# HARTFORD INSURANCE GROUP, INC. (HIG) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HARTFORD INSURANCE GROUP, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/874766/000087476622000019/hig-20211231.htm
Accession: 0000874766-22-000019
Filing date: 2022-02-18
Report date: 2021-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/HIG/
All MD&A years: /company/HIG/mda/
Next year: /company/HIG/mda/fy2022/ (FY 2022)

Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

payments on an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company.

|OTHER SOURCES OF CAPITAL FOR THE HFSG HOLDING COMPANY

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

Shelf Registrations

The Hartford filed an automatic shelf registration statement with the Securities and Exchange Commission ("the SEC") on May 17, 2019 that permits it to offer and sell debt and equity securities during the three-year life of the registration statement.

For further information regarding Shelf Registrations, see Note 14 - Debt of Notes to Consolidated Financial Statements.

Revolving Credit Facility

In 2018, The Hartford entered into a senior unsecured revolving credit facility (the "Credit Facility") that provides up to $750 of unsecured credit with an expiration date of March 29, 2023. On October 27, 2021, The Hartford amended and restated the Credit Facility and extended it through October 27, 2026. As of December 31, 2021, no borrowings were outstanding and no letters of credit were issued under the Credit Facility and The Hartford was in compliance with all financial covenants. For further information regarding the Credit Facility, see Note 14– Debt of Notes to Consolidated Financial Statements.

Intercompany Liquidity Agreements

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

As of December 31, 2021, there were no amounts outstanding at the HFSG Holding Company.

Collateralized Advances with Federal Home Loan Bank of Boston

The Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and Hartford Life and Accident Insurance Company ("HLA"), are members of the FHLBB. Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. Advances may be used to support general corporate purposes,

which would be presented as short- or long-term debt, or to earn incremental investment income, which would be presented in other liabilities consistent with other collateralized financing transactions. As of December 31, 2021, there were no advances outstanding. The CTDOI permits Hartford Fire and HLA to pledge up to $1.3 billion and $0.6 billion in qualifying assets, respectively, without prior approval, to secure FHLBB advances in 2022. For further information regarding the Company's collateralized advances with Federal Home Loan Bank of Boston, see Note 14 - Debt of Notes to Consolidated Financial Statements.

Lloyd's Letter of Credit Facilities

The Hartford has entered into a committed credit facility agreement with a syndicate of lenders (the "Club Facility") as well as a non-committed $25 credit facility with a lender (the "Bilateral Facility"). The Club Facility has two tranches with one tranche extending a $104 commitment and the other tranche extending a £85 million ($115 as of December 31, 2021) commitment. As of December 31, 2021, letters of credit with an aggregate face amount of $104 and £68 million, or $92, were outstanding under the Club Facility and no letters of credit were outstanding under the Bilateral Facility.

Among other covenants, the Club Facility and Bilateral Facility contain financial covenants regarding The Hartford's consolidated net worth and financial leverage and that limit the amount of letters of credit that can support Funds and Lloyd's, consistent with Lloyd's requirements. As of December 31, 2021, The Hartford was in compliance with all financial covenants of both facilities.

For further information regarding the Club Facility and the Bilateral Facility, see Note 14– Debt of Notes to Consolidated Financial Statements.

Other Sources and Uses of Capital

As part of the sale of the former retained interest in Talcott Resolution, which was completed on June 30, 2021, the Company received $217 of proceeds.

In May 2021, the Company contributed €15 million ($18) to Navigators Holdings (Europe) N.V., a Belgium holding company. On December 29, 2021, the Company received approximately $20, before $9 of transaction costs, related to the sale of its Continental Europe Operations.

|PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

While the Company has significant discretion in making voluntary contributions to the U. S. qualified defined benefit pension plan, minimum contributions are mandated in certain circumstances pursuant to the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, the Worker, Retiree, and Employer Recovery Act of 2008, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21) and Internal Revenue Code regulations. The Company did not make any contributions to the U. S. qualified defined benefit pension plan in 2021, and made contributions to this pension plan of approximately $70 in both 2020 and 2019. No contributions

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Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

were made to the other postretirement plans in 2021, 2020 and 2019. The Company’s 2021, 2020 and 2019 required minimum funding contributions were immaterial. The Company does not have a 2022 required minimum funding contribution for the U.S. qualified defined benefit pension plan and the funding requirements for all pension plans are expected to be immaterial. The Company has not determined whether, and to what extent, contributions may be made to the U.S. qualified defined benefit pension plan in 2022. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during 2022 to make this determination. As of December 31, 2021, the U.S. qualified defined benefit pension plan is fully funded and in an asset position. For further discussion of pension and other postretirement benefit obligations, see Note 19 - Employee Benefit Plans of Notes to Consolidated Financial Statements.

|DERIVATIVE COMMITMENTS

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical rating agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could terminate agreements and demand immediate settlement of the outstanding net derivative positions transacted under each agreement. For further information, refer to Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements.

As of December 31, 2021, no derivative positions would be subject to immediate termination in the event of a downgrade of one level below the current financial strength ratings. This could change as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated.

|INSURANCE OPERATIONS

While subject to variability period to period, underwriting and investment cash flows continue to provide sufficient liquidity to meet anticipated demands. For information about the impact of COVID-19 on the Company's cash flows see Part I, Item 1A, Risk Factors of this Annual Report on Form 10-K.

The principal sources of operating funds are premiums, fees earned from insurance and administrative service agreements, and investment income, while investing cash flows primarily originate from maturities and sales of invested assets.

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

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

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

Property & Casualty

[[GREPCENT_TABLE]]
[["","As of"],["","December 31, 2021"],["Fixed maturities","$","33,143"],["Short-term investments","1,332"],["Cash","176"],["Less: Derivative collateral","36"],["Total","$","34,615"]]
[[/GREPCENT_TABLE]]

Property & Casualty operations invested assets also include $1.4 billion in equity securities, $3.9 billion in mortgage loans and $2.7 billion in limited partnerships and other alternative investments.

Group Benefits Operations

[[GREPCENT_TABLE]]
[["","As of"],["","December 31, 2021"],["Fixed maturities","$","9,487"],["Short-term investments","352"],["Cash","15"],["Less: Derivative collateral","18"],["Total","$","9,836"]]
[[/GREPCENT_TABLE]]

Group Benefits operations invested assets also include $338 in equity securities, $1.5 billion in mortgage loans and $664 in limited partnerships and other alternative investments.

The primary uses of funds are to pay claims, claim adjustment expenses, commissions and other underwriting and insurance operating costs, to pay taxes, to purchase new investments and to make dividend payments to the HFSG Holding Company.

Property & Casualty reserves for unpaid losses and loss adjustment expenses as of December 31, 2021 were $31.4 billion. Reserves for Property & Casualty unpaid losses and loss adjustment expenses include case reserves and IBNR. The ultimate amount to be paid to settle both case reserves and IBNR is an estimate, subject to significant uncertainty. The actual amount to be paid is not finally determined until the Company reaches a settlement with the claimant. Final claim settlements may vary significantly from the present estimates, particularly since many claims will not be settled until well into the future. For a discussion of The Hartford’s judgment in estimating reserves for Property & Casualty see Part II, Item 7, MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, and for historical payments by reserve line net of reinsurance, see Note 12 – Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. The timing of future payments for the next twelve months and for beyond twelve months could vary materially from historical payment patterns due to, among other things, changes in claim reporting and payment patterns and large unanticipated settlements. In particular, there is significant uncertainty over the claim payment patterns of asbestos and environmental claims.

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Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Group Benefits reserves as of December 31, 2021 were $9.0 billion. Estimated group life and disability obligations are based on assumptions comparable with the Company’s historical experience, modified for recent observed trends. For a discussion of The Hartford’s judgment in estimating reserves for Group Benefits see Part II, Item 7, MD&A - Critical Accounting Estimates, Group Benefit LTD Reserves, Net of Reinsurance, for further discussion on future policy benefits, see Note 13 Reserve for Future Policy Benefits and for historical payments by reserve line, net of reinsurance, see Note 12 – Reserve for Unpaid Losses and Loss Adjustment Expenses of Notes to Consolidated Financial Statements. Due to the significance of the assumptions used, payments for the next twelve months and beyond twelve months could materially differ from historical patterns.

Corporate includes retained reserves of $458 as of December 31, 2021 related to retained run-off liabilities of its former life and annuity business. For further discussion on future policy benefits, see Note 13 Reserve for Future Policy Benefits.

Hartford Funds

Hartford Funds principal sources of operating funds are fees earned from basis points on assets under management with uses primarily for payments to subadvisors and other general operating expenses. As of December 31, 2021, Hartford Funds cash and short-term investments were $254.

|PURCHASE AND OTHER OBLIGATIONS

The Hartford’s unfunded commitments to purchase investments in limited partnerships and other alternative investments, private placements, and mortgage loans are disclosed in Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements. It is anticipated that these unfunded commitments will be funded through the Company’s normal operating and investing activities.

In the normal course of business, the Company enters into contractual commitments to purchase various goods and services such as maintenance, human resources, and information technology. The Company’s operating lease commitments are disclosed in Note 21 - Leases of Notes to Consolidated Financial Statements. It is anticipated that these purchase commitments and operating lease obligations will be funded through the Company’s normal operating and investing activities.

|CAPITALIZATION

[[GREPCENT_TABLE]]
[["Capital Structure"],["","December 31, 2021","December 31, 2020","Change"],["Long-term debt","$","4,944","","$","4,352","","14%"],["Total debt","4,944","","4,352","","14%"],["Common stockholders' equity, excluding AOCI, net of tax","17,337","","17,052","","2%"],["Preferred stock","334","","334","","\u2014%"],["AOCI, net of tax","172","","1,170","","(85)%"],["Total stockholders\u2019 equity","$","17,843","","$","18,556","","(4%)"],["Total capitalization","$","22,787","","$","22,908","","(1%)"],["Debt to stockholders\u2019 equity","28","%","23","%"],["Debt to capitalization","22","%","19","%"]]
[[/GREPCENT_TABLE]]

Total capitalization decreased $121, or 1%, as of December 31, 2021 compared to December 31, 2020 primarily due to share repurchases in the period and a decrease in AOCI, partially offset by net income in excess of stockholder dividends and an increase in long-term debt due to the issuance of the 2.9% Notes.

For additional information on AOCI, net of tax, including unrealized gains from securities, see Note 18 - Changes in and Reclassifications From Accumulated Other Comprehensive Income and Note 6 - Investments of Notes to Consolidated Financial Statements. For additional information on debt, see Note 14 - Debt of Notes to Consolidated Financial Statements.

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Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

|CASH FLOW[1]

[[GREPCENT_TABLE]]
[["","2021","2020","2019"],["Net cash provided by operating activities","$","4,093","","$","3,871","","$","3,489"],["Net cash used for investing activities","$","(2,466)","","$","(2,066)","","$","(2,148)"],["Net cash used for financing activities","$","(1,581)","","$","(1,778)","","$","(1,191)"],["Cash and restricted cash\u2014 end of year","$","337","","$","239","","$","262"]]
[[/GREPCENT_TABLE]]

[1]Cash activities in 2021 and 2020 include cash flows related to Continental Europe Operations classified as held for sale beginning in the third quarter of 2020 and sold on December 29, 2021. See Note 22 - Business Dispositions of Notes to Consolidated Financial Statements for discussion of this transaction.

Year ended December 31, 2021 compared to the year ended December 31, 2020

Net cash provided by operating activities increased in 2021 as compared to the prior year period primarily driven by an increase in Commercial Lines and Group Benefits premiums received, greater cash distributions from limited partnerships, lower payroll and employee related expenditures, a decrease in restructuring costs and the impact of Personal Lines premium refunds in the 2020 period. Positive cash flow impacts were partially offset by an increase in income taxes paid and an increase in Group Benefits loss and loss adjustment expenses paid.

Cash used for investing activities increased in 2021 as compared to the prior year as a result of a decrease from net proceeds to net payments for equity securities, an increase in net payments for partnerships, an increase in net payments for mortgage loans, an increase in net payments for other investing activities and a decrease from net proceeds to net payments for derivatives, partially offset by an increase from net payments to net proceeds for fixed maturities and consideration received from the sale of the Company's equity interest in Talcott Resolution.

Cash used for financing activities decreased primarily due to proceeds from the issuance of debt in 2021, debt repayments in the 2020 period, and a decrease in cash used for securities lending transactions, partially offset by an increase in share repurchases in 2021.

Operating cash flows for the year ended December 31, 2021 have been adequate to meet liquidity requirements.

|EQUITY MARKETS

For a discussion of the potential impact of the equity markets on capital and liquidity, see the Financial Risk on Statutory Capital and Liquidity Risk section in this MD&A.

|RATINGS

Ratings are an important factor in establishing a competitive position in the insurance marketplace and impact the Company's ability to access financing and its cost of borrowing. There can be no assurance that the Company’s ratings will

continue for any given period of time, or that they will not be changed. In the event the Company’s ratings are downgraded, the Company’s competitive position, ability to access financing, and its cost of borrowing, may be adversely impacted.

On July 21, 2021, Moody's upgraded the insurance financial strength rating of HLA to A1 from A2. The upgrade reflects HLA’s leading market position in the group life and disability business, its distribution capabilities and consistent profitability, as well as implicit support from The Hartford.

Insurance Financial Strength Ratings as of February 17, 2022

[[GREPCENT_TABLE]]
[["","A.M. Best","Standard & Poor's","Moody's"],["Hartford Fire Insurance Company","A+","A+","A1"],["Hartford Life and Accident Insurance Company","A+","A+","A1"],["Navigators Insurance Company","A+","A","Not Rated"],["Other Ratings:"],["The Hartford Financial Services Group, Inc.:"],["Senior debt","a-","BBB+","Baa1"]]
[[/GREPCENT_TABLE]]

These ratings are not a recommendation to buy, sell or hold any of The Hartford’s securities and they may be revised or withdrawn at any time at the discretion of the rating organization. Each agency’s rating should be evaluated independently of any other agency’s rating. The system and the number of rating categories can vary across rating agencies.

Among other factors, rating agencies consider the level of statutory capital and surplus of our U.S. insurance subsidiaries as well as the level of a measure of GAAP capital held by the Company in determining the Company's financial strength and credit ratings. Rating agencies may implement changes to their capital formulas that have the effect of increasing the amount of capital we must hold in order to maintain our current ratings. See Part I, Item 1A. Risk Factors — “Downgrades in our financial strength or credit ratings may make our products less attractive, increase our cost of capital and inhibit our ability to refinance our debt.”

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Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

|STATUTORY CAPITAL

[[GREPCENT_TABLE]]
[["U.S. Statutory Capital Rollforward for the Company's Insurance Subsidiaries"],["","Property and Casualty Insurance Subsidiaries [1] [2]","Group Benefits Insurance Subsidiary","Total"],["U.S. statutory capital at January 1, 2021","$","10,795","","$","2,601","","$","13,396"],["Statutory income","1,774","","32","","1,806"],["Dividends to parent","(1,105)","","(295)","","(1,400)"],["Other items","450","","72","","522"],["Net change to U.S. statutory capital","1,119","","(191)","","928"],["U.S. statutory capital at December 31, 2021","$","11,914","","$","2,410","","$","14,324"]]
[[/GREPCENT_TABLE]]

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

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

.

Stat to GAAP Differences

Significant differences between U.S. GAAP stockholders’ equity and aggregate statutory capital prepared in accordance with U.S. STAT include the following:

•U.S. STAT excludes equity of non-insurance and foreign insurance subsidiaries not held by U.S. insurance subsidiaries.

•Costs incurred by the Company to acquire insurance policies are deferred under U.S. GAAP while those costs are expensed immediately under U.S. STAT.

•Temporary differences between the book and tax basis of an asset or liability which are recorded as deferred tax assets are evaluated for recoverability under U.S. GAAP while these amounts are then subject to further admissibility tests under U.S. STAT.

•The assumptions used in the determination of Group Benefits reserves (i.e. for Group Benefits contracts) are prescribed under U.S. STAT, while the assumptions used under U.S. GAAP are generally the Company’s best estimates.

•The difference between the amortized cost and fair value of fixed maturity and other investments, net of tax, is recorded as an increase or decrease to the carrying value of the related asset and to equity under U.S. GAAP, while, under U.S. STAT, most investments are carried at amortized cost with only certain securities carried at fair value, such as equity securities and certain lower rated bonds required by the NAIC to be recorded at the lower of amortized cost or fair value.

•U.S. STAT for life insurance companies like HLA establishes a formula reserve for realized and unrealized losses due to default and equity risks associated with certain invested assets (the Asset Valuation Reserve), while U.S. GAAP does not. Also, for those realized gains and losses caused by changes in interest rates, U.S. STAT for life insurance companies defers and amortizes the gains and losses, caused by changes in interest rates, into income over the original life to maturity of the asset sold (the Interest Maintenance Reserve) while U.S. GAAP does not.

•Goodwill arising from the acquisition of a business is tested for recoverability on an annual basis (or more frequently, as necessary) for U.S. GAAP, while under U.S. STAT goodwill is amortized over a period not to exceed 10 years and the amount of goodwill admitted as an asset is limited.

•The deferred gain on retroactive reinsurance for losses ceded to the Navigators and A&E ADC agreements is recognized within a special category of surplus under U.S. STAT but is recognized within other liabilities under U.S. GAAP.

In addition, certain assets, including a portion of premiums receivable and fixed assets, are non-admitted (recorded at zero value and charged against surplus) under U.S. STAT. U.S. GAAP generally evaluates assets based on their recoverability.

|RISK BASED CAPITAL

The Company's U.S. insurance companies' states of domicile impose RBC requirements. The requirements provide a means of measuring the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations based on its size and risk profile. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. All of the Company's U.S. operating insurance

subsidiaries had RBC ratios in excess of the minimum levels required by the applicable insurance regulations.

Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which the Company operates generally establish minimum solvency requirements for insurance companies. All of the Company's international insurance subsidiaries expect to

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Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

maintain capital levels in excess of the minimum levels required by the applicable regulatory authorities.

|SENSITIVITY

In any particular period, statutory capital amounts and RBC ratios may increase or decrease depending upon a variety of factors. The amount of change in the statutory capital or RBC ratios can vary based on individual factors and may be compounded in extreme scenarios or if multiple factors occur at the same time. At times the impact of changes in certain market factors or a combination of multiple factors on RBC ratios can be counterintuitive. For further discussion on these factors, see MD&A - Enterprise Risk Management, Financial Risk on Statutory Capital.

Statutory capital at the insurance subsidiaries has been maintained at capital levels commensurate with the Company's desired RBC ratios and ratings from rating agencies. The amount of statutory capital can increase or decrease depending on a number of factors affecting insurance results including, among other factors, the level of catastrophe claims incurred, the amount of reserve development, the effect of changes in interest rates on investment income and the discounting of loss reserves, and the effect of realized gains and losses on investments.

|CONTINGENCIES

Legal Proceedings

For a discussion regarding contingencies related to The Hartford’s legal proceedings, see the information contained under “Litigation” and “Run-off Asbestos and Environmental Claims,” in Note 15 - Commitments and Contingencies of the Notes to Consolidated Financial Statements and Part I, Item 3 Legal Proceedings, which are incorporated herein by reference.

Legislative and Regulatory Developments

COVID-19 Global Pandemic

State and federal lawmakers continue to propose legislation and regulation to address the effects of the COVID-19 pandemic and to promote recovery from the pandemic. There have been proposals to impose retroactive coverage of COVID-19 claims under existing business interruption coverage provisions. If such proposals were enacted, they could represent a material exposure for the Company. Further, some states have adopted, or are considering incorporating, a presumption that if certain workers become infected with COVID-19, such infection would constitute an occupational disease triggering workers’ compensation coverage. In addition, state insurance regulators, including California, New Jersey and New York, have encouraged (and in some cases required) insurers to offer immediate relief to policyholders. As the COVID-19 global pandemic continues, regulators may require us or we may elect to provide additional consumer and/or business financial relief. We may also see this manifest in the review and approval of new rate filings, with regulators applying heightened scrutiny even when rate reductions are proposed. The duration and scope of such regulatory/Company actions are uncertain, and

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

Proposals have been introduced in Congress to enact a pandemic risk insurance coverage through a risk sharing mechanism between insurers and the federal government for future pandemics. Timing for any Congressional action with respect to these proposals is uncertain at this time. If such a program were to be enacted, it could represent a significant obligation for the Company in terms of deductible and co-share obligations.

Biden Administration Build Back Better Agenda

During 2021, the Biden Administration called for Congressional action on the President’s Build Back Better Agenda, which outlined funding across traditional infrastructure and human infrastructure in the U.S.

On November 15, 2021, President Biden signed the bipartisan “Infrastructure Investment and Jobs Act” into law, which provided funding for traditional infrastructure such as roads, bridges and highways.

The second phase of Build Back Better proposes funding for a national paid family and medical leave program, clean energy initiatives, affordable childcare and more in the Build Back Better Act.

Notably, a national paid family and medical leave program could affect existing state-based disability and paid leave programs or other products and services that the Company provides through its Group Benefits business.

If enacted, the effect of new proposals from the Build Back Better agenda on the Company’s operations, including the ability to attract new business and retain existing customers is unclear. While Congress is considering partisan action on the Build Back Better agenda, the nature and timing of such action is unclear.

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

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

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US Tax Reform

As Congress debates action on various spending initiatives, it may consider a variety of proposals to fund the cost of new spending with revenue raising measures. Proposals from the Build Back Better agenda, as well as the Biden Administration commitment to the OECD global minimum tax, could be drivers of tax policy changes, including a possible increase in the corporate tax rate, creation of a corporate minimum tax and other changes to taxes owed on income earned outside of the U.S. These and other tax proposals and regulatory initiatives that may be considered by Congress and/or the U.S. Treasury Department could have a material effect on the Company and its insurance businesses. The nature and timing of any Congressional or regulatory action with respect to any such efforts is unclear.

Post-Brexit UK Regulatory Reforms

The UK Prudential Regulation Authority (“PRA”) is reviewing the Solvency II regime, introduced across the EU during 2016 to

align insurance entities’ risk frameworks for managing capital adequacy and risk management practices, as well as increased transparency and enhanced regulatory supervision.

The PRA also recognizes that climate change presents a material financial risk to insurers and the financial system and for 2022 the PRA will incorporate the financial risks posed by supervision into its core supervisory approach.

Guaranty Fund and Other Insurance-related Assessments

For a discussion regarding Guaranty Fund and Other Insurance-related Assessments, see Note 15 - Commitments and Contingencies of Notes to Consolidated Financial Statements.

IMPACT OF NEW ACCOUNTING STANDARDS

For a discussion of accounting standards, see Note 1 - Basis of Presentation and Significant Accounting Policies of Notes to Consolidated Financial Statements.

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ACRONYMS

[[GREPCENT_TABLE]]
[["A&E Asbestos and Environmental","HIMCO Hartford Investment Management Company"],["ABS Asset Backed Securities","IBNR Incurred But Not Reported"],["ACL Allowance for Credit Losses","IT Information Technology"],["ADC Adverse Development Cover","LCL Liability for Credit Losses"],["AFS Available-For-Sale","LIBOR London Inter-Bank Offered Rate"],["ALAE Allocated Loss Adjustment Expenses","LTD Long-Term Disability"],["AOCI Accumulated Other Comprehensive Income","LTV Loan-to-Value"],["AUM Assets Under Management","MD&A Management's Discussion and Analysis of Financial Conditions and Results of Operations"],["CAY Current Accident Year","NAIC National Association of Insurance Commissioners"],["CLO Collateralized Loan Obligation","NIC Navigators Insurance Company"],["CMBS Commercial Mortgage-Backed Securities","NICO National Indemnity Company, a subsidiary of Berkshire Hathaway Inc. (\u201cBerkshire\u201d)"],["DAC Deferred Policy Acquisition Costs","NM Not Meaningful"],["DEI Diversity, Equity and Inclusion","NOLs Net Operating Loss Carryforwards or Carrybacks"],["DLR Disabled Life Reserve","NSIC Navigators Specialty Insurance Company"],["DSCR Debt Service Coverage Ratio","OCI Other Comprehensive Income"],["ERCC Enterprise Risk and Capital Committee","OTC Over-the-Counter"],["ESPP The Hartford Employee Stock Purchase Plan","P&C Property and Casualty"],["ETF Exchange-Traded Funds","PG&E PG&E Corporation and Pacific Gas and Electric Company"],["ETP Exchange-Traded Products","PYD Prior Year Development"],["FAL Funds at Lloyd's","RBC Risk-Based Capital"],["FASB Financial Accounting Standards Board","RMBS Residential Mortgage-Backed Securities"],["FHLBB Federal Home Loan Bank of Boston","ROA Return on Assets"],["GAAP Generally Accepted Accounting Principles","ROE Return on Equity"],["GB Group Benefits","SCR Solvency Capital Requirement"],["HFSG Hartford Financial Services Group, Inc.","SOFR Secured Overnight Funding Rate"],["HHI Hartford Holdings, Inc.","ULAE Unallocated Loss Adjustment Expenses"]]
[[/GREPCENT_TABLE]]

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