign currency translation adjustments			142				9
Amortization of prior service cost and actuarial net losses included in net periodic benefit costs			7				9
Total other comprehensive loss			(1,367	)			(1	)
Total comprehensive income (loss)		$	(1,222	)		$	875

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

		Three Months Ended
		March 31,
(In millions)		2008				2007
		(Unaudited)
Operating Activities
Net income		$	145			$	876
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred policy acquisition costs and present value of future profits			468				872
Additions to deferred policy acquisition costs and present value of future profits			(956	)			(1,056	)
Change in:
Reserve for future policy benefits and unpaid losses and loss adjustment expenses and unearned premiums			189				250
Reinsurance recoverables			54				37
Receivables and other assets			(60	)			(82	)
Payables and accruals			(525	)			120
Accrued and deferred income taxes			(154	)			347
Net realized capital (gains) losses			1,371				(46	)
Net receipts (to) from investment contracts credited to policyholder accounts associated with equity securities, held for trading			(3,175	)			1,323
Net (increase) decrease in equity securities, held for trading			3,036				(1,132	)
Depreciation and amortization			190				112
Other, net			(16	)			(316	)
Net cash provided by operating activities			567				1,305
Investing Activities
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available-for-sale			8,020				9,126
Equity securities, available-for-sale			48				265
Mortgage loans			118				164
Partnerships			28				48
Payments for the purchase of:
Fixed maturities, available-for-sale			(9,038	)			(10,252	)
Equity securities, available-for-sale			(180	)			(345	)
Mortgage loans			(210	)			(861	)
Partnerships			(162	)			(309	)
Purchase price of businesses acquired			(94	)			—
Change in policy loans, net			(57	)			(48	)
Change in payables for collateral under securities lending, net			93				1,199
Change in all other securities, net			(319	)			(122	)
Additions to property and equipment, net			(67	)			(61	)
Net cash used for investing activities			(1,820	)			(1,196	)
Financing Activities
Deposits and other additions to investment and universal life-type contracts			5,707				8,445
Withdrawals and other deductions from investment and universal life-type contracts			(6,499	)			(7,047	)
Net transfers from (to) separate accounts related to investment and universal life-type contracts			1,677				(767	)
Issuance of long-term debt			496				495
Payments on capital lease obligations			(26	)			—
Change in short-term debt			—				(131	)
Proceeds from issuance of consumer notes			162				177
Proceeds from issuance of shares under incentive and stock compensation plans			19				74
Treasury stock acquired			—				(800	)
Return of shares under incentive and stock compensation plans to treasury stock			(17	)			(12	)
Dividends paid			(169	)			(162	)
Net cash provided by financing activities			1,350				272
Foreign exchange rate effect on cash			140				(15	)
Net increase in cash			237				366
Cash — beginning of period			2,011				1,424
Cash — end of period		$	2,248			$	1,790
Supplemental Disclosure of Cash Flow Information
Net Cash Paid (Received) During the Period For:
Income taxes		$	—			$	(10	)
Interest		$	45			$	36

See Notes to Condensed Consolidated Financial Statements.

THE HARTFORD FINANCIAL SERVICES GROUP, INC.

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 (“U.S. GAAP”), which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

The accompanying condensed consolidated financial statements and notes as of March 31, 2008, and for the three months ended March 31, 2008 and 2007 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 2007 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.

Use of Estimates

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

The most significant estimates include those used in determining property and casualty reserves, net of reinsurance; life estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; living benefits required to be fair valued; valuation of investments and derivative instruments; evaluation of other-than-temporary impairments on available-for-sale securities; 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 2007 Form 10-K Annual Report.

Adoption of New Accounting Standards

Fair Value Measurements

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), which was issued by the Financial Accounting Standards Board (“FASB”) in September 2006. The Company also adopted on January 1, 2008 the SFAS 157 related FASB Staff Positions (“FSPs”) described below. For financial statement elements currently required to be measured at fair value, SFAS 157 redefines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. The new definition of fair value focuses on the price that would be received to sell the asset or paid to transfer the liability regardless of whether an observable liquid market price existed (an exit price). An exit price valuation will include margins for risk even if they are not observable. As the Company is released from risk, the margins for risk will also be released through net realized capital gains (losses) in net income. SFAS 157 provides guidance on how to measure fair value, when required, under existing accounting standards. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (“Level 1, 2, and 3”).

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

1. Basis of Presentation and Accounting Policies (continued)

The Company applied the provisions of SFAS 157 prospectively to financial assets and financial liabilities that are required to be measured at fair value under existing U.S. GAAP. The Company also recorded in opening retained earnings the cumulative effect of applying SFAS 157 to certain customized derivatives measured at fair value in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Involved in Energy Trading and Risk Management Activities” (“EITF 02-3”). See Note 4 for additional information regarding SFAS 157. Specifically, see the SFAS 157 Transition discussion within Note 4 for information regarding the effects of applying SFAS 157 on the Company’s condensed consolidated financial statements in the first quarter of 2008.

In February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”). FSP FAS 157-1 provides a scope exception from SFAS 157 for the evaluation criteria on lease classification and capital lease measurement under SFAS No. 13, “Accounting for Leases” and other related accounting pronouncements. Accordingly, the Company did not apply the provisions of SFAS 157 in determining the classification of and accounting for leases and the adoption of FSP FAS 157-1 did not have an impact on the Company’s condensed consolidated financial statements.

In February 2008, the FASB issued FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”) which delays the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and nonfinancial liabilities. Examples of applicable nonfinancial assets and nonfinancial liabilities to which FSP FAS 157-2 applies include, but are not limited to:

•		Nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination that are not subsequently remeasured at fair value;
•		Reporting units measured at fair value in the goodwill impairment test as described in SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and nonfinancial assets and nonfinancial liabilities measured at fair value in the SFAS 142 goodwill impairment test, if applicable; and
•		Nonfinancial long-lived assets measured at fair value for impairment assessment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

As a result of the issuance of FSP FAS 157-2, the Company did not apply the provisions of SFAS 157 to the nonfinancial assets and nonfinancial liabilities within the scope of FSP FAS 157-2.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115” (“SFAS 159”). The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported net income caused by measuring related assets and liabilities differently. This statement permits entities to choose, at specified election dates, to measure eligible items at fair value (i.e., the fair value option). Items eligible for the fair value option include certain recognized financial assets and liabilities, rights and obligations under certain insurance contracts that are not financial instruments, host financial instruments resulting from the separation of an embedded nonfinancial derivative instrument from a nonfinancial hybrid instrument, and certain commitments. Business entities shall report unrealized gains and losses on items for which the fair value option has been elected in net income. The fair value option: (a) may be applied instrument by instrument, with certain exceptions; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Companies shall report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings. On January 1, 2008, the Company did not elect to apply the provisions of SFAS 159 to financial assets and liabilities.

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

The 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 benefit of an uncertain tax position 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.

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.

Future Adoption of New Accounting Standards

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”), an amendment of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This Statement amends and expands disclosures about an entity’s derivative and hedging activities with the intent to provide users of financial statements with an enhanced understanding of a) how and why an entity uses derivative instruments, b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures. The Company expects to adopt SFAS 161 on January 1, 2009.

Income Taxes

The effective tax rate for the three months ended March 31, 2008 and 2007 was (59)% and 28%, respectively. The negative effective tax rate in 2008 is a result of a tax benefit on pre-tax income, whereas 2007’s effective tax rate is a result of a tax expense on pre-tax income. 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, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. The Company recorded benefits of $41 and $44 related to the separate account DRD in the three months ended March 31, 2008 and 2007, respectively.

In Revenue Ruling 2007-61, issued on September 25, 2007, the IRS announced its intention to issue regulations with respect to certain computational aspects of DRD on separate account assets held in connection with variable annuity contracts. Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54, issued in August 2007, that had purported to change accepted industry and IRS interpretations of the statutes governing these computational questions. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other members of the public will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown, but they could result in the elimination of some or all of the separate account DRD tax benefit that the Company receives. Management believes that it is highly likely that any such regulations would apply prospectively only.

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

1. Basis of Presentation and Accounting Policies (continued)

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 account investments to the international equity markets during the current year. The actual current year FTC can vary from the estimates due to actual FTCs passed through by the mutual funds. The Company recorded benefits of $3 and $3 related to separate account FTC in the three months ended March 31, 2008 and 2007, respectively.

The Company’s unrecognized tax benefits increased by $12 during the first three months of 2008 as a result of tax positions expected to be taken on its 2008 tax return, bringing the total unrecognized tax benefits to $88 as of March 31, 2008. This entire amount, if it were recognized, would lower the effective tax rate for the applicable periods.

The Company’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”). During 2005, the IRS commenced an examination of the Company’s U.S. income tax returns for 2002 through 2003 that is anticipated to be completed during 2008. The 2004 through 2006 examination will begin in 2008.

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.

		Net								Per Share
March 31, 2008		Income				Shares				Amount
Basic Earnings per Share
Net income available to common shareholders		$	145				313.8			$	0.46
Diluted Earnings per Share
Stock compensation plans			—				1.9
Net income available to common shareholders plus assumed conversions		$	145				315.7			$	0.46

		Net								Per Share
March 31, 2007		Income				Shares				Amount
Basic Earnings per Share
Net income available to common shareholders		$	876				319.6			$	2.74
Diluted Earnings per Share
Stock compensation plans			—				3.1
Net income available to common shareholders plus assumed conversions		$	876				322.7			$	2.71

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

3. Segment Information

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

Life

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

The accounting policies of the reporting 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 reporting 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. Inter-segment revenues primarily occur between Life’s Other category and the reporting segments. These amounts primarily include interest income on allocated surplus and interest charges on excess separate account surplus.

Property & Casualty

Property & Casualty is organized into five reporting segments: the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial (collectively, “Ongoing Operations”); and the Other Operations segment. For the three months ended March 31, 2008 and 2007, AARP accounted for earned premiums of $687 and $653, respectively, in Personal Lines.

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

		Three Months Ended
Net assumed (ceded) earned premiums under		March 31,
inter-segment arrangements		2008				2007
Personal Lines		$	(1	)		$	(2	)
Small Commercial			(8	)			(8	)
Middle Market			(8	)			(8	)
Specialty Commercial			17				18
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 2007 Form 10-K Annual Report.

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

Certain transactions between segments occur during the year that primarily relate to tax settlements, insurance coverage, expense reimbursements, services provided, security transfers and capital contributions. In addition, certain reinsurance stop loss arrangements exist between the segments which specify that one segment will reimburse another for losses incurred in excess of a predetermined limit. Also, one segment may purchase group annuity contracts from another to fund pension costs and annuities to settle casualty claims. In addition, certain inter-segment transactions occur in Life. These transactions include interest income on allocated surplus. Consolidated Life net investment income is unaffected by such transactions.

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 Personal Lines, Small Commercial, Middle Market and Specialty Commercial segments, while net income is presented for each of Life’s reporting segments, total Property & Casualty, Ongoing Operations, Other Operations, and Corporate.

		Three Months Ended
		March 31,
Revenues		2008				2007
Life
Retail [1]		$	176			$	923
Retirement Plans			122				141
Institutional			304				517
Individual Life			256				296
Group Benefits			1,144				1,205
International [1]			147				205
Other			11				74
Total Life segment revenues [1]			2,160				3,361
Net investment income (loss) on equity securities held for trading [2]			(3,578	)			210
Total Life [1]			(1,418	)			3,571
Property & Casualty
Ongoing Operations
Earned premiums
Personal Lines			983				953
Small Commercial			687				681
Middle Market			576				605
Specialty Commercial			367				384
Total Ongoing Operations earned premiums			2,613				2,623
Other Operations earned premiums			1				—
Other revenues [3]			120				118
Net investment income			365				413
Net realized capital gains (losses)			(152	)			23
Total Property & Casualty			2,947				3,177
Corporate			15				11
Total revenues [1]		$	1,544			$	6,759

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

3. Segment Information (continued)

		Three Months Ended
		March 31,
Net Income (Loss)		2008				2007
Life
Retail [1]		$	(77	)		$	200
Retirement Plans			(5	)			22
Institutional			(120	)			33
Individual Life			20				52
Group Benefits			46				69
International [1]			8				54
Other			(27	)			8
Total Life [1]			(155	)			438
Property & Casualty
Ongoing Operations
Underwriting results
Personal Lines			105				130
Small Commercial			119				84
Middle Market			51				33
Specialty Commercial			43				46
Total Ongoing Operations underwriting results			318				293
Net servicing income [2]			(1	)			11
Net investment income			310				351
Net realized capital gains (losses)			(134	)			17
Other expenses			(57	)			(60	)
Income tax expense			(124	)			(183	)
Ongoing Operations			312				429
Other Operations			14				32
Total Property & Casualty			326				461
Corporate			(26	)			(23	)
Net income [1]		$	145			$	876

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

4. Fair Value Measurements

The following financial instruments are carried at fair value in the Company’s condensed consolidated financial statements: fixed maturities, equity securities, short-term investments, freestanding and embedded derivatives, and separate account assets. These fair value disclosures include information regarding the valuation of the Company’s guaranteed benefits products and the impact of the adoption of SFAS 157, followed by the fair value measurement and disclosure requirements of SFAS 157.

Accounting for Guaranteed Benefits Offered With Variable Annuities

Many of the variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal, income and accumulation benefits. Those benefits are accounted for under SFAS 133 or AICPA Statement of Position No. 03-1 “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (“SOP 03-1”). Guaranteed minimum benefits often meet the definition of an embedded derivative under SFAS 133 as they have notional amounts (the guaranteed balance) and underlyings (the investment fund options), they require no initial net investment and they may have terms that require or permit net settlement. However, certain guaranteed minimum benefits settle only upon a single insurable event, such as death (guaranteed minimum death benefits or “GMDB”) or living (life contingent portion of guaranteed minimum withdrawal benefits or “GMWB”), and as such are scoped out of SFAS 133 under the “insurance contract exception”. Other guaranteed minimum benefits require settlement in the form of a long-term financing transaction, such as is typical with guaranteed minimum income benefits (“GMIB”), and as such do not meet the net settlement requirement in SFAS 133. Guaranteed minimum benefits that do not meet the requirements of SFAS 133 are accounted for as insurance benefits under SOP 03-1.

Guaranteed Benefits Accounted for at Fair Value Prior to SFAS 157

The non-life-contingent portion of the Company’s GMWBs and guaranteed minimum accumulation benefits (“GMAB”) meet the definition of an embedded derivative under SFAS 133, and as such are recorded at fair value with changes in fair value recorded in net realized capital gains (losses) in net income. In bifurcating the embedded derivative, the Company attributes to the derivative a portion of total fees collected from the contract holder. Those fees attributed were set equal to the present value of future claims (excluding margins for risk) expected to be paid for the guaranteed living benefit embedded derivative at the inception of the contract (the “Attributed Fees”). The excess of total fees collected from the contract holder over the Attributed Fees are associated with the host variable annuity contract and recorded in fee income. In subsequent valuations, both the present value of future claims expected to be paid and the present value of attributed fees expected to be collected are revalued based on current market conditions and policyholder behavior assumptions. The difference between each of the two components represents the fair value of the embedded derivative.

GMWBs provide 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. For most of the Company’s GMWB “for life riders”, the GRB is reset on an annual basis to the maximum anniversary account value, subject to a cap. If the GRB exceeds the account value for any policy, the contract is “in-the-money” by the difference between the GRB and the account value.

During the first quarter of 2007, the Company launched a GMAB rider attached to certain Japanese variable annuity contracts. The GMAB provides the policyholder with the GRB if the account value is less than premiums after an accumulation period, generally 10 years, and if the account value has not dropped below 80% of the initial deposit at which point a GMIB can be exercised. The GRB is generally equal to premiums less surrenders.

Derivatives That Hedge Capital Markets Risk for Guaranteed Minimum Benefits Accounted for as Derivatives

Changes in capital markets or policyholder behavior may increase or decrease the Company’s exposure to benefits under the guarantees. The Company uses derivative transactions, including GMWB reinsurance (described below) which meets the definition of a derivative under SFAS 133 and customized derivative transactions, to mitigate some of that exposure. Derivatives are recorded at fair value with changes in fair value recorded in net realized capital gains (losses) in net income.

GMWB Reinsurance

For all U.S. GMWB contracts in effect through July 2003, the Company entered into a reinsurance arrangement to offset its exposure to the GMWB for the remaining lives of those contracts. Substantially all of the Company’s reinsurance capacity was utilized as of the third quarter of 2003. Substantially all U.S. GMWB riders sold since July 2003 are not covered by reinsurance.

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

4. Fair Value Measurements (continued)

Customized Derivatives

In June and July of 2007, the Company entered into two customized swap contracts to hedge certain risk components for the remaining term of certain blocks of non-reinsured GMWB riders. These customized derivative contracts provide protection from capital markets risks based on policyholder behavior assumptions specified by the Company at the inception of the derivative transactions. Due to the significance of the non-observable inputs associated with pricing these derivatives, the initial difference between the transaction price and modeled value of $51 was deferred in accordance with EITF 02-3 and included in other assets in the condensed consolidated balance sheets.

Other Derivative Instruments

The Company uses other hedging instruments to hedge its unreinsured GMWB exposure. These instruments include interest rate futures and swaps, variance swaps, S&P 500 and NASDAQ index put options and futures contracts. The Company also uses EAFE Index swaps to hedge GMWB exposure to international equity markets.

Adoption of SFAS 157 for Guaranteed Benefits Offered With Variable Annuities That are Required to be Fair Valued

Fair values for GMWB and GMAB contracts and the related reinsurance and customized derivatives that hedge certain equity markets exposure for GMWB contracts are calculated based upon internally developed models because active, observable markets do not exist for those items. Below is a description of the Company’s fair value methodologies for guaranteed benefit liabilities, the related reinsurance and customized derivatives, all accounted for under SFAS 133, prior to the adoption of SFAS 157 and subsequent to adoption of SFAS 157.

Pre-SFAS 157 Fair Value

Prior to January 1, 2008, the Company used the guidance prescribed in SFAS 133 and other related accounting literature on fair value which represented the amount for which a financial instrument could be exchanged in a current transaction between knowledgeable, unrelated willing parties. However, under that accounting literature, when an estimate of fair value was made for liabilities where no market observable transactions exist for that liability or similar liabilities, market risk margins were only included in the valuation if the margin was identifiable, measurable and significant. If a reliable estimate of market risk margins was not obtainable, the present value of expected future cash flows under a risk neutral framework, discounted at the risk free rate of interest, was the best available estimate of fair value in the circumstances (“Pre-SFAS 157 Fair Value”).

The Pre-SFAS 157 Fair Value was calculated based on actuarial and capital market assumptions related to projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior such as lapses, fund selection, resets and withdrawal utilization (for the customized derivatives, policyholder behavior is prescribed in the derivative contract). Because of the dynamic and complex nature of these cash flows, best estimate assumptions and a Monte Carlo stochastic process involving the generation of thousands of scenarios that assume risk neutral returns consistent with swap rates and a blend of observable implied index volatility levels were used. Estimating these cash flows involved numerous estimates and subjective judgments including those regarding expected markets rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and policyholder behavior. At each valuation date, the Company assumed expected returns based on:

•

risk-free rates as represented by the current LIBOR forward curve rates;

•

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

•

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

•

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

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

4. Fair Value Measurements (continued)

Fair Value Under SFAS 157

The Company’s SFAS 157 fair value is calculated as an aggregation of the following components: Pre-SFAS 157 Fair Value; Actively-Managed Volatility Adjustment; Credit Standing Adjustment; Market Illiquidity Premium; and Behavior Risk Margin. The resulting aggregation is reconciled or calibrated, if necessary, to market information that is, or may be, available to the Company, but may not be observable by other market participants, including reinsurance discussions and transactions. The Company believes the aggregation of each of these components, as necessary and as reconciled or calibrated to the market information available to the Company, results in an amount that the Company would be required to transfer for a liability, or receive for an asset, to market participants in an active liquid market, if one existed, for those market participants to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives required to be fair valued. The SFAS 157 fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. Release of risk margins will be reflected as realized gains in future periods’ net income. Each of the components described below are unobservable in the marketplace and require subjectivity by the Company in determining their value.

•

Actively-Managed Volatility Adjustment. This component incorporates the basis differential between the observable index implied volatilities used to calculate the Pre-SFAS 157 component and the actively-managed funds underlying the variable annuity product. The Actively-Managed Volatility Adjustment is calculated using historical fund and weighted index volatilities.

•

Credit Standing Adjustment. This component makes an adjustment that market participants would make to reflect the risk that GMWB obligations or the GMWB reinsurance recoverables will not be fulfilled (“nonperformance risk”). SFAS 157 explicitly requires nonperformance risk to be reflected in fair value. The Company calculates the Credit Standing Adjustment by using default rates provided by rating agencies, adjusted for market recoverability.

•

Market Illiquidity Premium. This component makes an adjustment that market participants would require to reflect that GMWB obligations are illiquid and have no market observable exit prices in the capital markets. The Market Illiquidity Premium was determined using inputs that are identified in customized derivative transactions that the Company has entered into to hedge GMWB related risks.

•

Behavior Risk Margin. This component adds a margin that market participants would require for the risk that the Company’s assumptions about policyholder behavior used in the Pre-SFAS 157 model could differ from actual experience. The Behavior Risk Margin is calculated by taking the difference between adverse policyholder behavior assumptions and the best estimate assumptions used in the Pre-SFAS 157 model using interest rate and volatility assumptions that the Company believes market participants would use in developing risk margins. The adverse assumptions incorporate adverse dynamic lapse behavior, greater utilization of the withdrawal features, and the potential for contract holders to shift their investment funds into more aggressive investments when allowed.

SFAS 157 Transition

The Company applied the provisions of SFAS 157 prospectively to financial instruments that are recorded at fair value including guaranteed living benefits that are required to be fair valued. The Company also applied the provisions of SFAS 157 using limited retrospective application (i.e., cumulative effect adjustment through opening retained earnings) to certain customized derivatives historically measured at fair value in accordance with EITF 02-3.

The impact on January 1, 2008 of adopting SFAS 157 for guaranteed benefits accounted for under SFAS 133 and the related reinsurance was a reduction to net income of $220, after the effects of DAC amortization and income taxes. In addition, net realized capital gains and losses that will be recorded in 2008 and future years are also likely to be more volatile than amounts recorded in prior years.

Moreover, the adoption of SFAS 157 will result in lower variable annuity fee income for new business issued in 2008 as fees attributed to the embedded derivative will increase consistent with incorporating additional risk margins and other indicia of “exit value” in the valuation of the embedded derivative.

The Company also recognized a decrease in opening retained earnings of $51 in relation to the loss deferred in accordance with EITF 02-3 on customized derivatives used to hedge a portion of the GMWB risk. In addition, the change in value of the customized derivatives due to the initial adoption of SFAS 157 of $41 was recorded as an increase in opening retained earnings with subsequent changes in fair value recorded in net realized capital gains (losses) in net income. After amortization of DAC and the effect of income taxes, the impact on opening retained earnings is a decrease of $3.

The Company’s adoption of SFAS 157 did not materially impact the fair values of other financial instruments, including, but not limited to, other derivative instruments used to hedge guaranteed minimum benefits.

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

4. Fair Value Measurements (continued)

The SFAS 157 transition amounts, before the effects of DAC amortization and income taxes, as of January 1, 2008 are shown below by type of guaranteed benefit liability and derivative asset.

SFAS 157 Transition Adjustment for Guaranteed Benefit Liabilities and Derivative Assets
As of January 1, 2008

										Transition
										Adjustment
		SFAS 157				Pre-SFAS 157				Gain (Loss)
		Fair Value				Fair Value				[Before tax and
		Asset (Liability)				Asset (Liability)				DAC amortization]
Guaranteed Benefits
U.S. Guaranteed Minimum Withdrawal Benefits		$	(1,114	)		$	(553	)		$	(561	)
Non-Life Contingent Portion of “for Life” Guaranteed Minimum Withdrawal Benefits
U.S. Riders			(319	)			(154	)			(165	)
International Riders			(17	)			(7	)			(10	)
Total			(336	)			(161	)			(175	)
International Guaranteed Minimum Accumulation Benefits			(22	)			2				(24	)
Total Guaranteed Benefits			(1,472	)			(712	)			(760	)
GMWB Reinsurance			238				128				110
Total		$	(1,234	)		$	(584	)		$	(650	)

The transition adjustment as of January 1, 2008 was comprised of the following amounts by transition component:

		Transition
		Adjustment
		Gain (Loss)
		[Before tax and
		DAC amortization]
Actively-Managed Volatility Adjustment		$	(100	)
Credit Standing Adjustment			4
Market Illiquidity Premium			(194	)
Behavior Risk Margin			(360	)
Total SFAS 157 Transition Adjustment before tax and DAC amortization		$	(650	)

Fair Value Disclosures

The following section applies the SFAS 157 fair value hierarchy and disclosure requirements to the Company’s financial instruments that are carried at fair value. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 or 3).

Level 1		Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasury securities, certain mortgage backed securities, and exchange traded equity and derivative securities.

Level 2		Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most debt securities and some preferred stocks are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are derivative instruments that are priced using models with observable market inputs, including interest rate, foreign currency and certain credit swap contracts.

Level 3		Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities such as highly structured and/or lower quality asset-backed securities (“ABS”) and commercial mortgage-backed securities (“CMBS”), including ABS backed by sub-prime loans, and private placement debt and equity securities. Embedded derivatives and complex derivatives securities, including equity derivatives, longer dated interest rate swaps and certain complex credit derivatives are also included in Level 3. Because Level 3 fair values, by their nature, contain unobservable market inputs as there is no observable market for these assets and liabilities, considerable judgment is used to determine the SFAS 157 Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges.

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

4. Fair Value Measurements (continued)

The following table presents the Company’s assets and liabilities that are carried at fair value, by SFAS 157 hierarchy level, as of March 31, 2008:

						Quoted Prices
						in Active				Significant				Significant
						Markets for				Observable				Unobservable
						Identical Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, available-for-sale		$	76,611			$	864			$	59,300			$	16,447
Equity securities, held for trading			37,406				1,451				35,955				—
Equity securities, available-for-sale			2,463				266				912				1,285
Other investments [1]			1,094				—				341				753
Short-term investments			3,568				311				3,257				—
Reinsurance recoverables [2]			291				—				—				291
Separate account assets [3] [7]			169,569				137,431				31,558				580
Total assets accounted for at fair value on a recurring basis		$	291,002			$	140,323			$	131,323			$	19,356
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable [4]		$	(2,058	)		$	—			$	—			$	(2,058	)
Other liabilities [5]			(342	)			—				(253	)			(89	)
Consumer notes [6]			(4	)			—				—				(4	)
Total liabilities accounted for at fair value on a recurring basis		$	(2,404	)		$	—			$	(253	)		$	(2,151	)

In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable (e.g., changes in interest rates) and unobservable (e. g., changes in risk assumptions) inputs are used in the determination of fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs.

Determination of fair values

The valuation methodologies used to determine the fair values of assets and liabilities under the “exit price” notion of SFAS 157 reflect market-participant objectives and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Company determines the fair of values of certain financial assets and financial liabilities based on quoted market prices, where available. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s credit standing, liquidity and, where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above table.

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

4. Fair Value Measurements (continued)

Fixed Maturity, Short-Term, and Equity Securities, Available for Sale

The fair value of fixed maturity, short term, and equity securities, available for sale, is determined by management after considering one of three primary sources of information: third party pricing services, independent broker quotations, or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third party pricing services, the remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, and/or estimated cash flows and prepayments speeds. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third party pricing services normally derive the security prices through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information outlined above. If there are no recent reported trades, the third party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of ABS, collateralized mortgage obligations (“CMOs”), and mortgage-backed securities (“MBS”) are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral.

Prices from third party pricing services are often unavailable for securities that are rarely traded or traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. A pricing matrix is used to price securities for which the Company is unable to obtain either a price from a third party pricing service or an independent broker quotation. The pricing matrix begins with current spread levels to determine the market price for the security. The credit spreads, as assigned by a knowledgeable private placement broker, incorporate the issuer’s credit rating and a risk premium, if warranted, due to the issuer’s industry and the security’s time to maturity. The issuer-specific yield adjustments, which can be positive or negative, are updated twice per year, as of June 30 and December 31, by an independent third party source and are intended to adjust security prices for issuer-specific factors. The Company assigns a credit rating to these securities based upon an internal analysis of the issuer’s financial strength.

The Company performs a monthly analysis on the prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of third party pricing services methodologies, review of pricing statistics and trends, back testing recent trades, and monitoring of trading volumes. In addition, the Company ensures whether prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads and, when available, market indices. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.

The Company has analyzed the third party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate SFAS 157 fair value hierarchy level based upon trading activity and the observability of market inputs. Based on this evaluation and investment class analysis, each price was classified into Level 1, 2 or 3. Most prices provided by third party pricing services are classified into Level 2 because the inputs used in pricing the securities are market observable.

Due to a general lack of transparency in the process that the brokers use to develop prices, most valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated. Internal matrix-priced securities, primarily consisting of certain private placement debt, are also classified as Level 3. The matrix pricing of certain private placement debt includes significant non-observable inputs, the internally determined credit rating of the security and an externally provided credit spread.

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

4. Fair Value Measurements (continued)

The following table presents the fair value of the significant asset sectors within the SFAS 157 Level 3 securities classification as of March 31, 2008.

						% of Total
		Fair Value				Fair Value
ABS		$	6,125				34.5	%
Corporate — matrix priced			4,647				26.2	%
Corporate — other			3,281				18.5	%
CMBS			1,964				11.1	%
Preferred stock			1,008				5.7	%
Other			707				4.0	%
Total Level 3 securities		$	17,732				100.0	%

•		ABS primarily represents sub-prime and Alt-A securities which are classified as Level 3 due to the lack of liquidity in the market along with bank loan collateralized loan obligations (“CLOs”) which are primarily priced by independent brokers.
•		Corporate-matrix priced represents private placement securities that are thinly traded and priced using a pricing matrix which includes significant non-observable inputs.
•		Corporate-other primarily represents broker-priced securities which are thinly traded and privately negotiated transactions.
•		CMBS primarily represents CMBS collateralized debt obligations (“CDOs”) securities classified as Level 3 due to the illiquidity of this sector.
•		Preferred stock primarily represents illiquid perpetual preferred security transactions.

Derivative Instruments, including embedded derivatives within investments

Derivative instruments are reported on the condensed consolidated balance sheets at fair value and are reported in Other Investments and Other Liabilities. Embedded derivatives are reported with the host instruments on the condensed consolidated balance sheet. Derivative instruments are fair valued using pricing valuation models, which utilize market data inputs or independent broker quotations. Excluding embedded derivatives, as of March 31, 2008, 97% of derivatives based upon notional values were priced by valuation models, which utilize independent market data. The remaining derivatives were priced by broker quotations. The derivatives are valued using mid-market inputs that are predominantly observable in the market. Inputs used to value derivatives include, but are not limited to, interest swap rates, foreign currency forward and spot rates, credit spreads and correlations, interest and equity volatility and equity index levels. The Company performs a monthly analysis on derivative valuations which includes both quantitative and qualitative analysis. Examples of procedures performed include, but are not limited to, review of pricing statistics and trends, back testing recent trades, analyzing the impacts of changes in the market environment, and review of changes in market value for each derivative including those derivatives priced by brokers.

Derivative instruments classified as Level 1 include futures and certain option contracts which are traded on active exchange markets.

Derivative instruments classified as Level 2 primarily include interest rate, currency and certain credit default swaps. The derivative valuations are determined using pricing models with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Derivative instruments classified as Level 3 include complex derivatives, such as equity options and swaps, interest rate derivatives which have interest rate optionality, certain credit default swaps, and long-dated interest rate swaps. Also included in Level 3 classification for derivatives are customized equity swaps that hedge the GMWB liabilities. Additional information on the customized transactions is provided under the “Accounting for Guaranteed Benefits Offered With Variable Annuities” section of this Note 4. These derivative instruments are valued using pricing models which utilize both observable and unobservable inputs and, to a lesser extent, broker quotations. A derivative instrument containing Level 1 or Level 2 inputs will be classified as a Level 3 financial instrument in its entirety if it has as least one significant Level 3 input.

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

GMWB Reinsurance Derivative

The fair value of the GMWB reinsurance derivative is calculated as an aggregation of the components described in the SFAS 157 Transition section of this Note. The fair value of the GMWB reinsurance derivative is modeled using significant unobservable policyholder behavior inputs, such as lapses, fund selection, resets and withdrawal utilization, and risk margins. As a result, the GMWB reinsurance derivative is categorized as Level 3.

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

4. Fair Value Measurements (continued)

Separate Account Assets

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security, and short-term investments of the Company. Open-ended mutual funds are included in Level 1. Most debt securities and short-term investments are included in Level 2. Level 3 assets include less liquid securities, such as highly structured and/or lower quality ABS and CMBS, ABS backed by sub-prime loans, and any investment priced solely by broker quotes.

GMWB and GMAB Embedded Derivatives (in Other Policyholder Funds and Benefits Payable)

The fair value of GMWB and GMAB embedded derivatives, reported in Other Policyholder Funds and Benefits Payable on the Company’s condensed consolidated balance sheet, are calculated as an aggregation of the components described in the SFAS 157 Transition section of this Note. The fair value of GMWB and GMAB embedded derivatives are modeled using significant unobservable policyholder behavior inputs, such as lapses, fund selection, resets and withdrawal utilization, and risk margins. As a result, the GMWB and GMAB embedded derivatives are categorized as Level 3.

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

The table below provides a fair value roll forward from January 1, 2008 to March 31, 2008 for the financial instruments for which significant unobservable inputs (Level 3) are used in the fair value measurement on a recurring basis. The Company classifies the fair values of financial instruments within Level 3 if there are no observable markets for the instruments or, in the absence of active markets, the majority of the inputs used to determine fair value are based on the Company’s own assumptions about market participant assumptions. However, the Company prioritizes the use of market-based inputs over entity-based assumptions in determining Level 3 fair values in accordance with SFAS 157. Therefore, the gains and losses in the table below include changes in fair value due partly to observable and unobservable factors.

Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

																										Changes in
																										unrealized
																										gains (losses)
																										included in net
						Total																				income related
						realized/unrealized																SFAS 157				to financial
						gains (losses)								Purchases,				Transfers				Fair value				instruments
		SFAS 157 Fair				included in:								issuances,				in and/or				as of				still held at
		value as of				Net income				AOCI				and				(out) of				March 31,				March 31,
		January 1, 2008				[3], [4]				[6]				settlements				Level 3				2008				2008 [4]
Assets
Fixed maturities		$	17,996			$	(103	)		$	(1,110	)		$	973			$	(1,309	)		$	16,447			$	(78	)
Equity securities, available-for-sale			1,339				(5	)			(119	)			91				(21	)			1,285				(4	)
Freestanding derivatives [5]			254				79				3				221				107				664				179
Reinsurance recoverable [1], [3]			238				48				—				5				—				291				48
Separate accounts [7]			701				(78	)			—				77				(120	)			580				(72	)
Liabilities
Embedded derivatives reported in other policyholder funds and benefits payable [2], [3]		$	(1,517	)		$	(517	)		$	—			$	(24	)		$	—			$	(2,058	)		$	(517	)
Consumer notes			(5	)			1				—				—				—				(4	)			1

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

5. Investments and Derivative Instruments

		March 31, 2008																December 31, 2007
						Gross				Gross												Gross				Gross
		Amortized				Unrealized				Unrealized				Fair				Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
Bonds and Notes
ABS		$	9,555			$	29			$	(1,210	)		$	8,374			$	9,515			$	33			$	(633	)		$	8,915
CMOs
Agency backed			1,023				34				(6	)			1,051				1,191				32				(4	)			1,219
Non-agency backed			512				1				(30	)			483				525				4				(3	)			526
CMBS			16,681				220				(1,845	)			15,056				17,625				244				(838	)			17,031
Corporate			34,548				1,105				(1,626	)			34,027				34,118				1,022				(942	)			34,198
Government/Government agencies
Foreign			997				62				(11	)			1,048				999				59				(5	)			1,053
United States			1,296				54				—				1,350				836				22				(3	)			855
MBS			2,273				27				(10	)			2,290				2,757				26				(20	)			2,763
States, municipalities and political subdivisions			12,907				354				(329	)			12,932				13,152				427				(90	)			13,489
Redeemable preferred stock			—				—				—				—				6				—				—				6
Total fixed maturities		$	79,792			$	1,886			$	(5,067	)		$	76,611			$	80,724			$	1,869			$	(2,538	)		$	80,055

As of March 31, 2008 and December 31, 2007, under terms of securities lending programs, the fair value of loaned securities was approximately $4.1 billion and $4.3 billion, respectively, and was included in fixed maturities, equities, available-for-sale, and short-term investments in the condensed consolidated balance sheets.

Variable Interest Entities (“VIE”)

The Company is involved with variable interest entities as a collateral manager and as an investor through normal investment activities. The Company’s involvement includes providing investment management and administrative services for a fee, and holding ownership or other investment interests in the entities.

VIEs may or may not be consolidated on the Company’s condensed consolidated financial statements. When the Company is the primary beneficiary of the VIE, all of the assets of the VIE are consolidated into the Company’s financial statements. The Company also reports a liability for the portion of the VIE that represents the minority interest of other investors in the VIE. When the Company concludes that it is not the primary beneficiary of the VIE, the fair value of the Company’s investment in the VIE is recorded in the Company’s financial statements.

The Company’s maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss.

As of March 31, 2008 and December 31, 2007, the Company had relationships with seven VIEs where the Company was the primary beneficiary. The following table sets forth the carrying value of assets and liabilities, and the Company’s maximum exposure to loss on these consolidated VIEs.

		March 31, 2008												December 31, 2007
										Maximum												Maximum
		Total				Total				Exposure				Total				Total				Exposure
		Assets				Liabilities [1]				to Loss				Assets				Liabilities [1]				to Loss
CLOs [2]		$	347			$	40			$	311			$	128			$	47			$	107
Limited partnerships			304				50				254				309				47				262
Other investments [3]			364				73				329				377				71				317
Total		$	1,015			$	163			$	894			$	814			$	165			$	686

As of March 31, 2008 and December 31, 2007, the Company also held variable interests in four and five VIEs, respectively, where the Company is not the primary beneficiary. These investments have been held by the Company for less than two years. The Company’s maximum exposure to loss from these non-consolidated VIEs as of March 31, 2008 and December 31, 2007 was $504 and $150, respectively.

As of December 31, 2007, Hartford Investment Management Company (“HIMCO”) was the collateral manager of four VIEs with provisions that allowed for termination if the fair value of the aggregate referenced bank loan portfolio declined below a stated level. These VIEs were market value CLOs that invested in senior secured bank loans through total return swaps. Two of these market value CLOs were consolidated, and two were not consolidated. During the first quarter of 2008, the fair value of the aggregate referenced bank loan portfolio declined below the stated level in all four market value CLOs and the total return swap counterparties terminated the transactions. Three of these CLOs were restructured from market value CLOs to cash flow CLOs without market value triggers and the remaining CLO is expected to terminate by the end of 2008. The Company realized a capital loss of $86 (Life realized $50 and Property and Casualty realized $36) before-tax from the termination of these CLOs. In connection with the restructuring, the Company purchased interests in two of the resulting VIEs. The Company is the primary beneficiary for one of the resulting VIEs.

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

5. Investments and Derivative Instruments (continued)

Derivative Instruments

The Company utilizes a variety of derivative instruments, including swaps, caps, floors, forwards, futures and options through one of four Company-approved objectives: to hedge risk arising from interest rate, equity market, credit spread including issuer default, 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/or 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 derivative 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 2007 Form 10-K Annual Report.

Derivative instruments are recorded in the condensed consolidated balance sheets at fair value. Asset and liability values are determined by calculating the net position, taking into account income accruals and cash collateral held, for each derivative counterparty by legal entity and are presented as follows:

		March 31, 2008								December 31, 2007
						Liability								Liability
		Asset Values				Values				Asset Values				Values
Fixed maturities, available-for-sale		$	—			$	2			$	—			$	—
Other investments			1,094				—				528				—
Reinsurance recoverables			291				—				128				—
Other policyholder funds and benefits payable			—				2,008				2				737
Consumer notes			—				4				—				5
Other liabilities			—				342				—				617
Total		$	1,385			$	2,356			$	658			$	1,359