# 10-K	1	y06108ke10vk.htm	HARTFORD	FINANCIAL	SERVICES	GROUP,	INC.

Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	One)

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

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

# THE	HARTFORD	FINANCIAL	SERVICES	GROUP,	INC.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

(I.R.S.	Employer

Identification	No.)

# Hartford	Plaza,	Hartford,	Connecticut	06115-1900

(Address	of	principal	executive	offices)

(Registrant's	telephone	number,	including	area	code)

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:	the	following,	all	of	which	are	listed	on	the	New	York	Stock	Exchange,	Inc.:

Common	Stock,	par	value	$0.01	per	share 6%	Equity	Units 7.45%	Trust	Originated	Preferred	Securities,	Series	C, 7%	Equity	Units 				issued	by	Hartford	Capital	III

Securities	registered	pursuant	to	Section	12(g)	of	the	Act:

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	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of	registrant's knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.		þ

Indicate	by	check	mark	whether	the	registrant	is	an	accelerated	filer	(as	defined	in	Rule	12b-2	of	the	Act)		Yes	þ		No	o.

The	aggregate	market	value	of	the	shares	of	Common	Stock	held	by	non-affiliates	of	the	registrant	as	of	June	30,	2004	was	approximately	$20,105,000,000,	based	on	the closing	price	of	$68.74	per	share	of	the	Common	Stock	on	the	New	York	Stock	Exchange	on	June	30,	2004.

Documents	Incorporated	by	Reference:

Portions	of	the	Registrant's	definitive	proxy	statement	for	its	2005	annual	meeting	of	shareholders	are	incorporated	by	reference	in	Part	III	of	this	Form	10-K.

# CONTENTS

|  | ITEM | DESCRIPTION | PAGE |
| :--- | :--- | :--- | :--- |
| PART\tI | 1 | Business | 3 |
|  | 2 | Properties | 17 |
|  | 3 | Legal\tProceedings | 17 |
|  | 4 | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 18 |

| PART	II | 5 | Market	for	The	Hartford's	Common	Equity	and	Related	Stockholder	Matters | 18 |
| :--- | :--- | :--- | :--- |
|  | 6 | Selected\tFinancial\tData | 20 |
|  | 7 | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 21 |
|  | 7A | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 95 |
|  | 8 | Financial\tStatements\tand\tSupplementary\tData | 95 |
|  | 9 | Changes\tin\tand\tDisagreements\tWith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 95 |
|  | 9A | Controls\tand\tProcedures | 95 |
|  | 9B | Other\tInformation | 97 |
| PART\tIII | 10 | Directors\tand\tExecutive\tOfficers\tof\tThe\tHartford | 97 |
|  | 11 | Executive\tCompensation | 98 |
|  | 12 | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement | 98 |
|  | 13 | Certain\tRelationships\tand\tRelated\tTransactions | 99 |
|  | 14 | Principal\tAccounting\tFees\tand\tServices | 99 |
| PART\tIV | 15 | Exhibits,\tFinancial\tStatement\tSchedules,\tand\tReports\ton\tForm\t8-K | 99 |
|  |  | Signatures | II-1 |
|  |  | Exhibits\tIndex | II-2 |

	EX-3.01	AMENDED	&	RESTATED	CERTIFICATE	OF	INCORPORATION

# 	EX-12.01	COMPUTATION	OF	RATIO	OF	EARNINGS

# 	EX-21.01	SUBSIDIARIES	OF	HARTFORD	FINANCIAL	SERVICES

# 	EX-23.01	CONSENT	OF	DELOITTE	&	TOUCHE	LLP

# 	EX-31.01	CERTIFICATION

# PART	I

Item	1.	BUSINESS

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

# General

The	Hartford	Financial	Services	Group,	Inc.	(together	with	its	subsidiaries,	"The	Hartford"	or	the	"Company")	is	a	diversified	insurance	and	financial	services	company. The	Hartford,	headquartered	in	Connecticut,	is	among	the	largest	providers	of	investment	products,	individual	life,	group	life	and	group	disability	insurance	products,	and property	and	casualty	insurance	products	in	the	United	States.	Hartford	Fire	Insurance	Company,	founded	in	1810,	is	the	oldest	of	The	Hartford's	subsidiaries.	The	Hartford writes	insurance	in	the	United	States	and	internationally.	At	December	31,	2004,	total	assets	and	total	stockholders'	equity	of	The	Hartford	were	$259.7	billion	and	$14.2 billion,	respectively.

# Organization

The	Hartford	strives	to	maintain	and	enhance	its	position	as	a	market	leader	within	the	financial	services	industry	and	to	maximize	shareholder	value.	The	Company	pursues a	strategy	of	developing	and	selling	diverse	and	innovative	products	through	multiple	distribution	channels,	continuously	developing	and	expanding	those	distribution channels,	achieving	cost	efficiencies	through	economies	of	scale	and	improved	technology,	maintaining	effective	risk	management	and	prudent	underwriting	techniques and	capitalizing	on	its	brand	name	and	customer	recognition	of	The	Hartford	Stag	Logo,	one	of	the	most	recognized	symbols	in	the	financial	services	industry.

As	a	holding	company	that	is	separate	and	distinct	from	its	subsidiaries,	The	Hartford	Financial	Services	Group,	Inc.	has	no	significant	business	operations	of	its	own. Therefore,	it	relies	on	the	dividends	from	its	insurance	companies	and	other	subsidiaries	as	the	principal	source	of	cash	flow	to	meet	its	obligations.	Additional	information regarding	the	cash	flow	and	liquidity	needs	of	The	Hartford	Financial	Services	Group,	Inc.	may	be	found	in	the	Capital	Resources	and	Liquidity	section	of	Management's Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	("MD&A").

The	Company	maintains	a	retail	mutual	fund	operation,	whereby	the	Company,	through	wholly-owned	subsidiaries,	provides	investment	management	and	administrative services	to	The	Hartford	Mutual	Funds,	Inc.	and	The	Hartford	Mutual	Funds	II,	Inc.	("The	Hartford	mutual	funds"),	families	of	40	mutual	funds.	Investors	can	purchase "shares"	in	The	Hartford	mutual	funds,	all	of	which	are	registered	with	the	Securities	and	Exchange	Commission	in	accordance	with	the	Investment	Company	Act	of	1940. The	Hartford	mutual	funds	are	owned	by	the	shareholders	of	those	funds	and	not	by	the	Company.

# Reporting	Segments

The	Hartford	is	organized	into	two	major	operations:	Life	and	Property	&	Casualty.	In	the	quarter	ended	March	31,	2004,	and	as	more	fully	described	below,	the	Company changed	its	reporting	segments	to	reflect	the	current	manner	by	which	its	chief	operating	decision	maker	views	and	manages	the	business.	All	segment	data	for	prior reporting	periods	have	been	adjusted	to	reflect	the	current	segment	reporting.	Within	the	Life	and	Property	&	Casualty	operations,	The	Hartford	conducts	business principally	in	eight	operating	segments.	Additionally,	Corporate	includes	all	of	the	Company's	debt	financing	and	related	interest	expense,	as	well	as	certain	capital	raising activities	and	purchase	accounting	adjustments.

Life	changed	its	reportable	operating	segments	in	2004	from	Investment	Products,	Individual	Life,	Group	Benefits	and	Corporate	Owned	Life	Insurance	("COLI")	to	Retail Products	Group	("Retail"),	Institutional	Solutions	Group	("Institutional"),	Individual	Life	and	Group	Benefits.

Retail	offers	individual	variable	and	fixed	annuities,	mutual	funds,	retirement	plan	products	and	services	to	corporations	under	Section	401(k)	plans	and	other	investment products.

Institutional	primarily	offers	retirement	plan	products	and	services	to	municipalities	under	Section	457	plans,	other	institutional	investment	products,	structured	settlements, and	private	placement	life	insurance	(formerly	referred	to	as	COLI).

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

The	Group	Benefits	segment	provides	employers	and	associations	with	group	life,	accident	and	disability	coverage,	along	with	other	products	and	services,	including voluntary	benefits,	employee	assistance	programs,	travel	assistance,	group	retiree	health,	and	medical	stop	loss.

Life	includes	in	an	Other	category	its	international	operations,	which	are	primarily	located	in	Japan	and	Brazil;	net	realized	capital	gains	and	losses	other	than	periodic	net coupon	settlements	on	non-qualifying	derivatives	and	net	realized	capital	gains	and	losses	related	to	guaranteed	minimum	withdrawal	benefits;	corporate	items	not	directly allocated	to	any	of	its	reportable	operating	segments;	and	intersegment	eliminations.	Periodic	net	coupon	settlements	on	non-qualifying	derivatives	and	net	realized	capital gains	and	losses	related	to	guaranteed	minimum	withdrawal	benefits	are	reflected	in	each	applicable	segment	in	net	realized	capital	gains	and	losses.

Property	&	Casualty	is	now	organized	into	four	reportable	operating	segments:	the	underwriting	segments	of	Business	Insurance,	Personal	Lines,	and	Specialty	Commercial (collectively	"Ongoing	Operations");	and	the	Other	Operations	segment.	Prior	to	the	first	quarter	of	2004,	Property	&	Casualty	had	also	included	a	Reinsurance	segment ("HartRe	assumed	reinsurance").	With	the	discontinuance	of	writing	new	domestic	assumed	reinsurance	business,	HartRe	assumed	reinsurance	business	is	now	included	in the	Other	Operations	segment	for	all	periods	presented.

Business	Insurance	provides	standard	commercial	insurance	coverage	to	small	commercial	and	middle	market	commercial	businesses	primarily	throughout	the	United States.	This	segment	offers	workers'	compensation,	property,	automobile,	liability,	umbrella	and	marine	coverages.	Commercial	risk	management	products	and	services	are also	provided.

Personal	Lines	provides	automobile,	homeowners'	and	home-based	business	coverages	to	the	members	of	AARP	through	a	direct	marketing	operation;	to	individuals	who prefer	local	agent	involvement	through	a	network	of	independent	agents	in	the	standard	personal	lines	market;	and	through	the	Omni	Insurance	Group	in	the	non-standard automobile	market.	Personal	Lines	also	operates	a	member	contact	center	for	health	insurance	products	offered	through	AARP's	Health	Care	Options.

The	Specialty	Commercial	segment	offers	a	variety	of	customized	insurance	products	and	risk	management	services.	Specialty	Commercial	provides	standard	commercial insurance	products	including	workers'	compensation,	automobile	and	liability	coverages	to	large-sized	companies.	Specialty	Commercial	also	provides	bond,	professional liability,	specialty	casualty	and	agricultural	coverages,	as	well	as	core	property	and	excess	and	surplus	lines	coverages	not	normally	written	by	standard	lines	insurers. Alternative	markets,	within	Specialty	Commercial,	provides	insurance	products	and	services	primarily	to	captive	insurance	companies,	pools	and	self-insurance	groups.	In addition,	Specialty	Commercial	provides	third	party	administrator	services	for	claims	administration,	integrated	benefits,	loss	control	and	performance	measurement through	Specialty	Risk	Services,	a	subsidiary	of	the	Company.

The	Other	Operations	segment	consists	of	certain	property	and	casualty	insurance	operations	of	The	Hartford	which	have	discontinued	writing	new	business	and	includes substantially	all	of	the	Company's	asbestos	and	environmental	exposures.

The	measure	of	profit	or	loss	used	by	The	Hartford's	management	in	evaluating	the	performance	of	its	Life	segments	is	net	income.	The	Property	&	Casualty	segments	are evaluated	by	The	Hartford's	management	primarily	based	upon	underwriting	results.	Underwriting	results	represent	premiums	earned	less	incurred	claims,	claim	adjustment expenses	and	underwriting	expenses.	The	sum	of	underwriting	results,	net	investment	income,	net	realized	capital	gains	and	losses,	other	expenses,	and	related	income	taxes is	net	income	(loss).

Life's	business	is	conducted	by	Hartford	Life,	Inc.	("Hartford	Life"	or	"Life"),	an	indirect	subsidiary	of	The	Hartford,	headquartered	in	Simsbury,	Connecticut,	and	is	a leading	financial	services	and	insurance	organization.	Hartford	Life	provides	(i)	retail	and	institutional	investment	products,	including	variable	annuities,	fixed	market	value adjusted	("MVA")	annuities,	mutual	funds,	private	placement	life	insurance,	which	includes	life	insurance	products	purchased	by	a	company	on	the	lives	of	its	employees, and	retirement	plan	services	for	the	savings	and	retirement	needs	of	over	5.0	million	customers,	(ii)	life	insurance	for	wealth	protection,	accumulation	and	transfer	needs	for approximately	738,000	customers,	(iii)	group	benefits	products	such	as	group	life	and	group	disability	insurance	for	the	benefit	of	millions	of	individuals,	and	(iv)	fixed	and variable	annuity	products	through	its	international	operations.	Life	is	one	of	the	largest	sellers	of	individual	variable	annuities,	variable	universal	life	insurance	and	group disability	insurance	in	the	United	States.	Life's	strong	position	in	each	of	its	core	businesses	provides	an	opportunity	to	increase	the	sale	of	Life's	products	and	services	as individuals	increasingly	save	and	plan	for	retirement,	protect	themselves	and	their	families	against	the	financial	uncertainties	associated	with	disability	or	death	and	engage in	estate	planning.

Hartford	Life	is	among	the	largest	consolidated	life	insurance	groups	in	the	United	States	based	on	statutory	assets	as	of	December	31,	2004.	In	the	past	year,	Life's	total assets	under	management,	which	include	$28.1	billion	of	third-party	assets	invested	in	Life's	mutual	funds	and	529	College	Savings	Plans,	increased	18%	to	$248.5	billion at	December	31,	2004	from	$210.1	billion	at	December	31,	2003.	Life	generated	revenues	of	$11.4	billion,	$8.1	billion,	and	$6.9	billion	in	2004,	2003	and	2002, respectively.	Additionally,	Life	generated	net	income	of	$1.4	billion,	$845,	and	$630	in	2004,	2003	and	2002,	respectively.

# Customer	Service,	Technology	and	Economies	of	Scale

Life	maintains	advantageous	economies	of	scale	and	operating	efficiencies	due	to	its	growth,	attention	to	expense	and	claims	management	and	commitment	to	customer service	and	technology.	These	advantages	allow	Life	to	competitively	price	its	products	for	its	distribution	network	and	policyholders.	In	addition,	Life	utilizes	computer technology	to	enhance	communications	within	Life	and	throughout	its	distribution	network	in	order	to	improve	Life's	efficiency	in	marketing,	selling	and	servicing	its products	and,	as	a	result,	provides	high-quality	customer	service.	In	recognition	of	excellence	in	customer	service	for	individual	annuities,	Hartford	Life	was	awarded	the 2004	Annuity	Service	Award	by	DALBAR	Inc.,	a	recognized	independent	financial	services	research	organization,	for	the	ninth	consecutive	year.	Hartford	Life	is	the	only company	to	receive	this	prestigious	award	in	every	year	of	the	award's	existence.	Also,	in	2004	Life	earned	its	second	DALBAR	Award	for	Mutual	Fund	and	Retirement Plan	Service	which	recognizes	Hartford	Life	as	the	No.	1	service	provider	of	mutual	funds	and	retirement	plans	in	the	industry.	Additionally,	Life's	Individual	Life	segment won	its	fourth	consecutive	DALBAR	award	for	service	of	life	insurance	customers	and	its	third	consecutive	DALBAR	Financial	Intermediary	Service	Award	in	2004.

# Risk	Management

Life's	product	designs,	prudent	underwriting	standards	and	risk	management	techniques	are	structured	to	protect	it	against	disintermediation	risk,	greater	than	expected mortality	and	morbidity	experience	and,	for	certain	product	features,	specifically	the	guaranteed	minimum	death	benefit	("GMDB")	and	guaranteed	minimum	withdrawal benefit	("GMWB")	offered	with	variable	annuity	products,	equity	market	volatility.	As	of	December	31,	2004,	Life	had	limited	exposure	to	disintermediation	risk	on approximately	97%	of	its	domestic	life	insurance	and	annuity	liabilities	through	the	use	of	non-guaranteed	separate	accounts,	MVA	features,	policy	loans,	surrender charges	and	non-surrenderability	provisions.	Life	effectively	utilizes	prudent	underwriting	to	select	and	price	insurance	risks	and	regularly	monitors	mortality	and morbidity	assumptions	to	determine	if	experience	remains	consistent	with	these	assumptions	and	to	ensure	that	its	product	pricing	remains	appropriate.	Life	also	enforces disciplined	claims	management	to	protect	itself	against	greater	than	expected	morbidity	experience.	Life	uses	reinsurance	structures	and	has	modified	benefit	features	to mitigate	the	mortality	exposure	associated	with	GMDB.	Life	also	uses	reinsurance	in	combination	with	derivative	instruments	to	minimize	the	volatility	associated	with	the GMWB	liability.

# Retail	Products	Group

The	Retail	segment	focuses,	through	the	sale	of	individual	variable	and	fixed	annuities,	mutual	funds,	retirement	plan	services	and	other	investment	products,	on	the	savings and	retirement	needs	of	the	growing	number	of	individuals	who	are	preparing	for	retirement	or	who	have	already	retired.	This	segment's	assets	under	management	grew	to $144.4	billion	at	December	31,	2004	from	$123.6	billion	at	December	31,	2003.	Retail	generated	revenues	of	$3.2	billion,	$2.2	billion	and	$1.9	billion	in	2004,	2003	and 2002,	respectively,	of	which	individual	annuities	accounted	for	$2.6	billion,	$1.8	billion,	and	$1.5	billion	for	2004,	2003	and	2002,	respectively.	Net	income	in	the	Retail Products	Group	segment	was	$526,	$430	and	$356	in	2004,	2003	and	2002,	respectively.

Life	sells	both	variable	and	fixed	individual	annuity	products	through	a	wide	distribution	network	of	national	and	regional	broker-dealer	organizations,	banks	and	other financial	institutions	and	independent	financial	advisors.	Life	is	a	market	leader	in	the	annuity	industry	with	sales	of	$15.7	billion,	$16.5	billion,	and	$11.6	billion	in	2004, 2003	and	2002,	respectively.	Life	was	the	largest	seller	of	individual	retail	variable	annuities	in	the	United	States	with	sales	of	$15.0	billion,	$15.7	billion,	and	$10.3	billion in	2004,	2003	and	2002,	respectively.	In	addition,	Life	continues	to	be	the	largest	seller	of	individual	retail	variable	annuities	through	banks	in	the	United	States.

Life's	total	account	value	related	to	individual	annuity	products	was	$111.0	billion	as	of	December	31,	2004.	Of	this	total	account	value,	$99.6	billion,	or	90%,	related	to individual	variable	annuity	products	and	$11.4	billion,	or	10%,	related	primarily	to	fixed	MVA	annuity	products.	At	December	31,	2003,	Life's	total	account	value	related to	individual	annuity	products	was	$97.7	billion.	Of	this	total	account	value,	$86.5	billion,	or	89%,	related	to	individual	variable	annuity	products	and	$11.2	billion,	or	11%, related	primarily	to	fixed	MVA	annuity	products.

In	addition	to	its	leading	position	in	individual	annuities,	Life	continues	to	emerge	as	a	significant	participant	in	the	mutual	fund	business.	As	of	December	31,	2004,	retail mutual	fund	assets	were	$25.2	billion.	Life	is	also	among	the	top	providers	of	retirement	products	and	services,	including	asset	management	and	plan	administration	sold	to small	and	medium	size	corporations	pursuant	to	Section	401(k)	of	the	Internal	Revenue	Code	of	1986,	as	amended	(referred	to	as	"401(k)").

# Principal	Products

Individual	Variable	Annuities	—	Life	earns	fees,	based	on	policyholders'	account	values,	for	managing	variable	annuity	assets	and	maintaining	policyholder	accounts.	Life uses	specified	portions	of	the	periodic	deposits	paid	by	a	customer	to	purchase	units	in	one	or	more	mutual	funds	as	directed	by	the	customer,	who	then	assumes	the investment	performance	risks	and	rewards.	As	a	result,	variable	annuities	permit	policyholders	to	choose	aggressive	or	conservative	investment	strategies,	as	they	deem appropriate,	without	affecting	the	composition	and	quality	of	assets	in	Life's	general	account.	These	products	offer	the	policyholder	a	variety	of	equity	and	fixed	income options,	as	well	as	the	ability	to	earn	a	guaranteed	rate	of	interest	in	the	general	account	of	Life.	Life	offers	an	enhanced	guaranteed	rate	of	interest	for	a	specified	period	of time	(no	longer	than	twelve	months)	if	the	policyholder	elects	to	dollar-cost	average	funds	from	Life's	general	account	into	one	or	more	non-guaranteed	separate	accounts. Additionally,	the	Retail	Products	Group	segment	sells	variable	annuity	contracts	that	offer	various	guaranteed	minimum	death	and	withdrawal	benefits.

Policyholders	may	make	deposits	of	varying	amounts	at	regular	or	irregular	intervals	and	the	value	of	these	assets	fluctuates	in	accordance	with	the	investment	performance of	the	funds	selected	by	the	policyholder.	To	encourage	persistency,	many	of	Life's	individual	variable	annuities	are	subject	to	withdrawal	restrictions	and	surrender charges.	Surrender	charges	range	up	to	8%	of	the	contract's	deposits	less	withdrawals,	and	reduce	to	zero	on	a	sliding	scale,	usually	within	seven	years	from	the	deposit date.	Individual	variable	annuity	account	values	of	$99.6	billion	as	of	December	31,	2004,	have	grown	from	$86.5	billion	as	of	December	31,	2003,	due	to	strong	net	cash flow,	resulting	from	high	levels	of	sales,	low	levels	of	surrenders	and	equity	market	appreciation.	Approximately	83%	and	80%	of	the	individual	variable	annuity	account values	were	held	in	non-guaranteed	separate	accounts	as	of	December	31,	2004	and	2003,	respectively.

The	assets	underlying	Life's	variable	annuities	are	managed	both	internally	and	by	independent	money	managers,	while	Life	provides	all	policy	administration	services. Life	utilizes	a	select	group	of	money	managers,	such	as	Wellington	Management	Company,	LLP	("Wellington");	Hartford	Investment	Management	Company	("Hartford Investment	Management"),	a	wholly-owned	subsidiary	of	The

Hartford;	Putnam	Financial	Services,	Inc.	("Putnam");	American	Funds;	MFS	Investment	Management	("MFS");	Franklin	Templeton	Group;	and	AIM	Investments ("AIM").	All	have	an	interest	in	the	continued	growth	in	sales	of	Life's	products	and	enhance	the	marketability	of	Life's	annuities	and	the	strength	of	its	product	offerings. Hartford	Leaders,	which	is	a	multi-manager	variable	annuity	that	combines	the	product	manufacturing,	wholesaling	and	service	capabilities	of	Life	with	the	investment management	expertise	of	four	of	the	nation's	most	successful	investment	management	organizations:	American	Funds,	Franklin	Templeton	Group,	AIM	and	MFS,	has emerged	as	the	industry	leader	in	terms	of	retail	sales.	In	addition,	the	Director	variable	annuity,	which	is	managed	in	part	by	Wellington,	ranks	second	in	the	industry	in terms	of	retail	sales.

Fixed	MVA	Annuities	—	Fixed	MVA	annuities	are	fixed	rate	annuity	contracts	which	guarantee	a	specific	sum	of	money	to	be	paid	in	the	future,	either	as	a	lump	sum	or	as monthly	income.	In	the	event	that	a	policyholder	surrenders	a	policy	prior	to	the	end	of	the	guarantee	period,	the	MVA	feature	increases	or	decreases	the	cash	surrender value	of	the	annuity	in	respect	of	any	interest	rate	decreases	or	increases,	respectively,	thereby	protecting	Life	from	losses	due	to	higher	interest	rates	at	the	time	of surrender.	The	amount	of	payment	will	not	fluctuate	due	to	adverse	changes	in	Life's	investment	return,	mortality	experience	or	expenses.	Life's	primary	fixed	MVA annuities	have	terms	varying	from	one	to	ten	years	with	an	average	term	to	maturity	of	approximately	four	years.	Account	values	of	fixed	MVA	annuities	were $11.4	billion	and	$11.2	billion	as	of	December	31,	2004	and	2003,	respectively.

Mutual	Funds	—Life	launched	a	family	of	retail	mutual	funds	for	which	Life	provides	investment	management	and	administrative	services.	The	fund	family	has	grown significantly	from	8	funds	at	inception	to	the	current	offering	of	40	funds,	including	the	addition	of	the	Hartford	Equity	Income	Fund	introduced	in	2003.	Life's	funds	are managed	by	Wellington	and	Hartford	Investment	Management.	Life	has	entered	into	agreements	with	over	960	financial	services	firms	to	distribute	these	mutual	funds.

Life	charges	fees	to	the	shareholders	of	the	mutual	funds,	which	are	recorded	as	revenue	by	Life.	Investors	can	purchase	shares	in	the	mutual	funds,	all	of	which	are registered	with	the	Securities	and	Exchange	Commission,	in	accordance	with	the	Investment	Company	Act	of	1940.	The	mutual	funds	are	owned	by	the	shareholders	of those	funds	and	not	by	Life.	As	such,	the	mutual	fund	assets	and	liabilities,	as	well	as	related	investment	returns,	are	not	reflected	in	The	Hartford's	consolidated	financial statements.	Total	retail	mutual	fund	assets	under	management	were	$25.2	billion	and	$20.3	billion	as	of	December	31,	2004	and	2003,	respectively.

401(k)	—	Life	sells	retirement	plan	products	and	services	to	corporations	under	Section	401(k)	plans	targeting	the	small	and	medium	case	markets.	Life	believes	these markets	are	under-penetrated	in	comparison	to	the	large	case	market.	As	of	December	31,	2004,	Life	administered	over	8,200	Section	401(k)	plans.	Total	assets	under management	were	$7.3	billion	and	$5.2	billion	as	of	December	31,	2004	and	2003,	respectively.

# Marketing	and	Distribution

The	Retail	Products	Group	segment	distribution	network	is	based	on	management's	strategy	of	utilizing	multiple	and	competing	distribution	channels	to	achieve	the broadest	distribution	to	reach	target	customers.	The	success	of	Life's	marketing	and	distribution	system	depends	on	its	product	offerings,	fund	performance,	successful utilization	of	wholesaling	organizations,	quality	of	customer	service,	and	relationships	with	national	and	regional	broker-dealer	firms,	banks	and	other	financial	institutions, and	independent	financial	advisors	(through	which	the	sale	of	Life's	retail	investment	products	to	customers	is	consummated).

Life	maintains	a	distribution	network	of	approximately	1,500	broker-dealers	and	approximately	500	banks.	As	of	December	31,	2004,	Life	was	selling	products	through	the 25	largest	retail	banks	in	the	United	States.	Life	periodically	negotiates	provisions	and	terms	of	its	relationships	with	unaffiliated	parties,	and	there	can	be	no	assurance	that such	terms	will	remain	acceptable	to	Life	or	such	third	parties.	Life's	primary	wholesaler	of	its	individual	annuities	is	PLANCO	Financial	Services,	Inc.	and	its	affiliate, PLANCO,	Incorporated	(collectively	"PLANCO")	a	wholly	owned	subsidiary	of	Hartford	Life	and	Accident	Insurance	Company	("HLA").	PLANCO	is	one	of	the	nation's largest	wholesalers	of	individual	annuities	and	has	played	a	significant	role	in	The	Hartford's	growth	over	the	past	decade.	As	a	wholesaler,	PLANCO	distributes	Life's fixed	and	variable	annuities,	and	401(k)	plans,	mutual	funds	and	529	plans	by	providing	sales	support	to	registered	representatives,	financial	planners	and	broker-dealers	at brokerage	firms	and	banks	across	the	United	States.	Owning	PLANCO	secures	an	important	distribution	channel	for	Life	and	gives	Life	a	wholesale	distribution	platform which	it	can	expand	in	terms	of	both	the	number	of	individuals	wholesaling	its	products	and	the	portfolio	of	products	which	they	wholesale.	In	addition,	Life	uses	internal personnel	with	extensive	experience	in	the	Section	401(k)	market,	to	sell	its	products	and	services	in	the	retirement	plan	market.

# Competition

The	Retail	segment	competes	with	numerous	other	insurance	companies	as	well	as	certain	banks,	securities	brokerage	firms,	independent	financial	advisors	and	other financial	intermediaries	marketing	annuities,	mutual	funds	and	other	retirement-oriented	products.	Product	sales	are	affected	by	competitive	factors	such	as	investment performance	ratings,	product	design,	visibility	in	the	marketplace,	financial	strength	ratings,	distribution	capabilities,	levels	of	charges	and	credited	rates,	reputation	and customer	service.

# Institutional	Solutions	Group

Life	is	among	the	top	providers	of	retirement	products	and	services,	including	asset	management	and	plan	administration	sold	to	municipalities	pursuant	to	Section	457	and 403(b)	of	the	Internal	Revenue	Code	of	1986,	as	amended	(referred	to	as	"Section	457"	and

"403(b)",	respectively).	Life	also	provides	structured	settlement	contracts,	institutional	annuities,	institutional	mutual	funds	and	stable	value	investment	products	such	as funding	agreements	and	guaranteed	investment	contracts	("GICs").

Additionally,	Life	is	a	leader	in	the	private	placement	life	insurance	("PPLI")	market,	which	includes	life	insurance	policies	purchased	by	a	company	or	a	trust	on	the	lives of	employees,	with	Life	or	a	trust	sponsored	by	Life	named	as	the	beneficiary	under	the	policy.	Until	the	passage	of	Health	Insurance	Portability	and	Accountability	Act	of 1996	("HIPAA"),	Life	sold	two	principal	types	of	PPLI,	leveraged	COLI	and	variable	products.

Life	has	recently	introduced	two	products	for	the	High	Net	Worth	markets.	One	is	a	specialized	life	insurance	contract	for	ultra-wealthy,	High	Net	Worth	investors,	the other	is	a	hedge	fund	designed	to	leverage	the	strengths	of	The	Hartford's	award	winning	customer	service	and	distribution	capability.

Institutional	Investment	Products	—	Life	sells	the	following	institutional	investment	products:	structured	settlements,	institutional	mutual	funds,	GICs	and	other	short-term funding	agreements,	and	other	annuity	contracts	for	special	purposes	such	as	funding	of	terminated	defined	benefit	pension	plans	(institutional	annuities	arrangements).

Structured	Settlements	—	Structured	settlement	annuity	contracts	provide	for	periodic	payments	to	an	injured	person	or	survivor	for	a	generally	determinable	number	of years,	typically	in	settlement	of	a	claim	under	a	liability	policy	in	lieu	of	a	lump	sum	settlement.

Institutional	Mutual	Funds	—	Life	sells	its	institutional	mutual	funds,	the	Hartford	HLS	Funds	and	the	Hartford	HLS	Series	II	Funds,	to	qualified	retirement	plans	(i.e., section	401(k)	and	457	plans)	on	an	"investment	only"	basis.	That	means	that	the	funds	are	sold	individually,	with	no	recordkeeping	services	included	and	not	as	a	part	of any	bundled	retirement	program.	The	Hartford's	wholly-owned	subsidiary,	HL	Investment	Advisors,	LLC,	serves	as	the	investment	advisor	to	these	funds	and	contracts with	sub-advisors	to	perform	the	day-to-day	management	of	the	funds.	The	two	primary	sub-advisors	to	the	Hartford	HLS	Funds	are	Wellington	Management	Company, LLP,	of	Boston,	Massachusetts	for	most	of	the	equity	funds	and	Hartford	Investment	Management	for	the	fixed	income	funds.

Stable	Value	Products	—	GICs	are	group	annuity	contracts	issued	to	sponsors	of	qualified	pension	or	profit-sharing	plans	or	stable	value	pooled	fund	managers.	Under these	contracts,	the	client	deposits	a	lump	sum	with	The	Hartford	for	a	specified	period	of	time	for	a	guaranteed	interest	rate.	At	the	end	of	the	specified	period,	the	client receives	principal	plus	interest	earned.	Funding	agreements	are	investment	contracts	that	perform	a	similar	function	for	non-qualified	assets.	Also	during	2004,	the Company	began	issuing	fixed	rate	funding	agreements	to	Hartford	Life	Global	Funding	trusts,	that,	in	turn,	issue	registered	notes	to	institutional	and	retail	investors.

Institutional	Annuities	—	Institutional	annuities	arrangements	are	group	annuity	contracts	used	to	fund	pension	liabilities	that	exist	when	a	qualified	retirement	plan	sponsor decides	to	terminate	an	existing	defined	benefit	pension	plan.	Group	annuity	contracts	are	very	long-term	in	nature,	since	they	must	pay	the	pension	liabilities	typically	on	a monthly	basis	to	all	participants	covered	under	the	pension	plan	which	is	being	terminated.

Governmental	—	Life	sells	retirement	plan	products	and	services	to	municipalities	under	Section	457	plans.	Life	offers	a	number	of	different	investment	products, including	variable	annuities	and	fixed	products,	to	the	employees	in	Section	457	plans.	Generally,	with	the	variable	products,	Life	manages	the	fixed	income	funds	and certain	other	outside	money	managers	act	as	advisors	to	the	equity	funds	offered	in	Section	457	plans	administered	by	Life.	As	of	December	31,	2004,	Life	administered over	3,600	plans	under	Sections	457	and	403(b).

Variable	PPLI	Products	—	Private	Placement	Variable	Life	Insurance	("PPVLI")	products	continue	to	be	used	by	employers	to	fund	non-qualified	benefits	or	other	post- employment	benefit	liabilities.	A	key	advantage	to	plan	sponsors	is	the	opportunity	to	select	from	a	range	of	tax	deferred	investment	allocations.	Recent	clarifications	in regulatory	policy	have	made	PPVLI	products	particularly	attractive	to	banks	with	postretirement	medical	obligations.	PPVLI	has	also	been	widely	used	in	the	high	net worth	marketplace	due	to	its	low	costs,	range	of	investment	choices	and	ability	to	accommodate	a	fund	of	funds	management	style.	This	institutionally	priced	hedge	fund product	is	aimed	at	the	rapidly	growing	market	composed	of	affluent	investors	unable	to	participate	in	the	higher	minimums	of	some	hedge	funds.

Leveraged	COLI	—	Leveraged	COLI	is	a	fixed	premium	life	insurance	policy	owned	by	a	company	or	a	trust	sponsored	by	a	company.	HIPAA	phased	out	the	deductibility of	interest	on	policy	loans	under	leveraged	COLI	at	the	end	of	1998,	virtually	eliminating	all	future	sales	of	leveraged	COLI.

In	the	Section	457	market,	the	Institutional	segment	distribution	network	uses	internal	personnel	with	extensive	experience	to	sell	its	products	and	services	in	the	retirement plan	and	institutional	markets.	The	success	of	Life's	marketing	and	distribution	system	depends	on	its	product	offerings,	fund	performance,	successful	utilization	of wholesaling	organizations,	quality	of	customer	service,	and	relationships	with	national	and	regional	broker-dealer	firms,	banks	and	other	financial	institutions.

In	the	structured	settlement	market,	the	Institutional	segment	sells	individual	fixed	immediate	annuity	products	through	a	small	number	of	specialty	brokerage	firms	that work	closely	with	The	Hartford's	property	and	casualty	claim	operations.	Life	also	works	directly	with	the	brokerage	firms	on	cases	that	do	not	involve	The	Hartford's Property	&	Casualty	operations.

In	the	institutional	mutual	fund	market,	the	Institutional	segment	typically	sells	it	products	through	investment	consulting	firms	employed	by	retirement	plan	sponsors. Institutional's	products	are	also	sold	through	401(k)	record	keeping	firms	that	offer	a	"platform"	of	mutual	funds	to	their	plan	sponsor	clients.	A	third	sales	channel	is	direct sales	to	qualified	plan	sponsors,	using	registered	representatives	employed	by	Hartford	Equity	Sales	Company,	Inc.

In	the	stable	value	marketplace,	the	Institutional	segment	sells	GICs,	funding	agreements,	and	investor	notes	to	retirement	plan	sponsors	either	through	investment management	firms	or	directly,	using	Hartford	employees.

In	the	institutional	annuities	market,	Life	sells	its	group	annuity	products	to	retirement	plan	sponsors	through	three	different	channels	(1)	a	small	number	of	specialty brokers,	(2)	large	benefits	consulting	firms	and	(3)	directly,	using	Hartford	employees.

In	the	PPVLI	market,	specialized	strategic	alliance	partners	with	expertise	in	the	large	case	market	assist	in	the	placement	of	many	cases.	High	net	worth	PPVLI	is	often placed	with	the	assistance	of	investment	banking	and	wealth	management	specialists.

The	hedge	fund	of	funds	product	is	positioned	to	be	sold	through	family	offices,	wealth	management	platforms	and	other	specialists	in	the	mass-affluent	market.

The	Institutional	segment	competes	with	numerous	other	insurance	companies	as	well	as	certain	banks,	securities	brokerage	firms,	independent	financial	advisors	and	other financial	intermediaries	marketing	annuities,	mutual	funds	and	other	retirement-oriented	products.	Product	sales	are	affected	by	competitive	factors	such	as	investment performance	ratings,	product	design,	visibility	in	the	marketplace,	financial	strength	ratings,	distribution	capabilities,	levels	of	charges	and	credited	rates,	reputation	and customer	service.

For	institutional	product	lines	offering	fixed	annuity	products	(i.e.,	institutional	annuities,	structured	settlements	and	stable	value),	financial	strength,	stability	and	credit ratings	are	key	buying	factors.	As	a	result,	the	competitors	in	those	marketplaces	tend	to	be	other	large,	long-established	insurance	companies.

For	product	lines	offering	mutual	funds	–	either	unbundled	(institutional	mutual	funds)	or	wrapped	in	a	variable	annuity	or	mutual	fund	retirement	program	(government markets)	–	the	variety	of	available	funds	and	their	performance	is	most	important	to	plan	sponsors.	The	competitors	tend	to	be	the	major	mutual	fund	companies.

For	PPVLI,	competition	in	the	large	case	market	comes	from	other	insurance	carriers,	and	from	specialized	agents	with	expertise	in	the	benefit	funding	marketplace.	For high	net	worth	programs,	the	competition	is	often	from	other	investment	banking	firms	allied	with	other	insurance	carriers.

The	hedge	fund	of	funds	product	competes	against	a	range	of	similar	products	from	respected	vendors,	including	investment	banking	firms	and	wire	houses.	It	is	distributed by	former	members	of	the	PLANCO	team	which	assisted	in	The	Hartford's	successful	annuity	business.

# Individual	Life

The	Individual	Life	segment	provides	life	insurance	solutions	to	a	wide	array	of	partners	to	solve	the	wealth	protection,	accumulation	and	transfer	needs	of	its	affluent, emerging	affluent	and	business	insurance	clients.	As	of	December	31,	2004,	life	insurance	in	force	increased	7%	to	$139.9	billion,	from	$130.8	billion	as	of	December	31, 2003.	Account	values	increased	9%	to	$9.5	billion	as	of	December	31,	2004	from	$8.7	billion	as	of	December	31,	2003.	Revenues	were	$1,048,	$982	and	$958	for	the	years ended	December	31,	2004,	2003	and	2002,	respectively.	Net	income	in	the	Individual	Life	segment	was	$153,	$145	and	$133	for	the	years	ended	December	31,	2004,	2003 and	2002,	respectively.

Life	holds	a	significant	market	share	in	the	variable	universal	life	product	market	and	was	the	number	one	seller	of	variable	universal	life	insurance,	according	to	the Tillinghast	VALUE	Survey,	in	2004,	for	the	third	year	in	a	row.	In	2004,	Life's	sales	of	individual	life	insurance	were	50%	variable	universal	life,	44%	universal	life	and other,	and	6%	term	life	insurance.

Variable	Universal	Life	—	Variable	universal	life	provides	life	insurance	with	a	return	linked	to	an	underlying	investment	portfolio	and	Life	allows	policyholders	to determine	their	desired	asset	mix	among	a	variety	of	underlying	mutual	funds.	As	the	return	on	the	investment	portfolio	increases	or	decreases,	the	surrender	value	of	the variable	universal	life	policy	will	increase	or	decrease,	and,	under	certain	policyholder	options	or	market	conditions,	the	death	benefit	may	also	increase	or	decrease.	Life's second-to-die	products	are	distinguished	from	other	products	in	that	two	lives	are	insured	rather	than	one,	and	the	policy	proceeds	are	paid	upon	the	death	of	both	insureds. Second-to-die	policies	are	frequently	used	in	estate	planning	for	a	married	couple.	Variable	universal	life	account	values	were	$5.4	billion	and	$4.7	billion	as	of December	31,	2004	and	2003,	respectively.

Universal	Life	and	Interest	Sensitive	Whole	Life	—	Universal	life	and	interest	sensitive	whole	life	insurance	coverages	provide	life	insurance	with	adjustable	rates	of	return based	on	current	interest	rates.	Universal	life	provides	policyholders	with	flexibility	in	the	timing	and	amount	of	premium	payments	and	the	amount	of	the	death	benefit, provided	there	are	sufficient	policy	funds	to	cover	all	policy	charges	for	the	coming	period,	unless	guaranteed	no-lapse	coverage	is	in	effect.	At	December	31,	2004, guaranteed	no-lapse	universal	life	represents	less	than	2%	of	life	insurance	in-force.	Life	also	sells	second-to-die	universal	life	insurance	policies.	Universal	life	and interest	sensitive	whole	life	account	values	were	$3.4	billion	and	$3.3	billion	as	of	December	31,	2004	and	2003,	respectively.

Consistent	with	Life's	strategy	to	access	multiple	distribution	outlets,	the	Individual	Life	distribution	organization	has	been	developed	to	penetrate	a	multitude	of	retail	sales channels.	Life	sells	both	variable	and	fixed	individual	life	products	through	a	wide	distribution	network	of	national	and	regional	broker-dealer	organizations,	banks	and independent	financial	advisors.	Life	is	a	market	leader	in	selling	individual	life	insurance	through	national	stockbroker	and	financial	institutions	channels.	In	addition,	Life distributes	individual	life	products	through	independent	life	and	property-casualty	agents	and	Woodbury	Financial	Services,	a	subsidiary	retail	broker	dealer.	To	wholesale Life's	products,	Life	has	a	group	of	highly	qualified	life	insurance	professionals	with	specialized	training	in	sophisticated	life	insurance	sales.	These	individuals	are generally	employees	of	Life	who	are	managed	through	a	regional	sales	office	system.

The	Individual	Life	segment	competes	with	approximately	1,200	life	insurance	companies	in	the	United	States,	as	well	as	other	financial	intermediaries	marketing insurance	products.	Competitive	factors	related	to	this	segment	are	primarily	the	breadth	and	quality	of	life	insurance	products	offered,	pricing,	relationships	with	third- party	distributors,	effectiveness	of	wholesaling	support,	pricing	and	availability	of	reinsurance,	and	the	quality	of	underwriting	and	customer	service.

# Group	Benefits

The	Group	Benefits	segment	provides	employers,	associations,	affinity	groups	and	financial	institutions	with	group	life,	accident	and	disability	coverage,	along	with	other products	and	services,	including	voluntary	benefits,	employee	assistance	programs,	travel	assistance,	group	retiree	health,	and	medical	stop	loss.	The	Hartford's	Group Benefits	segment	ranks	number	two	in	fully-insured	group	disability	premium	and	number	five	in	fully-insured	life	premium	of	U.S.	group	carriers	according	to	LIMRA. The	Company	also	offers	disability	underwriting,	administration,	claims	processing	services	and	reinsurance	to	other	insurers	and	self-funded	employer	plans.	Generally, policies	sold	in	this	segment	are	term	insurance.	This	allows	the	Company	to	adjust	the	rates	or	terms	of	its	policies	in	order	to	minimize	the	adverse	effect	of	various market	trends,	including	declining	interest	rates	and	other	factors.	Typically	policies	are	sold	with	one,	two	or	three	year	rate	guarantees	depending	upon	the	product.	In	the disability	market,	the	Company	focuses	on	its	risk	management	expertise	and	on	efficiencies	and	economies	of	scale	to	derive	a	competitive	advantage.	The	Group	Benefits segment	generated	fully	insured	ongoing	premiums	of	$3.6	billion	for	the	year	ended	December	31,	2004,	and	$2.3	billion	for	the	years	ended	December	31,	2003	and 2002,	respectively,	of	which	group	disability	insurance	accounted	for	$1.6	billion,	$963,	and	$961	in	2004,	2003	and	2002,	respectively,	and	group	life	insurance	accounted for	$1.7	billion,	$984	and	$965	for	the	year	ended	December	31,	2004,	2003,	and	2002,	respectively.	The	Company	held	group	disability	reserves	of	$4.2	billion	and $4.0	billion	and	group	life	reserves	of	$1.3	billion	and	$1.3	billion,	as	of	December	31,	2004	and	2003,	respectively.	Net	income	in	the	Group	Benefits	segment	was	$229, $148	and	$128	for	the	years	ended	December	31,	2004,	2003	and	2002,	respectively.

Life	acquired	the	group	life	and	accident,	and	short-term	and	long-term	disability	businesses	of	CNA	Financial	Corporation	on	December	31,	2003.	This	acquisition increased	the	scale	of	Life's	group	life,	disability	and	accident	operations,	expanded	Life's	distribution	and	enhanced	Life's	capability	to	deliver	outstanding	products	and services.

Group	Disability	—	Life	is	one	of	the	largest	carriers	in	the	"large	case"	market	of	the	group	disability	insurance	business.	The	large	case	market,	as	defined	by	Life, generally	consists	of	group	disability	policies	covering	over	5,000	employees	in	a	particular	company.	Life	is	continuing	its	focus	on	the	"small	case"	and	"medium	case" group	markets,	as	well	as	its	association/affinity	market,	emphasizing	name	recognition	and	reputation,	financial	strength	and	stability	and	Life's	functional	approach	to claims	management.	Life	also	offers	voluntary,	or	employee-paid,	short-term	and	long-term	disability	group	benefits.	Life's	efforts	in	the	group	disability	market	focus	on early	intervention,	return-to-work	programs	and	successful	rehabilitation,	offering	the	support	to	help	claimants	return

to	an	active,	productive	life	after	a	disability.	Life	also	works	with	disability	claimants	to	improve	their	approval	rate	for	Social	Security	Assistance	(i.e.,	reducing	payment of	benefits	by	the	amount	of	Social	Security	payments	received).

Life's	short-term	disability	benefit	plans	provide	a	weekly	benefit	amount	(typically	60%	to	70%	of	the	insured's	earned	income	up	to	a	specified	maximum	benefit)	to insureds	when	they	are	unable	to	work	due	to	an	accident	or	illness.	Long-term	disability	insurance	provides	a	monthly	benefit	for	those	extended	periods	of	time	not covered	by	a	short-term	disability	benefit	plan	when	insureds	are	unable	to	work	due	to	disability.	Insureds	may	receive	total	or	partial	disability	benefits.	Most	of	these policies	begin	providing	benefits	following	a	90	or	180	day	waiting	period	and	generally	continue	providing	benefits	until	the	insured	reaches	age	65.	Long-term	disability benefits	are	paid	monthly	and	are	limited	to	a	portion,	generally	50-70%,	of	the	insured's	earned	income	up	to	a	specified	maximum	benefit.

Group	Life	and	Accident	—	Group	term	life	insurance	provides	term	coverage	to	employees	and	members	of	associations,	affinity	groups	and	financial	institutions	and their	dependents	for	a	specified	period	and	has	no	accumulation	of	cash	values.	Life	offers	options	for	its	basic	group	life	insurance	coverage,	including	portability	of coverage	and	a	living	benefit	and	critical	illness	option,	whereby	terminally	ill	policyholders	can	receive	death	benefits	in	advance.	Life	also	offers	voluntary,	or	employee- paid,	life	group	benefits	and	accidental	death	and	dismemberment	coverage	either	packaged	with	life	insurance	or	on	a	stand-alone	basis.

Other	—	Life	offers	a	host	of	other	products	and	services,	such	as	Family	and	Medical	Leave	Act	Administration,	Travel	Assistance,	GuidanceResources	(an	enhanced employee	assistance	and	work/life	program),	group	retiree	health,	and	specialized	insurance	products	for	physicians.	Life	provides	excess	of	loss	medical	coverage	(known as	stop	loss	insurance)	to	employers	who	self-fund	their	medical	plans	and	pay	claims	using	the	services	of	a	third	party	administrator.	Life	also	provides	travel	accident, hospital	indemnity,	supplemental	health	insurance	for	military	personnel	and	their	families	and	other	coverages	to	individual	members	of	various	associations,	affinity groups,	financial	institutions	and	employee	groups.

Life	uses	an	experienced	group	of	Company	employees,	managed	through	a	regional	sales	office	system,	to	distribute	its	group	insurance	products	and	services	through	a variety	of	distribution	outlets,	including	brokers,	consultants,	third-party	administrators	and	trade	associations.	Life	increased	its	distribution	channel	in	2004	through	the acquisition	of	CNA	Group	Benefits	and	intends	to	continue	to	expand	the	system	in	areas	that	offer	the	highest	growth	potential.

The	Group	Benefits	business	remains	highly	competitive.	Competitive	factors	primarily	affecting	Group	Benefits	are	the	variety	and	quality	of	products	and	services offered,	the	price	quoted	for	coverage	and	services,	Life's	relationships	with	its	third-party	distributors,	and	the	quality	of	customer	service.	Group	Benefits	competes	with numerous	other	insurance	companies	and	other	financial	intermediaries	marketing	insurance	products.	However,	many	of	these	businesses	have	relatively	high	barriers	to entry	and	there	have	been	very	few	new	entrants	into	the	group	benefits	insurance	market	over	the	past	few	years.

# Other

Life	sells	variable	individual	annuity	products	through	a	wide	distribution	network	of	Japan's	broker-dealer	organizations,	banks	and	other	financial	institutions	and independent	financial	advisors.	Life's	Japanese	operation	achieved	$7.3	billion,	$3.7	billion	and	$1.4	billion	in	variable	annuity	sales	for	the	years	ended	December	31, 2004,	2003	and	2002,	respectively.	During	the	third	quarter	of	2004	Life	introduced	MVA	fixed	annuity	products	to	provide	a	diversified	product	portfolio	to	customers	in Japan.	Japan	fixed	annuity	sales	for	the	year	ended	December	31,	2004	were	$522.	The	growth	in	sales	was	the	primary	reason	for	the	increased	account	values	related	to Japan,	which	grew	to	$14.7	billion	as	of	December	31,	2004	up	from	$6.2	billion	as	of	December	31,	2003.

In	addition	to	the	established	operations	in	Japan	and	Brazil,	Life	has	started	a	European	operation,	which	is	called	Hartford	Life	Limited	that	will	focus	on	selling investment	and	retirement	accumulation	products	known	as	unit-linked	bonds	in	the	U.K.	in	the	later	part	of	2005.	Unit-linked	bonds	are	similar	to	variable	annuities marketed	in	the	United	States	and	Japan.	Hartford	Life	has	established	operations	in	London,	as	well	as	Dublin,	Ireland	to	help	market	and	service	its	new	business.

# Property	&	Casualty

Property	&	Casualty	provides	(1)	workers'	compensation,	property,	automobile,	liability,	umbrella,	specialty	casualty,	marine,	agricultural	and	bond	coverages	to commercial	accounts	primarily	throughout	the	United	States;	(2)	professional	liability	coverage	and	directors	and	officers	liability	coverage,	as	well	as	excess	and	surplus lines	business	not	normally	written	by	standard	commercial	lines	insurers;	(3)	automobile,	homeowners	and	home-based	business	coverage	to	individuals	throughout	the United	States;	and	(4)	insurance	related	services.

The	Hartford	seeks	to	distinguish	itself	in	the	property	and	casualty	market	through	its	balance	sheet	strength,	product	depth	and	innovation,	distribution	capacity,	customer service	expertise,	and	technology	for	ease	of	doing	business.	The	Hartford	is	the	eleventh	largest	property	and	casualty	insurance	operation	in	the	United	States	based	on written	premiums	for	the	year	ended	December	31,	2003	according	to	A.M.	Best	Company,	Inc.	("A.M.	Best").	Property	&	Casualty	generated	revenues	of	$11.3	billion, $10.7	billion	and	$9.5	billion	in	2004,	2003	and	2002,	respectively.	Revenues	include	earned	premiums,	servicing	revenue,	net	investment	income	and	net	realized	capital gains	and	losses.	Earned	premiums	for	2004,	2003	and	2002	were	$9.5	billion,	$8.8	billion	and	$8.1	billion,	respectively.	Additionally,	net	income	(loss)	was	$910,	$(745) and	$543	for	2004,	2003	and	2002,	respectively.	The	net	loss	for	2003	includes	the	after-tax	effect	of	the	asbestos	charge	of	$1,701.	Total	assets	for	Property	&	Casualty were	$38.0	billion	and	$37.2	billion	as	of	December	31,	2004	and	2003,	respectively.

# Business	Insurance

Business	Insurance	provides	standard	commercial	insurance	coverage	to	small	and	middle	market	commercial	businesses	primarily	throughout	the	United	States.	This segment	also	provides	commercial	risk	management	products	and	services	as	well	as	marine	coverage.	Earned	premiums	for	2004,	2003	and	2002	were	$4.3	billion, $3.7	billion	and	$3.1	billion,	respectively.	The	segment	had	underwriting	income	of	$360,	$158	and	$94	in	2004,	2003	and	2002,	respectively.

The	Business	Insurance	segment	offers	workers'	compensation,	property,	automobile,	liability,	umbrella	and	marine	coverages	under	several	different	products.	Among these	products,	the	Company	has	achieved	growth	through	its	Select	Xpand	product,	which	is	designed	to	meet	the	needs	of	businesses	with	$5	to	$15	in	revenues	and serves	businesses	in	the	upper	end	of	the	small	business	market	and	lower	end	of	the	middle	commercial	market.	Commercial	risk	management	products	and	services	are also	provided.

Business	Insurance	provides	insurance	products	and	services	through	its	home	office	located	in	Hartford,	Connecticut,	and	multiple	domestic	regional	office	locations	and insurance	centers.	The	segment	markets	its	products	nationwide	utilizing	brokers	and	independent	agents	and	involving	trade	associations	and	employee	groups.	Brokers and	independent	agents	are	not	employees	of	The	Hartford.

The	commercial	insurance	industry	is	a	highly	competitive	environment	regarding	product,	price,	service	and	technology.	The	Hartford	competes	with	other	stock companies,	mutual	companies,	alternative	risk	sharing	groups	and	other	underwriting	organizations.	These	companies	sell	through	various	distribution	channels	and business	models,	across	a	broad	array	of	product	lines,	and	with	a	high	level	of	variation	regarding	geographic,	marketing	and	customer	segmentation.	The	Hartford	is	the tenth	largest	commercial	lines	insurer	in	the	United	States	based	on	written	premiums	for	the	year	ended	December	31,	2003	according	to	A.M.	Best.	The	relatively	large size	and	underwriting	capacity	of	The	Hartford	provide	opportunities	not	available	to	smaller	companies.	In	addition,	the	marketplace	is	affected	by	available	capacity	of the	insurance	industry	as	measured	by	policyholders'	surplus.	Surplus	expands	and	contracts	primarily	in	conjunction	with	profit	levels	generated	by	the	industry.	While investment	yields	are	beginning	to	increase,	underwriting	decisions	are	still	critical	given	the	relatively	low	level	of	investment	returns	compared	to	historical	averages. National	carriers	are	becoming	more	focused	on	core	segments	and	continue	to	compete	for	the	same	business,	while	regional	carriers	are	broadening	their	target	market and	distribution.

# Personal	Lines

Personal	Lines	provides	automobile,	homeowners'	and	home-based	business	coverages	to	the	members	of	AARP	through	a	direct	marketing	operation;	to	individuals	who prefer	local	agent	involvement	through	a	network	of	independent	agents	in	the	standard	personal	lines	market;	and	through	the	Company's	Omni	Insurance	Group,	Inc. ("Omni")	subsidiary	in	the	non-standard	automobile	market.	Personal	Lines	also	operates	a	member	contact	center	for	health	insurance	products	offered	through	AARP's Health	Care	Options.	The	Hartford's	exclusive	licensing	arrangement	with	AARP,	which	was	renewed	during	the	fourth	quarter	of	2001,	continues	through	January	1,	2010 for	automobile,	homeowners	and	home-based	business.	The	Health	Care	Options	agreement	continues	through	2007.	These	agreements	provide	Personal	Lines	with	an important	competitive	advantage.	Personal	lines	had	earned	premiums	of	$3.4	billion,	$3.2	billion	and	$3.0	billion	in	2004,	2003	and	2002,	respectively.	Underwriting income	(loss)	for	2004,	2003	and	2002	was	$138,	$130	and	$(31),	respectively.	AARP	had	earned	premiums	of	$2.1	billion,	$2.0	billion	and	$1.7	billion	in	2004,	2003	and 2002,	respectively.

Personal	Lines	provides	standard	and	non-standard	automobile,	homeowners	and	home-based	business	coverages	to	individuals	across	the	United	States,	including	a	special program	designed	exclusively	for	members	of	AARP.	During	2004,	the	Company	continued	the	rollout	of	its	new	Dimensions	automobile	and	homeowners	class	plans	for insurance	sold	through	independent	agents	and	brokers.	The	new	Dimensions	class	plans	use	a	large	number	of	interactive	rating	variables	to	determine	a	rate	that	most accurately	reflects	the	customer's	individual	characteristics.

Personal	Lines	reaches	diverse	markets	through	multiple	distribution	channels	including	brokers,	independent	agents,	direct	mail,	the	internet	and	advertising	in publications.	This	segment	provides	customized	products	and	services	to	customers	through	a	network	of	independent	agents	in	the	standard	personal	lines	market,	and	in the	non-standard	automobile	market	through	Omni.	Brokers	and	independent	agents	are	not	employees	of	The	Hartford.	Personal	Lines	has	an	important	relationship	with AARP	and	markets	directly	to	its	over	35	million	members.

The	personal	lines	automobile	and	homeowners	businesses	continue	to	remain	highly	competitive.	Personal	lines	insurance	is	written	by	insurance	companies	of	varying sizes	that	sell	products	through	various	distribution	channels,	including	independent	agents,	captive	agents	and	directly	to	the	consumer.	The	personal	lines	market competes	on	the	basis	of	price;	product;	service,	including	claims	handling;	stability	of	the	insurer	and	name	recognition.	The	market	is	competitive	with	some	carriers beginning	to	file	rate	decreases	while	others	focus	on	acquiring	business	through	other	means,	such	as	increases	in	advertising	and	effective	utilization	of	technology.	The Hartford	is	the	twelfth	largest	personal	lines	insurer	in	the	United	States	based	on	written	premiums	for	the	year	ended	December	31,	2003	according	to	A.M.	Best. Effective	utilization	of	technology	is	becoming	increasingly	important.	A	major	competitive	advantage	of	The	Hartford	is	the	exclusive	licensing	arrangement	with	AARP to	provide	personal	automobile,	homeowners	and	home-based	business	insurance	products	to	its	members.	This	arrangement	is	in	effect	through	January	1,	2010. Management	expects	favorable	"baby	boom"	demographics	to	increase	AARP	membership	during	this	period.	In	addition,	The	Hartford	provides	customer	service	for	all health	insurance	products	offered	through	AARP's	Health	Care	Options,	with	an	agreement	that	continues	through	2007.

# Specialty	Commercial

Specialty	Commercial	provides	a	wide	variety	of	property	and	casualty	insurance	products	and	services	through	retailers	and	wholesalers	to	large	commercial	clients	and insureds	requiring	a	variety	of	specialized	coverages.	Excess	and	surplus	lines	coverages	not	normally	written	by	standard	line	insurers	are	also	provided,	primarily	through wholesale	brokers.	Specialty	Commercial	had	earned	premiums	of	$1.7	billion,	$1.5	billion	and	$1.2	billion	in	2004,	2003	and	2002,	respectively.	Underwriting	income (loss)	was	$(53),	$10	and	$6	in	2004,	2003	and	2002,	respectively.

Specialty	Commercial	offers	a	variety	of	customized	insurance	products	and	risk	management	services.	Specialty	Commercial	provides	standard	commercial	insurance products	including	workers'	compensation,	automobile	and	liability	coverages	to	large-sized	companies.	Specialty	Commercial	also	provides	bond,	professional	liability, specialty	casualty	and	agricultural	coverages,	as	well	as	core	property	and	excess	and	surplus	lines	coverages	not	normally	written	by	standard	lines	insurers.	Alternative markets,	within	Specialty	Commercial,	provides	insurance	products	and	services	primarily	to	captive	insurance	companies,	pools	and	self-insurance	groups.	In	addition, Specialty	Commercial	provides	third-party	administrator	services	for	claims	administration,	integrated	benefits,	loss	control	and	performance	measurement	through Specialty	Risk	Services,	LLC,	a	subsidiary	of	the	Company.

Specialty	Commercial	provides	insurance	products	and	services	through	its	home	office	located	in	Hartford,	Connecticut	and	multiple	domestic	office	locations.	The segment	markets	its	products	nationwide	utilizing	a	variety	of	distribution	networks	including	independent	agents	and	brokers	as	well	as	wholesalers.	Brokers	and independents	agents	are	not	employees	of	The	Hartford.

The	commercial	insurance	industry	is	a	highly	competitive	environment	regarding	product,	price,	service	and	technology.	Specialty	Commercial	is	comprised	of	a	diverse group	of	businesses	that	are	unique	to	commercial	lines.	Each	line	of	business	operates	independently	with	its	own	set	of	business	objectives,	and	focuses	on	the	operational dynamics	of	their	specific	industry.	These	businesses,	while	somewhat	interrelated,	have	a	unique	business	model	and	operating	cycle.	Specialty	Commercial	is	considered a	transactional	business	and,	therefore,	competes	with	other	companies	for	business	primarily	on	an	account	by	account	basis	due	to	the	complex	nature	of	each	transaction. Specialty	Commercial	competes	with	other	stock	companies,	mutual	companies,	alternative	risk	sharing	groups	and	other	underwriting	organizations.	The	relatively	large size	and	underwriting	capacity	of	The	Hartford	provide	opportunities	not	available	to	smaller	companies.

# Other	Operations

The	Other	Operations	segment	includes	operations	that	are	under	a	single	management	structure,	Heritage	Holdings,	which	is	responsible	for	two	related	activities.	The	first activity	is	the	management	of	certain	subsidiaries	and	operations	of	The	Hartford	that	have	discontinued	writing	new	business.	The	second	is	the	management	of	claims (and	the	associated	reserves)	related	to	asbestos	and	environmental	exposures.	Effective	January	1,	2004,	the	financial	results	of	HartRe	assumed	reinsurance	are	reported in	Other	Operations,	and	2003	and	2002	financial	results	have	been	restated	to	include	these	operations.

# Life	Reserves

Life	insurance	subsidiaries	of	Life	establish	and	carry	as	liabilities,	predominantly,	three	types	of	reserves:	(1)	a	liability	equal	to	the	balance	that	accrues	to	the	benefit	of the	policyholder	as	of	the	financial	statement	date,	otherwise	known	as	the	account	value,	(2)	a	liability	for	unpaid	claims,	including	those	that	have	been	incurred	but	not yet	reported,	and	(3)	a	liability	for	future	policy	benefits,	representing	the	present	value	of	future	benefits	to	be	paid	to	or	on	behalf	of	policyholders	less	the	present	value	of future	net	premiums.	The	liabilities	for	unpaid	claims	and	future	policy	benefits	are	calculated	based	on	actuarially	recognized	methods	using	morbidity	and	mortality tables,	which	are	modified	to	reflect	Life's	actual	experience	when	appropriate.	Liabilities	for	unpaid	claims	include	estimates	of	amounts	to	fully	settle	known	reported claims	as	well	as	claims	related	to	insured	events	that	the	Company	estimates	have	been	incurred	but	have	not	yet	been	reported.	Future	policy	benefit	reserves	are computed	at	amounts	that,	with	additions	from	estimated	premiums	to	be	received	and	with	interest	on	such	reserves	compounded	annually	at	certain	assumed	rates,	are expected	to	be	sufficient	to	meet	Life's	policy	obligations	at	their	maturities	or	in	the	event	of	an	insured's	disability	or	death.	Other	insurance	liabilities	include	those	for unearned	premiums	and	benefits	in	excess	of	account	value.	Reserves	for	assumed	reinsurance	are	computed	in	a	manner	that	is	comparable	to	direct	insurance	reserves. Additional	information	on	reserves	may	be	found	in	the	Critical	Accounting	Estimates	section	of	the	MD&A	under	"Reserves".

# Property	&	Casualty	Reserves

The	Hartford	establishes	property	and	casualty	reserves	to	provide	for	the	estimated	costs	of	paying	claims	under	insurance	policies	written	by	The	Hartford.	These	reserves include	estimates	for	both	claims	that	have	been	reported	and	those	that	have	been	incurred	but	not	reported	to	The	Hartford	and	include	estimates	of	all	expenses associated	with	processing	and	settling	these	claims.	This	estimation	process	involves	a	variety	of	actuarial	techniques	and	is	primarily	based	on	historical	experience	and consideration	of	current	trends.	Examples	of	current	trends	include	increases	in	medical	cost	inflation	rates,	changes	in	the	tort	environment	in	various	jurisdictions,	changes in	internal	claim	practices,	changes	in	the	legislative	and	regulatory	environment	over	workers'	compensation	claims,	evolving	exposures	to	mass	torts	and	the	potential	for further	adverse	development	of	asbestos	and	environmental	claims.

The	Hartford	continues	to	receive	claims	that	assert	damages	from	asbestos-related	and	environmental-related	exposures.	Asbestos	claims	relate	primarily	to	bodily	injuries asserted	by	those	who	came	in	contact	with	asbestos	or	products	containing	asbestos.	Environmental	claims	relate	primarily	to	pollution	related	clean-up	costs.	As discussed	further	in	the	Critical	Accounting	Estimates	and	Other	Operations	sections	of	the	MD&A,	significant	uncertainty	limits	the	Company's	ability	to	estimate	the ultimate	reserves	necessary	for	unpaid	losses	and	related	expenses	with	regard	to	environmental	and	particularly	asbestos	claims.

Most	of	the	Company's	property	and	casualty	reserves	are	not	discounted.	However,	certain	liabilities	for	unpaid	claims	for	permanently	disabled	claimants	have	been discounted	to	present	value	using	an	average	interest	rate	of	4.6%	in	2004	and	4.7%	in	2003.	As	of	December	31,	2004	and	2003,	such	discounted	reserves	totaled	$707	and $666,	respectively	(net	of	discounts	of	$440	and	$429,	respectively).	In	addition,	certain	structured	settlement	contracts	that	fund	loss	run-offs	for	unrelated	parties	and	have payment	patterns	that	are	fixed	and	determinable,	have	been	discounted	to	present	value	using	an	average	interest	rate	of	5.5%.	At	December	31,	2004	and	2003,	such discounted	reserves	totaled	$257	and	$245,	respectively	(net	of	discounts	of	$116	and	$127,	respectively).	Accretion	of	these	discounts	did	not	have	a	material	effect	on	net income	during	either	2004	or	2003.

As	of	December	31,	2004,	net	property	and	casualty	reserves	for	claims	and	claim	adjustment	expenses	reported	under	Generally	Accepted	Accounting	Principles ("GAAP")	exceeded	net	reserves	reported	on	a	statutory	basis	by	$108.	The	difference	primarily	results	from	a	portion	of	the	GAAP	provision	for	uncollectible	reinsurance and	the	required	exclusion	from	statutory	reserves	of	assumed	retroactive	reinsurance,	partially	offset	by	the	discounting	of	GAAP-basis	workers'	compensation	reserves	at risk-free	interest	rates,	which	exceeded	the	statutory	discount	rates	set	by	regulators.

Further	discussion	on	The	Hartford's	property	and	casualty	reserves,	including	asbestos	and	environmental	claims	reserves,	may	be	found	in	the	Reserves	section	of	the MD&A–	Critical	Accounting	Estimates.

A	reconciliation	of	liabilities	for	unpaid	claims	and	claim	adjustment	expenses	is	herein	referenced	from	Note	11	of	Notes	to	Consolidated	Financial	Statements.	A	table depicting	the	historical	development	of	the	liabilities	for	unpaid	claims	and	claim	adjustment	expenses,	net	of	reinsurance,	follows.

# Loss	Development	Table

# Property	And	Casualty	Claim	And	Claim	Adjustment	Expense	Liability	Development	-	Net	of	Reinsurance

|  | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Liabilities\tfor\tunpaid\tclaims |  |  |  |  |  |  |  |  |  |  |  |
| and\tclaim\tadjustment |  |  |  |  |  |  |  |  |  |  |  |
| expenses,\tnet\tof |  |  |  |  |  |  |  |  |  |  |  |
| reinsurance | $11,271 | $11,574 | $12,702 | $12,770 | $12,902 | $12,476 | $12,316 | $12,860 | $13,141 | $16,218 | $16,191 |
| Cumulative\tpaid\tclaims\tand\tclaim\texpenses |  |  |  |  |  |  |  |  |  |  |  |
| One\tyear\tlater | 2,715 | 2,467 | 2,625 | 2,472 | 2,939 | 2,994 | 3,272 | 3,339 | 3,480 | 4,415 |  |
| Two\tyears\tlater | 4,273 | 4,126 | 4,188 | 4,300 | 4,733 | 5,019 | 5,315 | 5,621 | 6,781 |  |  |
| Three\tyears\tlater | 5,469 | 5,212 | 5,540 | 5,494 | 6,153 | 6,437 | 6,972 | 8,324 | — |  |  |
| Four\tyears\tlater | 6,258 | 6,274 | 6,418 | 6,508 | 7,141 | 7,652 | 9,195 | — | — |  |  |
| Five\tyears\tlater | 7,135 | 6,970 | 7,201 | 7,249 | 8,080 | 9,567 | — | — | — |  |  |
| Six\tyears\tlater | 7,721 | 7,630 | 7,800 | 8,036 | 9,818 | — | — | — | — |  |  |
| Seven\tyears\tlater | 8,311 | 8,147 | 8,499 | 9,655 | — | — | — | — | — |  |  |
| Eight\tyears\tlater | 8,781 | 8,786 | 10,044 | — | — | — | — | — | — |  |  |
| Nine\tyears\tlater | 9,332 | 10,290 | — | — | — | — | — | — | — |  |  |
| Ten\tyears\tlater | 10,803 | — | — | — | — | — | — | — | — |  |  |
| Liabilities\tre-estimated |  |  |  |  |  |  |  |  |  |  |  |
| One\tyear\tlater | 11,618 | 12,529 | 12,752 | 12,615 | 12,662 | 12,472 | 12,459 | 13,153 | 15,965 | 16,632 |  |
| Two\tyears\tlater | 12,729 | 12,598 | 12,653 | 12,318 | 12,569 | 12,527 | 12,776 | 16,176 | 16,501 |  |  |
| Three\tyears\tlater | 12,781 | 12,545 | 12,460 | 12,183 | 12,584 | 12,698 | 15,760 | 16,768 | — |  |  |
| Four\tyears\tlater | 12,787 | 12,399 | 12,380 | 12,138 | 12,663 | 15,609 | 16,584 | — | — |  |  |
| Five\tyears\tlater | 12,741 | 12,414 | 12,317 | 12,179 | 15,542 | 16,256 | — | — | — |  |  |
| Six\tyears\tlater | 12,782 | 12,390 | 12,322 | 15,047 | 16,076 | — | — | — | — |  |  |
| Seven\tyears\tlater | 12,791 | 12,380 | 15,188 | 15,499 | — | — | — | — | — |  |  |
| Eight\tyears\tlater | 12,775 | 15,253 | 15,594 | — | — | — | — | — | — |  |  |
| Nine\tyears\tlater | 15,604 | 15,629 | — | — | — | — | — | — | — |  |  |
| Ten\tyears\tlater | 15,956 | — | — | — | — | — | — | — | — |  |  |
| Deficiency\t(redundancy), |  |  |  |  |  |  |  |  |  |  |  |
| net\tof\treinsurance | $4,685 | $4,055 | $2,892 | $2,729 | $3,174 | $3,780 | $4,268 | $3,908 | $3,360 | $414 |  |

The	table	above	shows	the	cumulative	deficiency	(redundancy)	of	the	Company's	reserves,	net	of	reinsurance,	as	now	estimated	with	the	benefit	of	additional	information. Those	amounts	are	comprised	of	changes	in	estimates	of	gross	losses	and	changes	in	estimates	of	related	reinsurance	recoveries.

The	table	below,	for	the	periods	presented,	reconciles	the	net	reserves	to	the	gross	reserves,	as	initially	estimated	and	recorded,	and	as	currently	estimated	and	recorded,	and computes	the	cumulative	deficiency	(redundancy)	of	the	Company's	reserves	before	reinsurance.

# Property	And	Casualty	Claim	And	Claim	Adjustment	Expense	Liability	Development	-	Gross

|  | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Net\treserve,\tas\tinitially |  |  |  |  |  |  |  |  |  |  |
| estimated | $11,574 | $12,702 | $12,770 | $12,902 | $12,476 | $12,316 | $12,860 | $13,141 | $16,218 | $16,191 |
| Reinsurance\tand\tother |  |  |  |  |  |  |  |  |  |  |
| recoverables,\tas\tinitially |  |  |  |  |  |  |  |  |  |  |
| estimated | 4,829 | 4,357 | 3,996 | 3,275 | 3,706 | 3,871 | 4,176 | 3,950 | 5,497 | 5,138 |
| Gross\treserve,\tas\tinitially\nestimated | $16,403 | $17,059 | $16,766 | $16,177 | $16,182 | $16,187 | $17,036 | $17,091 | $21,715 | 21,329 |
| Net\treestimated\treserve | $15,629 | $15,594 | $15,499 | $16,076 | $16,256 | $16,584 | $16,768 | $16,501 | $16,632 |  |
| Reestimated\tand\tother |  |  |  |  |  |  |  |  |  |  |
| reinsurance\trecoverables | 6,373 | 5,767 | 5,500 | 5,009 | 5,886 | 5,923 | 6,162 | 5,754 | 5,470 |  |
| Gross\treestimated\treserve | $22,002 | $21,361 | $20,999 | $21,085 | $22,142 | $22,507 | $22,930 | $22,255 | $22,102 |  |
| Gross\tdeficiency\n(redundancy) | $5,599 | $4,302 | $4,233 | $4,908 | $5,960 | $6,320 | $5,894 | $5,164 | $387 |  |

[1] The	above	tables	exclude	Hartford	Insurance,	Singapore	as	a	result	of	its	sale	in	September	2001,	Hartford	Seguros	as	a	result	of	its	sale	in	February	2001, Zwolsche	as	a	result	of	its	sale	in	December	2000	and	London	&	Edinburgh	as	a	result	of	its	sale	in	November	1998.

[2] The	above	tables	include	the	liabilities	and	claim	developments	for	certain	reinsurance	coverages	written	for	affiliated	parties.

The	following	table	is	derived	from	the	Loss	Development	table	and	summarizes	the	effect	of	reserve	re-estimates,	net	of	reinsurance,	on	calendar	year	operations	for	the ten-year	period	ended	December	31,	2004.	The	total	of	each	column	details	the	amount	of	reserve	re-estimates	made	in	the	indicated	calendar	year	and	shows	the	accident years	to	which	the	re-estimates	are	applicable.	The	amounts	in	the	total	accident	year	column	on	the	far	right	represent	the	cumulative	reserve	re-estimates	during	the	ten year	period	ended	December	31,	2004	for	the	indicated	accident	year(s).

# Effect	of	Net	Reserve	Re-estimates	on	Calendar	Year	Operations

|  | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| By\tAccident\tyear |  |  |  |  |  |  |  |  |  |  |  |
| 1994\t&\tPrior | $347 | $1,111 | $52 | $6 | $(46) | $41 | $9 | $(16) | $2,829 | $352 | $4,685 |
| 1995 | — | (156) | 17 | (59) | (100) | (26) | (33) | 6 | 44 | 23 | (284) |
| 1996 | — | — | (19) | (46) | (47) | (95) | (39) | 15 | (7) | 30 | (208) |
| 1997 | — | — | — | (56) | (104) | (55) | 18 | 36 | 2 | 46 | (113) |
| 1998 | — | — | — | — | 57 | 42 | 60 | 38 | 11 | 82 | 290 |
| 1999 | — | — | — | — | — | 89 | 40 | 92 | 32 | 113 | 366 |
| 2000 | — | — | — | — | — | — | 88 | 146 | 73 | 178 | 485 |
| 2001 | — | — | — | — | — | — | — | (24) | 39 | (232) | (217) |
| 2002 | — | — | — | — | — | — | — | — | (199) | (57) | (256) |
| 2003 | — | — | — | — | — | — | — | — | — | (121) | (121) |
| Total | $347 | $955 | $50 | $(155) | $(240) | $(4) | $143 | $293 | $2,824 | $414 | $4,627 |

The	largest	impacts	of	net	reserve	re-estimates	are	shown	in	the	"1994	and	Prior"	accident	years.	The	reserve	re-estimates	in	calendar	years	1996	and	2003,	include increases	in	reserves	of	$785	in	1996	and	$2.6	billion	in	2003	related	to	reserve	strengthening	based	on	ground-up	studies	of	environmental	and	asbestos	reserves.	The ground	up	study	that	led	to	the	strengthening	in	calendar	year	2003	confirmed	the	Company's	view	of	the	existence	of	a	substantial	long-term	deterioration	in	the	asbestos litigation	environment.	Before	the	$2.6	billion	of	reserve	strengthening	for	asbestos	during	2003	and	the	$785	of	reserve	strengthening	for	asbestos	and	environmental during	1996,	over	the	past	ten	years,	reserve	re-estimates	for	total	Property	&	Casualty	ranged	from	(1.3%)	to	3.0%	of	total	recorded	reserves.

Reserves	for	accident	years	1995-1997	show	the	effects	of	favorable	reestimation	in	subsequent	years.	A	contributing	factor	to	this	improvement,	spread	over	several calendar	years,	was	an	unexpected	improvement	in	the	environment	for	workers'	compensation.	With	the	benefit	of	hindsight,	annual	changes	in	loss	cost	trends	were	very low	during	this	period	as	compared	to	historical	experience.	Because	it	took	several	years	for	this	improvement	to	emerge	in	the	data,	it	similarly	took	several	years	for	this to	be	recognized	in	the	Company's	estimates	of	liabilities.

There	was	also	reserve	deterioration,	spread	over	several	calendar	years,	on	accident	years	1998-2000.	HartRe	assumed	casualty	reinsurance	contributed	in	part	to	this deterioration.	Numerous	actuarial	assumptions	on	assumed	casualty	reinsurance	turned	out	to	be	low,	including	loss	cost	trends,	particularly	on	excess	of	loss	business,	and the	impact	of	deteriorating	terms	and	conditions.	Workers'	compensation	also	contributed	to	this	deterioration,	as	medical	inflation	trends	were	above	initial	expectations.

Calendar	year	2004	reserve	development	included	reserve	releases	in	accident	years	2001	through	2003	and	reserve	strengthening	in	accident	years	2000	and	prior.	The 2004	reserve	releases	in	accident	year	2001	relate	primarily	to	releases	in	reserves	related	to	September	11.	The	2004	reserve	releases	in	accident	years	2002	and	2003	come largely	from	short-tail	lines	of	business,	where	results	emerge	quickly	and	actual	reported	losses	are	predictive	of	ultimate	losses.	Reserve	strengthening	in	2004	related	to accident	years	prior	to	2001	relate	primarily	to	reserve	strengthening	for	construction	defect	losses,	HartRe	assumed	casualty	reinsurance,	environmental	exposures	and uncollectible	reinsurance.	See	Property	&	Casualty	MD&A	for	further	discussion.

# Ceded	Reinsurance

Consistent	with	industry	practice,	The	Hartford	cedes	insurance	risk	to	reinsurance	companies.	For	Property	&	Casualty	operations,	these	reinsurance	arrangements	are intended	to	provide	greater	diversification	of	business	and	limit	The	Hartford's	maximum	net	loss	arising	from	large	risks	or	catastrophes.

A	major	portion	of	The	Hartford's	property	and	casualty	reinsurance	is	effected	under	general	reinsurance	contracts	known	as	treaties,	or,	in	some	instances,	is	negotiated on	an	individual	risk	basis,	known	as	facultative	reinsurance.	The	Hartford	also	has	in-force	excess	of	loss	contracts	with	reinsurers	that	protect	it	against	a	specified	part	or all	of	certain	losses	over	stipulated	amounts.

Reinsurance	does	not	relieve	The	Hartford	of	its	primary	liability	and,	as	such,	failure	of	reinsurers	to	honor	their	obligations	could	result	in	losses	to	The	Hartford.	The Hartford	evaluates	the	financial	condition	of	its	reinsurers	and	monitors	concentrations	of	credit	risk.	The	Company's	monitoring	procedures	include	careful	initial	selection of	its	reinsurers,	structuring	agreements	to	provide	collateral	funds	where	possible,	and	regularly	monitoring	the	financial	condition	and	ratings	of	its	reinsurers.

In	accordance	with	normal	industry	practice,	Life	is	involved	in	both	the	cession	and	assumption	of	insurance	with	other	insurance	and	reinsurance	companies.	As	of December	31,	2004,	the	largest	amount	of	life	insurance	retained	on	any	one	life	by	any	one	of	the	life	operations	was	approximately	$2.9.	In	addition,	Life	has	reinsured the	majority	of	the	minimum	death	benefit	guarantees	as	well	as	the	guaranteed	minimum	withdrawal	benefits	on	contracts	issued	prior	to	July	2003	offered	in	connection with	its	variable	annuity	contracts.	Life	also	assumes	reinsurance	from	other	insurers.	Life	evaluates	the	financial	condition	of	its	reinsurers	and	monitors	concentrations	of credit	risk.	For	the	years	ended	December	31,	2004,	2003	and	2002,	Life	did	not	make	any	significant	changes	in	the	terms	under	which	reinsurance	is	ceded	to	other insurers	except	for	Life's	2003	recapture	of	a	block	of	business	previously	reinsured	with	an	unaffiliated	reinsurer.	For	further	discussion	see	Note	6	of	Notes	to Consolidated	Financial	Statements.

# Investment	Operations

The	Hartford's	investment	portfolios	are	primarily	divided	between	Life	and	Property	&	Casualty.	The	investment	portfolios	of	Life	and	Property	&	Casualty	are	managed by	Hartford	Investment	Management	Company	("HIM"),	a	wholly-owned	subsidiary	of	The	Hartford.	HIM	manages	the	portfolios	to	maximize	economic	value,	while attempting	to	generate	the	income	necessary	to	support	the	Company's	various	product	obligations,	within	internally	established	objectives,	guidelines	and	risk	tolerances. The	portfolio	objectives	and	guidelines	are	developed	based	upon	the	asset/liability	profile,	including	duration,	convexity	and	other	characteristics	within	specified	risk tolerances.	The	risk	tolerances	considered	include,	for	example,	asset	and	credit	issuer	allocation	limits,	maximum	portfolio	below	investment	grade	("BIG")	holdings	and foreign	currency	exposure.	The	Company	attempts	to	minimize	adverse	impacts	to	the	portfolio	and	the	results	of	operations	due	to	changes	in	economic	conditions	through asset	allocation	limits,	asset/liability	duration	matching	and	through	the	use	of	derivatives.	(For	further	discussion	of	HIM's	portfolio	management	approach,	see	the Investments	General	section	of	the	MD&A.)

In	addition	to	managing	the	general	account	assets	of	the	Company,	HIM	is	also	a	Securities	and	Exchange	Commission	("SEC")	registered	investment	advisor	for	third party	institutional	clients,	a	sub-advisor	for	certain	fixed	income	mutual	funds	offered	by	Hartford	Life	and	serves	as	the	sponsor	and	collateral	manager	for	synthetic collateralized	loan	obligations.	HIM	specializes	in	fixed	income	investment	management	that	incorporates	proprietary	research	and	active	management	within	a	disciplined risk	framework	to	provide	value	added	returns	versus	peers	and	benchmarks.	The	fair	value	of	HIM's	total	assets	under	management	was	approximately	$101.9	billion	and $104.1	billion	as	of	December	31,	2004	and	2003,	respectively.

# Regulation	and	Premium	Rates

Insurance	companies	are	subject	to	comprehensive	and	detailed	regulation	and	supervision	throughout	the	United	States.	The	extent	of	such	regulation	varies,	but	generally has	its	source	in	statutes	which	delegate	regulatory,	supervisory	and	administrative	powers	to	state	insurance	departments.	Such	powers	relate	to,	among	other	things,	the standards	of	solvency	that	must	be	met	and	maintained;	the	licensing	of	insurers	and	their	agents;	the	nature	of	and	limitations	on	investments;	establishing	premium	rates; claim	handling	and	trade	practices;	restrictions	on	the	size	of	risks	which	may	be	insured	under	a	single	policy;	deposits	of	securities	for	the	benefit	of	policyholders; approval	of	policy	forms;	periodic	examinations	of	the	affairs	of	companies;	annual	and	other	reports	required	to	be	filed	on	the	financial	condition	of	companies	or	for other	purposes;	fixing	maximum	interest	rates	on	life	insurance	policy	loans	and	minimum	rates	for	accumulation	of	surrender	values;	and	the	adequacy	of	reserves	and other	necessary	provisions	for	unearned	premiums,	unpaid	claims	and	claim	adjustment	expenses	and	other	liabilities,	both	reported	and	unreported.

Most	states	have	enacted	legislation	that	regulates	insurance	holding	company	systems	such	as	The	Hartford.	This	legislation	provides	that	each	insurance	company	in	the system	is	required	to	register	with	the	insurance	department	of	its	state	of	domicile	and	furnish	information	concerning	the	operations	of	companies	within	the	holding company	system	which	may	materially	affect	the	operations,	management	or	financial	condition	of	the	insurers	within	the	system.	All	transactions	within	a	holding company	system	affecting	insurers	must	be	fair	and	equitable.	Notice	to	the	insurance	departments	is	required	prior	to	the	consummation	of	transactions	affecting	the ownership	or	control	of	an	insurer	and	of	certain	material	transactions	between	an	insurer	and	any	entity	in	its	holding	company	system.	In	addition,	certain	of	such transactions	cannot	be	consummated	without	the	applicable	insurance	department's	prior	approval.	In	most	jurisdictions	in	which	the	Company's	insurance	company subsidiaries	are	domiciled,	the	acquisition	of	more	than	10%	of	The	Hartford's	outstanding	common	stock	would	require	the	acquiring	party	to	make	various	regulatory filings.	In	some	instances,	an	acquiring	party	would	be	required	to	obtain	various	regulatory	approvals	prior	to	acquiring	more	than	10%	of	The	Hartford's	outstanding common	stock.

The	extent	of	insurance	regulation	on	business	outside	the	United	States	varies	significantly	among	the	countries	in	which	The	Hartford	operates.	Some	countries	have minimal	regulatory	requirements,	while	others	regulate	insurers	extensively.	Foreign	insurers	in	many	countries	are	faced	with	greater	restrictions	than	domestic competitors	domiciled	in	that	particular	jurisdiction.	The	Hartford's	international	operations	are	comprised	of	insurers	licensed	in	their	respective	countries	and,	therefore, are	subject	to	the	generally	less	restrictive	domestic	insurance	regulations.

# Employees

The	Hartford	had	approximately	30,000	employees	as	of	December	31,	2004.

# Available	Information

The	Hartford	makes	available	free	of	charge	on	or	through	its	Internet	website	(http://www.thehartford.com)	The	Hartford's	annual	report	on	Form	10-K,	quarterly	reports on	Form	10-Q,	current	reports	on	Form	8-K,	and	amendments	to	those	reports	filed	or	furnished	pursuant	to	Section	13(a)	of	the	Exchange	Act	as	soon	as	reasonably practicable	after	The	Hartford	electronically	files	such	material	with,	or	furnishes	it	to,	the	SEC.

# Item	2.	PROPERTIES

The	Hartford	owns	the	land	and	buildings	comprising	its	Hartford	location	and	other	properties	within	the	greater	Hartford,	Connecticut	area	which	total	approximately 1.9	million	of	the	2.2	million	square	feet	owned.	In	addition,	The	Hartford	leases	approximately	5.3	million	square	feet	throughout	the	United	States	and	approximately	130 thousand	square	feet	in	other	countries.	All	of	the	properties	owned	or	leased	are	used	by	one	or	more	of	all	eight	operating	segments,	depending	on	the	location.	(For	more information	on	operating	segments	see	Part	1,	Item	1,	Business	of	The	Hartford	–	Reporting	Segments.)	The	Company	believes	its	properties	and	facilities	are	suitable	and adequate	for	current	operations.

# Item	3.	LEGAL	PROCEEDINGS

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

The	Hartford	is	also	involved	in	other	kinds	of	legal	actions,	some	of	which	assert	claims	for	substantial	amounts.	These	actions	include,	among	others,	putative	state	and federal	class	actions	seeking	certification	of	a	state	or	national	class.	Such	putative	class	actions	have	alleged,	for	example,	underpayment	of	claims	or	improper underwriting	practices	in	connection	with	various	kinds	of	insurance	policies,	such	as	personal	and	commercial	automobile,	property,	and	inland	marine;	improper	sales practices	in	connection	with	the	sale	of	life	insurance	and	other	investment	products;	and	improper	fee	arrangements	in	connection	with	mutual	funds.	The	Hartford	also	is involved	in	individual	actions	in	which	punitive	damages	are	sought,	such	as	claims	alleging	bad	faith	in	the	handling	of	insurance	claims.	Like	many	other	insurers,	The Hartford	also	has	been	joined	in	actions	by	asbestos	plaintiffs	asserting	that	insurers	had	a	duty	to	protect	the	public	from	the	dangers	of	asbestos.	Management	expects	that the	ultimate	liability,	if	any,	with	respect	to	such	lawsuits,	after	consideration	of	provisions	made	for	estimated	losses,	will	not	be	material	to	the	consolidated	financial condition	of	The	Hartford.	Nonetheless,	given	the	large	or	indeterminate	amounts	sought	in	certain	of	these	actions,	and	the	inherent	unpredictability	of	litigation,	it	is possible	that	an	adverse	outcome	in	certain	matters	could,	from	time	to	time,	have	a	material	adverse	effect	on	the	Company's	consolidated	results	of	operations	or	cash flows	in	particular	quarterly	or	annual	periods.

Broker	Compensation	Litigation	–	On	October	14,	2004,	the	New	York	Attorney	General's	Office	filed	a	civil	complaint	(the	"NYAG	Complaint")	against	Marsh	Inc.	and Marsh	&	McLennan	Companies,	Inc.	(collectively,	"Marsh")	alleging,	among	other	things,	that	certain	insurance	companies,	including	The	Hartford,	participated	with Marsh	in	arrangements	to	submit	inflated	bids	for	business	insurance	and	paid	contingent	commissions	to	ensure	that	Marsh	would	direct	business	to	them.	The	Hartford	is not	joined	as	a	defendant	in	the	action.	Since	the	filing	of	the	NYAG	Complaint,	several	private	actions	have	been	filed	against	the	Company	asserting	claims	arising	from the	allegations	of	the	NYAG	Complaint.

Two	securities	class	actions	have	been	filed	in	the	United	States	District	Court	for	the	District	of	Connecticut	alleging	claims	against	the	Company	and	five	of	its	executive officers	under	Section	10(b)	of	the	Securities	Exchange	Act	and	SEC	Rule	10b-5.	The	complaints	allege	on	behalf	of	a	putative	class	of	shareholders	that	the	Company	and the	five	named	individual	defendants,	as	control	persons	of	the	Company,	"disseminated	false	and	misleading	financial	statements"	by	concealing	that	"the	Company	was paying	illegal	and	concealed	'contingent	commissions'	pursuant	to	illegal	'contingent	commission	agreements.'"	The	class	period	alleged	is	November	5,	2003	through October	13,	2004,	the	day	before	the	NYAG	Complaint	was	filed.	The	complaints	seek	damages	and	attorneys'	fees.	The	Company	and	the	individual	defendants	dispute the	allegations	and	intend	to	defend	these	actions	vigorously.

In	addition,	three	putative	class	actions	have	been	filed	in	the	same	court	on	behalf	of	participants	in	the	Company's	401(k)	plan	against	The	Hartford,	Hartford	Fire Insurance	Company,	the	Company's	Pension	Fund	Trust	and	Investment	Committee,	the	Company's	Pension	Administration	Committee,	the	Company's	Chief	Financial Officer,	and	John/Jane	Does	1-15.	The	suits	assert	claims	under	the	Employee	Retirement	Income	Security	Act	of	1974,	as	amended	("ERISA"),	alleging	that	the	Company and	the	other	named	defendants	breached	their	fiduciary	duties	to	plan	participants	by,	among	other	things,	failing	to	inform	them	of	the	risk	associated	with	investment	in the	Company's	stock	as	a	result	of	the	activity	alleged	in	the	NYAG	Complaint.	The	class	period	alleged	is	November	5,	2003	through	the	present.	The	complaints	seek restitution	of	losses	to	the	plan,	declaratory	and	injunctive	relief,	and	attorneys'	fees.	All	defendants	dispute	the	allegations	and	intend	to	defend	these	actions	vigorously.

Two	corporate	derivative	actions	also	have	been	filed	in	the	same	court.	The	complaints,	brought	in	each	case	by	a	shareholder	on	behalf	of	the	Company	against	its directors	and	an	executive	officer,	allege	that	the	defendants	knew	adverse	non-public	information	about	the	activities	alleged	in	the	NYAG	Complaint	and	concealed	and misappropriated	that	information	to	make	profitable	stock	trades,	thereby	breaching	their	fiduciary	duties,	abusing	their	control,	committing	gross	mismanagement,	wasting corporate	assets,	and	unjustly	enriching	themselves.	The	complaints	seek	damages,	injunctive	relief,	disgorgement,	and	attorneys'	fees.	All	defendants	dispute	the allegations	and	intend	to	defend	these	actions	vigorously.

Seven	putative	class	actions	also	have	been	filed	by	alleged	policyholders	in	federal	district	courts,	one	in	the	Southern	District	of	New	York,	two	in	the	Eastern	District	of Pennsylvania,	three	in	the	Northern	District	of	Illinois,	and	one	in	the	Northern	District	of	California,	against	several	brokers	and	insurers,	including	the	Company.	These actions	assert,	on	behalf	of	a	class	of	persons	who	purchased	insurance	through	the	broker	defendants,	claims	under	the	Sherman	Act	and	state	law,	and	in	some	cases	the Racketeer	Influenced	and	Corrupt	Organizations	Act	("RICO"),	arising	from	the	conduct	alleged	in	the	NYAG	Complaint.	The	class	period	alleged	is	1994	through	the	date of	class	certification,	which	has	not	yet	occurred.	The	complaints	seek	treble	damages,	injunctive	and	declaratory	relief,	and	attorneys'	fees.	Putative	class	actions	also	have been	filed	in	the	Circuit	Court	for	Cook	County,	Illinois,	Chancery	Division	and	in	the	Circuit	Court	for	Seminole	County,	Florida,	Civil	Division,	on	behalf	of	a	class	of	all persons	who	purchased	insurance	from	a	class	of	defendant	insurers.	These	state	court	actions	assert	unjust	enrichment	claims	and	violations	of	state	unfair	trade	practices acts	arising	from	the	conduct	alleged	in	the	NYAG	Complaint	and	seek	remedies	including	restitution	of	premiums,	and,	in	the	Cook	County	action,	imposition	of	a constructive	trust,	and	declaratory	and	injunctive	relief.	The	class	period	alleged	is	1994	through	the	present.	The	Company	has	removed	the	Cook	County	action	to	the United	States	District	Court	for	the	Northern	District	of	Illinois.	Pursuant	to	an	order	of	the	Judicial	Panel	on	Multidistrict	Litigation,	it	is	likely	that	most	or	all	of	these actions	will	be	transferred	to	the	United	States	District	Court	for	the	District	of	New	Jersey.	The	Company	disputes	the	allegations	in	all	of	these	actions	and	intends	to defend	the	actions	vigorously.

Additional	complaints	may	be	filed	against	the	Company	in	various	courts	alleging	claims	under	federal	or	state	law	arising	from	the	conduct	alleged	in	the	NYAG Complaint.	The	Company's	ultimate	liability,	if	any,	in	the	pending	and	possible	future	suits	is	highly	uncertain	and	subject	to	contingencies	that	are	not	yet	known,	such	as how	many	suits	will	be	filed,	in	which	courts	they	will	be	lodged,	what	claims	they	will	assert,	what	the	outcome	of	investigations	by	the	New	York	Attorney	General's Office	and	other	regulatory	agencies	will	be,	the	success	of	defenses	that	the	Company	may	assert,	and	the	amount	of	recoverable	damages	if	liability	is	established.	In	the opinion	of	management,	it	is	possible	that	an	adverse	outcome	in	one	or	more	of	these	suits	could	have	a	material	adverse	effect	on	the	Company's	consolidated	results	of operations	or	cash	flows	in	particular	quarterly	or	annual	periods.

Asbestos	and	Environmental	Claims	–	As	discussed	in	Item	7,	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	under	the	caption "Other	Operations	(Including	Asbestos	and	Environmental	Claims)",	The	Hartford	continues	to	receive	asbestos	and	environmental	claims	that	involve	significant uncertainty	regarding	policy	coverage	issues.	Regarding	these	claims,	The	Hartford	continually	reviews	its	overall	reserve	levels	and	reinsurance	coverages,	as	well	as	the methodologies	it	uses	to	estimate	its	exposures.	Because	of	the	significant	uncertainties	that	limit	the	ability	of	insurers	and	reinsurers	to	estimate	the	ultimate	reserves necessary	for	unpaid	losses	and	related	expenses,	particularly	those	related	to	asbestos,	the	ultimate	liabilities	may	exceed	the	currently	recorded	reserves.	Any	such additional	liability	cannot	be	reasonably	estimated	now	but	could	be	material	to	The	Hartford's	future	consolidated	operating	results,	financial	condition	and	liquidity.

# Item	4.	SUBMISSION	OF	MATTERS	TO	A	VOTE	OF	SECURITY	HOLDERS

No	matter	was	submitted	to	a	vote	of	security	holders	of	The	Hartford	during	the	fourth	quarter	of	2004.

# PART	II

# Item	5.	MARKET	FOR	THE	HARTFORD'S	COMMON	EQUITY	AND	RELATED	STOCKHOLDER	MATTERS

The	Hartford's	common	stock	is	traded	on	the	New	York	Stock	Exchange	("NYSE")	under	the	trading	symbol	"HIG".

The	following	table	presents	the	high	and	low	closing	prices	for	the	common	stock	of	The	Hartford	on	the	NYSE	for	the	periods	indicated,	and	the	quarterly	dividends declared	per	share.

|  | 1st	Qtr. | 2nd	Qtr. | 3rd	Qtr. | 4th	Qtr. |
| :--- | :--- | :--- | :--- | :--- |
| 2004 |  |  |  |  |
| Common\tStock\tPrice |  |  |  |  |
| High | $66.51 | $68.74 | $68.35 | $69.31 |
| Low | 58.98 | 61.08 | 58.54 | 53.29 |
| Dividends\tDeclared | 0.28 | 0.28 | 0.28 | 0.29 |
| 2003 |  |  |  |  |
| Common\tStock\tPrice |  |  |  |  |
| High | $48.71 | $51.84 | $55.75 | $59.03 |
| Low | 32.30 | 36.18 | 49.88 | 53.10 |
| Dividends\tDeclared | 0.27 | 0.27 | 0.27 | 0.28 |

As	of	February	15,	2005,	the	Company	had	approximately	180,000	shareholders.	The	closing	price	of	The	Hartford's	common	stock	on	the	NYSE	on	February	15,	2005 was	$72.56.

On	February	17,	2005,	The	Hartford's	Board	of	Directors	declared	a	quarterly	dividend	of	$0.29	per	share	payable	on	April	1,	2005	to	shareholders	of	record	as	of	March	1, 2005.	Dividend	decisions	are	based	on	and	affected	by	a	number	of	factors,	including	the	operating	results	and	financial	requirements	of	The	Hartford	and	the	impact	of regulatory	restrictions	discussed	in	the	Capital	Resources	and	Liquidity	section	of	the	MD&A	under	"Liquidity	Requirements".

There	are	also	various	legal	and	regulatory	limitations	governing	the	extent	to	which	The	Hartford's	insurance	subsidiaries	may	extend	credit,	pay	dividends	or	otherwise provide	funds	to	The	Hartford	Financial	Services	Group,	Inc.	as	discussed	in	the	Capital	Resources	and	Liquidity	section	of	the	MD&A	under	"Liquidity	Requirements".

# Purchases	of	Equity	Securities	by	the	Issuer

The	following	table	summarizes	the	Company's	repurchases	of	its	common	stock	for	the	three	months	ended	December	31,	2004:

[1] Represents	shares	acquired	from	employees	of	the	Company	for	tax	withholding	purposes	in	connection	with	the	Company's	benefit	plans.

# Item	6.	SELECTED	FINANCIAL	DATA

# (In	millions,	except	for	per	share	data	and	combined	ratios)

|  | 2004 | 2003 | 2002 | 2001 | 200 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Income\tStatement\tData |  |  |  |  |  |
| Total\trevenues\t[1] | $22,693 | $18,733 | $16,417 | $15,980 | $15,312 |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchanges\t[2] | 2,138 | (91) | 1,000 | 541 | 974 |
| Net\tincome\t(loss)\t[2]\t[3] | 2,115 | (91) | 1,000 | 507 | 974 |
| Balance\tSheet\tData |  |  |  |  |  |
| Total\tassets | $259,735 | $225,850 | $181,972 | $181,590 | $ 171,951 |
| Long-term\tdebt | 4,308 | 4,610 | 4,061 | 3,374 | 3,105 |
| Total\tstockholders'\tequity | 14,238 | 11,639 | 10,734 | 9,013 | 7,464 |
| Earnings\t(Loss)\tPer\tShare\tData |  |  |  |  |  |
| Basic\tearnings\t(loss)\tper\tshare\t[2] |  |  |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchanges\t[2] | $7.32 | $(0.33) | $4.01 | $2.27 | $4.42 |
| Net\tincome\t(loss)\t[2]\t[3] | 7.24 | (0.33) | 4.01 | 2.13 | 4.42 |
| Diluted\tearnings\t(loss)\tper\tshare\t[2]\t[4] |  |  |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchanges\t[2] | 7.20 | (0.33) | 3.97 | 2.24 | 4.34 |
| Net\tincome\t(loss)\t[2]\t[3] | 7.12 | (0.33) | 3.97 | 2.10 | 4.34 |
| Dividends\tdeclared\tper\tcommon\tshare | 1.13 | 1.09 | 1.05 | 1.01 | 0.97 |
| Other\tData |  |  |  |  |  |
| Mutual\tfund\tassets\t[5] | $28,068 | $22,462 | $15,321 | $16,809 | $11,432 |
| Operating\tData\tCombined\tratios |  |  |  |  |  |
| Ongoing\tProperty\t&\tCasualty\tOperations\t[6] | 95.3 | 96.5 | 99.1 | 108.3 | 102.0 |

[1] 2001	includes	a	$91	reduction	in	premiums	from	reinsurance	cessions	related	to	September	11.

[2] 2004	includes	a	$216	tax	benefit	related	to	agreement	with	the	IRS	on	the	resolution	of	matters	pertaining	to	tax	years	prior	to	2004.	2003	includes	an	after-tax charge	of	$1,701	related	to	the	Company's	2003	asbestos	reserve	addition,	$40	of	after-tax	expense	related	to	the	settlement	of	the	Bancorp	Services,	LLC	litigation dispute,	$30	of	tax	benefit	in	Life	primarily	related	to	the	favorable	treatment	of	certain	tax	items	arising	during	the	1996-2002	tax	years,	and	$27	of	after-tax severance	charges	in	Property	&	Casualty.	2002	includes	$76	tax	benefit	in	Life,	$11	after-tax	expense	in	Life	related	to	Bancorp	and	an	$8	after-tax	benefit	in Life's	September	11	exposure.	2001	includes	$440	of	after-tax	losses	related	to	September	11	and	a	$130	tax	benefit	in	Life.

[3] 2004	includes	a	$23	after-tax	charge	related	to	the	cumulative	effect	of	accounting	change	for	the	Company's	adoption	of	Statement	of	Position	03-1,	"Accounting and	Reporting	by	Insurance	Enterprises	for	Certain	Nontraditional	Long-Duration	Contracts	and	for	Separate	Accounts".	2001	includes	a	$34	after-tax	charge related	to	the	cumulative	effect	of	accounting	changes	for	the	Company's	adoption	of	SFAS	No	133,	"Accounting	for	Derivative	Instruments	and	Hedging Activities"	and	EITF	Issue	No.	99-20,	"Recognition	of	Interest	Income	and	Impairment	on	Purchased	and	Retained	Beneficial	Interests	in	Securitized	Financial Assets."

[4] As	a	result	of	the	net	loss	for	the	year	ended	December	31,	2003,	Statement	of	Financial	Accounting	Standards	No.	128,"Earnings	per	Share"	requires	the Company	to	use	basic	weighted	average	common	shares	outstanding	in	the	calculation	of	the	year	ended	December	31,	2003	diluted	earnings	(loss)	per	share, since	the	inclusion	of	options	of	1.8	would	have	been	antidilutive	to	the	earnings	per	share	calculation.	In	the	absence	of	the	net	loss,	weighted	average	common shares	outstanding	and	dilutive	potential	common	shares	would	have	totaled	274.2.

[5] Mutual	funds	are	owned	by	the	shareholders	of	those	funds	and	not	by	the	Company.	As	a	result,	they	are	not	reflected	in	total	assets	on	the	Company's	balance sheet.

# Item	7.	MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION

# AND	RESULTS	OF	OPERATIONS

Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	("MD&A")	addresses	the	financial	condition	of	The	Hartford	Financial	Services Group,	Inc.	and	its	subsidiaries	(collectively,	"The	Hartford"	or	the	"Company")	as	of	December	31,	2004,	compared	with	December	31,	2003,	and	its	results	of	operations for	each	of	the	three	years	in	the	period	ended	December	31,	2004.	This	discussion	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	related Notes	beginning	on	page	F-1.	Certain	reclassifications	have	been	made	to	prior	year	financial	information	to	conform	to	the	current	year	presentation.

Certain	of	the	statements	contained	herein	are	forward-looking	statements.	These	forward-looking	statements	are	made	pursuant	to	the	safe	harbor	provisions	of	the	Private Securities	Litigation	Reform	Act	of	1995	and	include	estimates	and	assumptions	related	to	economic,	competitive	and	legislative	developments.	These	forward-looking statements	are	subject	to	change	and	uncertainty	which	are,	in	many	instances,	beyond	the	Company's	control	and	have	been	made	based	upon	management's	expectations and	beliefs	concerning	future	developments	and	their	potential	effect	upon	the	Company.	There	can	be	no	assurance	that	future	developments	will	be	in	accordance	with management's	expectations	or	that	the	effect	of	future	developments	on	The	Hartford	will	be	those	anticipated	by	management.	Actual	results	could	differ	materially	from those	expected	by	the	Company,	depending	on	the	outcome	of	various	factors.	These	factors	include:	the	difficulty	in	predicting	the	Company's	potential	exposure	for asbestos	and	environmental	claims	and	related	litigation;	the	possible	occurrence	of	terrorist	attacks;	the	response	of	reinsurance	companies	under	reinsurance	contracts	and the	availability,	pricing	and	adequacy	of	reinsurance	to	protect	the	Company	against	losses;	changes	in	the	stock	markets,	interest	rates	or	other	financial	markets,	including the	potential	effect	on	the	Company's	statutory	capital	levels;	the	inability	to	effectively	mitigate	the	impact	of	equity	market	volatility	on	the	Company's	financial	position and	results	of	operations	arising	from	obligations	under	annuity	product	guarantees;	the	difficulty	in	predicting	the	Company's	potential	exposure	arising	out	of	regulatory proceedings	or	private	claims	relating	to	incentive	compensation	or	payments	made	to	brokers	or	other	producers	and	alleged	anti-competitive	conduct;	the	uncertain	effect on	the	Company	of	regulatory	and	market-driven	changes	in	practices	relating	to	the	payment	of	incentive	compensation	to	brokers	and	other	producers,	including	changes that	have	been	announced	and	those	which	may	occur	in	the	future;	the	possibility	of	more	unfavorable	loss	experience	than	anticipated;	the	incidence	and	severity	of catastrophes,	both	natural	and	man-made;	stronger	than	anticipated	competitive	activity;	unfavorable	judicial	or	legislative	developments,	including	the	possibility	that	the Terrorism	Risk	Insurance	Act	of	2002	is	not	extended	beyond	2005;	the	potential	effect	of	domestic	and	foreign	regulatory	developments,	including	those	which	could increase	the	Company's	business	costs	and	required	capital	levels;	the	possibility	of	general	economic	and	business	conditions	that	are	less	favorable	than	anticipated;	the Company's	ability	to	distribute	its	products	through	distribution	channels,	both	current	and	future;	the	uncertain	effects	of	emerging	claim	and	coverage	issues;	the	effect	of assessments	and	other	surcharges	for	guaranty	funds	and	second-injury	funds	and	other	mandatory	pooling	arrangements;	a	downgrade	in	the	Company's	claims-paying, financial	strength	or	credit	ratings;	the	ability	of	the	Company's	subsidiaries	to	pay	dividends	to	the	Company;	and	other	factors	described	in	such	forward-looking statements.

| Overview | 21 |
| :--- | :--- |
| Critical\tAccounting\tEstimates | 23 |
| Consolidated\tResults\tof\tOperations | 33 |
| Life | 34 |
| Retail\tProducts\tGroup | 39 |
| Institutional\tSolutions\tGroup | 41 |
| Individual\tLife | 42 |
| Group\tBenefits | 43 |
| Property\t&\tCasualty | 44 |
| Business\tInsurance | 57 |
| Personal\tLines | 59 |
| Specialty\tCommercial | 61 |
| Other\tOperations\t(Including\tAsbestos\tand\tEnvironmental\tClaims) | 63 |
| Investments | 68 |
| Investment\tCredit\tRisk | 75 |
| Capital\tMarkets\tRisk\tManagement | 80 |
| Capital\tResources\tand\tLiquidity | 87 |
| Impact\tof\tNew\tAccounting\tStandards | 95 |

# OVERVIEW

The	Hartford	is	a	diversified	insurance	and	financial	services	company	with	operations	dating	back	to	1810.	The	Company	is	headquartered	in	Connecticut	and	is	organized into	two	major	operations:	Life	and	Property	&	Casualty,	each	containing	reporting	segments.	In	the	quarter	ended	March	31,	2004,	and	as	more	fully	described	below,	the Company	changed	its	reporting	segments	to	reflect	the	current	manner	by	which	its	chief	operating	decision	maker	views	and	manages	the	business.	All	segment	data	for prior	reporting	periods	have	been	adjusted	to	reflect	the	current	segment	reporting.	Within	the	Life	and	Property	&	Casualty	operations,	The	Hartford	conducts	business principally	in	eight	operating	segments.	Additionally,	Corporate	includes	all	of	the	Company's	debt	financing	and	related	interest	expense,	as	well	as	certain	capital	raising activities	and	purchase	accounting	adjustments.

Life	includes	four	reportable	operating	segments:	Retail	Products	Group,	Institutional	Solutions	Group,	Individual	Life	and	Group	Benefits.	Through	Life	the	Company provides	investment	and	retirement	products	such	as	variable	and	fixed	annuities,	mutual	funds	and	retirement	plan	services;	other	institutional	investment	products; structured	settlements;	private	placement	life	insurance;	individual	life	insurance	products	including	variable	universal	life,	universal	life,	interest	sensitive	whole	life	and term	life;	and	group	benefit	products,	such	as	group	life	and	group	disability	insurance.

Property	&	Casualty	is	organized	into	four	reportable	operating	segments:	the	underwriting	segments	of	Business	Insurance,	Personal	Lines	and	Specialty	Commercial (collectively	"Ongoing	Operations"),	and	the	Other	Operations	segment.	Through	Property	&	Casualty	the	Company	provides	a	number	of	coverages,	as	well	as	insurance- related	services,	to	businesses	throughout	the	United	States,	including	workers'	compensation,	property,	automobile,	liability,	umbrella,	specialty	casualty,	marine, agriculture,	bond,	professional	liability	and	director's	and	officer's	liability	coverages.	Property	&	Casualty	also	provides	automobile,	homeowners,	and	home-based business	coverage	to	individuals	throughout	the	United	States,	as	well	as	insurance-related	services	to	businesses.

Many	of	the	principal	factors	that	drive	the	profitability	of	The	Hartford's	Life	and	Property	&	Casualty	operations	are	separate	and	distinct.	Management	considers	this diversification	to	be	a	strength	of	The	Hartford	that	distinguishes	the	Company	from	its	peers.	To	present	its	operations	in	a	more	meaningful	and	organized	way, management	has	included	separate	overviews	within	the	Life	and	Property	&	Casualty	sections	of	MD&A.	For	further	overview	of	Life's	profitability	and	analysis,	see page	34.	For	further	overview	of	Property	&	Casualty's	profitability	and	analysis,	see	page	44.

# Regulatory	Developments

In	June	2004,	the	Company	received	a	subpoena	from	the	New	York	Attorney	General's	Office	in	connection	with	its	inquiry	into	compensation	arrangements	between brokers	and	carriers.	In	mid-September	2004	and	subsequently,	the	Company	has	received	additional	subpoenas	from	the	New	York	Attorney	General's	Office,	which relate	more	specifically	to	possible	anti-competitive	activity	among	brokers	and	insurers.	Since	the	beginning	of	October	2004,	the	Company	has	received	subpoenas	or other	information	requests	from	Attorneys	General	and	regulatory	agencies	in	more	than	a	dozen	jurisdictions	regarding	broker	compensation	and	possible	anti-competitive activity.	The	Company	may	receive	additional	subpoenas	and	other	information	requests	from	Attorneys	General	or	other	regulatory	agencies	regarding	similar	issues.	The Company	also	has	received	a	subpoena	from	the	New	York	Attorney	General's	Office	requesting	information	related	to	the	Company's	underwriting	practices	with	respect to	legal	professional	liability	insurance.	In	addition,	the	Company	has	received	a	request	for	information	from	the	New	York	Attorney	General's	Office	concerning	the Company's	compensation	arrangements	in	connection	with	the	administration	of	workers	compensation	plans.	The	Company	intends	to	continue	cooperating	fully	with these	investigations,	and	is	conducting	an	internal	review,	with	the	assistance	of	outside	counsel,	regarding	the	issues	under	investigation.

On	October	14,	2004,	the	New	York	Attorney	General's	Office	filed	a	civil	complaint	against	Marsh	&	McLennan	Companies,	Inc.,	and	Marsh,	Inc.	(collectively, "Marsh").	The	complaint	alleges,	among	other	things,	that	certain	insurance	companies,	including	the	Company,	participated	with	Marsh	in	arrangements	to	submit	inflated bids	for	business	insurance	and	paid	contingent	commissions	to	ensure	that	Marsh	would	direct	business	to	them.	The	Company	is	not	joined	as	a	defendant	in	the	action. Although	no	regulatory	action	has	been	initiated	against	the	Company	in	connection	with	the	allegations	described	in	the	civil	complaint,	it	is	possible	that	the	New	York Attorney	General's	Office	or	one	or	more	other	regulatory	agencies	may	pursue	action	against	the	Company	or	one	or	more	of	its	employees	in	the	future.	The	potential timing	of	any	such	action	is	difficult	to	predict.	If	such	an	action	is	brought,	it	could	have	a	material	adverse	effect	on	the	Company.

On	October	29,	2004,	the	New	York	Attorney	General's	Office	informed	the	Company	that	the	Attorney	General	is	conducting	an	investigation	with	respect	to	the	timing of	the	previously	disclosed	sale	by	Thomas	Marra,	a	director	and	executive	officer	of	the	Company,	of	217,074	shares	of	the	Company's	common	stock	on	September	21, 2004.	The	sale	occurred	shortly	after	the	issuance	of	two	additional	subpoenas	dated	September	17,	2004	by	the	New	York	Attorney	General's	Office.	The	Company	has engaged	outside	counsel	to	review	the	circumstances	related	to	the	transaction	and	is	fully	cooperating	with	the	New	York	Attorney	General's	Office.	On	the	basis	of	the review,	the	Company	has	determined	that	Mr.	Marra	complied	with	the	Company's	applicable	internal	trading	procedures	and	has	found	no	indication	that	Mr.	Marra	was aware	of	the	additional	subpoenas	at	the	time	of	the	sale.

There	continues	to	be	significant	federal	and	state	regulatory	activity	relating	to	financial	services	companies,	particularly	mutual	funds	companies.	These	regulatory inquiries	have	focused	on	a	number	of	mutual	fund	issues,	including	market	timing	and	late	trading,	revenue	sharing	and	directed	brokerage,	fees,	transfer	agents	and	other fund	service	providers,	and	other	mutual-fund	related	issues.	The	Company	has	received	requests	for	information	and	subpoenas	from	the	Securities	and	Exchange Commission	("SEC"),	subpoenas	from	the	New	York	Attorney	General's	Office,	requests	for	information	from	the	Connecticut	Securities	and	Investments	Division	of	the Department	of	Banking,	and	requests	for	information	from	the	New	York	Department	of	Insurance,	in	each	case	requesting	documentation	and	other	information	regarding various	mutual	fund	regulatory	issues.

The	SEC's	Division	of	Enforcement	and	the	New	York	Attorney	General's	Office	are	investigating	aspects	of	the	Company's	variable	annuity	and	mutual	fund	operations related	to	market	timing.	The	Company's	mutual	funds	are	available	for	purchase	by	the	separate	accounts	of	different	variable	universal	life	insurance	policies,	variable annuity	products,	and	funding	agreements,	and	they	are	offered	directly	to	certain	qualified	retirement	plans.	Although	existing	products	contain	transfer	restrictions between	subaccounts,	some	products,	particularly	older	variable	annuity	products,	do	not	contain	restrictions	on	the	frequency	of	transfers.	In	addition,	as	a	result	of	the settlement	of	litigation	against	the	Company	with	respect	to	certain	owners	of	older	variable	annuity	products,	the	Company's	ability	to	restrict	transfers	by	these	owners	is limited.	In	February	2005,	the	Company	agreed	in	principle	with	the	Boards	of	Directors	of	the	mutual	funds	to	indemnify	the	mutual	funds	for	any	material	harm	caused	to the	funds	from	frequent	trading	by	these	owners.	The	specific	terms	of	the	indemnification	have	not	been	determined.	The	SEC's	Division	of	Enforcement	also	is investigating	aspects	of	the	Company's	variable	annuity	and	mutual	fund	operations	related	to	directed	brokerage	and	revenue	sharing.	The	Company	discontinued	the	use of	directed	brokerage	in	recognition	of	mutual	fund	sales	in	late	2003.	The	Company	also	has	received	a	subpoena	from	the	New	York	Attorney	General's	Office	requesting information	related	to	the	Company's	group	annuity	products.	The	Company	continues	to	cooperate	fully	with	the	SEC,	the	New	York	Attorney	General's	Office	and	other regulatory	agencies.

A	number	of	companies	have	announced	settlements	of	enforcement	actions	with	various	regulatory	agencies,	primarily	the	SEC	and	the	New	York	Attorney	General's Office,	which	have	included	a	range	of	monetary	penalties	and	restitution.	While	no	such	action	has	been	initiated	against	the	Company,	the	SEC,	and	the	New	York Attorney	General's	Office	are	likely	to	take	some	action	at	the	conclusion	of	the	on-going	investigations	related	to	market	timing	and	directed	brokerage.	The	potential timing	of	any	such	action	is	difficult	to	predict,	and	the	Company's	ultimate	liability,	if	any,	from	any	such	action	is	not	reasonably	estimable	at	this	time.	If	such	an	action is	brought,	it	could	have	a	material	adverse	effect	on	the	Company's	consolidated	results	of	operations	or	cash	flows	in	particular	quarterly	or	annual	periods.

# Broker	Compensation

As	the	Company	has	disclosed	previously,	the	Company	pays	brokers	and	independent	agents	commissions	and	other	forms	of	incentive	compensation	in	connection	with the	sale	of	many	of	the	Company's	insurance	products.	Since	the	New	York	Attorney	General's	Office	filed	a	civil	complaint	against	Marsh	&	McLennan	Companies,	Inc. and	Marsh,	Inc.	(collectively,	"Marsh")	on	October	14,	2004,	several	of	the	largest	national	insurance	brokers,	including	Marsh,	have	announced	that	they	have discontinued	the	use	of	contingent	compensation	arrangements.	Other	industry	participants	may	make	similar,	or	different,	determinations	in	the	future.	In	addition,	legal, legislative,	regulatory,	business	or	other	developments	may	require	changes	to	industry	practices	relating	to	incentive	compensation.	At	this	time,	it	is	not	possible	to	predict the	effect	of	these	announced	or	potential	changes	on	the	Company's	business	or	distribution	strategies	.

# CRITICAL	ACCOUNTING	ESTIMATES

The	preparation	of	financial	statements,	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America	("GAAP"),	requires	management	to make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and	disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	financial statements	and	the	reported	amounts	of	revenues	and	expenses	during	the	reporting	period.	Actual	results	could	differ	from	those	estimates.

The	Company	has	identified	the	following	estimates	as	critical	in	that	they	involve	a	higher	degree	of	judgment	and	are	subject	to	a	significant	degree	of	variability: insurance	reserves;	Life	operations	deferred	policy	acquisition	costs	and	present	value	of	future	profits;	the	valuation	of	investments	and	derivative	instruments	and	the evaluation	of	other-than-temporary	impairments;	pension	and	other	postretirement	benefits;	and	contingencies.	In	developing	these	estimates	management	makes	subjective and	complex	judgments	that	are	inherently	uncertain	and	subject	to	material	change	as	facts	and	circumstances	develop.	Although	variability	is	inherent	in	these	estimates, management	believes	the	amounts	provided	are	appropriate	based	upon	the	facts	available	upon	compilation	of	the	financial	statements.

# Reserves

The	Company's	life	insurance	subsidiaries	establish	and	carry	as	liabilities,	predominantly,	three	types	of	reserves:	(1)	a	liability	for	amounts	that	accrue	to	the	benefit	of the	policyholder	as	of	the	financial	statement	date,	(2)	a	liability	for	unpaid	claims,	including	those	that	have	been	incurred	but	not	yet	reported,	and	(3)	a	liability	for	future policy	benefits.	Reserves	also	include	amounts	for	unearned	premiums.	Reserves	for	assumed	reinsurance	are	computed	in	a	manner	that	is	comparable	to	direct	insurance reserves.

The	Company	has	classified	its	fixed	and	variable	annuities,	401(k),	certain	governmental	annuities,	private	placement	life	insurance,	variable	universal	life	insurance, universal	life	insurance	and	interest	sensitive	whole	life	insurance	as	universal	life-type	contracts.	The	liability	for	universal	life-type	contracts	is	equal	to	the	balance	that accrues	to	the	benefit	of	the	policyholders	as	of	the	financial	statement	date	(commonly	referred	to	as	the	account	value),	including	credited	interest,	amounts	that	have	been assessed	to	compensate	the	Company	for	services	to	be	performed	over	future	periods,	and	any	amounts	previously	assessed	against	policyholders	that	are	refundable	on termination	of	the	contract.	Certain	contracts	classified	as	universal	life-type	may	also	include	additional	death	or	other	insurance	benefit	features,	such	as	guaranteed minimum	death	or	income	benefits	offered	with	variable	annuity	contracts	or	no	lapse	guarantees	offered	with	universal	life	insurance	contracts.	An	additional	liability	is established	for	these	benefits	by	estimating	the	expected	present	value	of	the	benefits	in	excess	of	the	projected	account	value	in	proportion	to	the	present	value	of	total expected	assessments.	Excess	benefits	are	accrued	as	a	liability	as	actual	assessments	are	recorded.	Determination	of	the	expected	value	of	excess	benefits	and	assessments are	based	on	a	range	of	scenarios	and	assumptions	including	those	related	to	market	rates	of	return	and	volatility,	contract	surrender	rates	and	mortality	experience.

The	Company	has	classified	its	institutional	and	governmental	products,	without	life	contingencies,	including	funding	agreements,	structured	settlements	and	guaranteed investment	contracts,	as	investment	contracts.	The	liability	for	investment	contracts	is	equal	to	the	balance	that	accrues	to	the	benefit	of	the	contract	holder	as	of	the	financial statement	date,	which	includes	the	accumulation	of	deposits	plus	credited	interest,	less	withdrawals	and	amounts	assessed	through	the	financial	statement	date.

Liabilities	for	the	Company's	group	life	and	disability	contracts	as	well	its	individual	term	life	insurance	policies	include	amounts	for	unpaid	claims	and	future	policy benefits.	Liabilities	for	unpaid	claims	include	estimates	of	amounts	to	fully	settle	known	reported	claims	as	well	as	claims	related	to	insured	events	that	the	Company estimates	have	been	incurred	but	have	not	yet	been	reported.	Liabilities	for	future	policy	benefits	are	calculated	by	estimating	the	present	value	of	future	policy	benefits	to be	paid	to	or	on	behalf	of	policyholders	less	the	estimated	present	value	of	future	net	premiums.	The	methods	used	in	determining	the	liability	for	unpaid

claims	and	future	policy	benefits	are	standard	actuarial	methods	recognized	by	the	American	Academy	of	Actuaries.	For	the	tabular	reserves,	discount	rates	are	based	on	the Company's	earned	investment	yield	and	the	morbidity/mortality	tables	used	are	standard	industry	tables	modified	to	reflect	the	Company's	actual	experience	when appropriate.	In	particular,	for	the	Company's	group	disability	known	claim	reserves,	the	morbidity	table	for	the	early	durations	of	claim	is	based	exclusively	on	the Company's	experience,	incorporating	factors	such	as	sex,	elimination	period	and	diagnosis.	These	reserves	are	computed	such	that	they	are	expected	to	meet	the Company's	future	policy	obligations.	Future	policy	benefits	are	computed	at	amounts	that,	with	additions	from	estimated	premiums	to	be	received	and	with	interest	on	such reserves	compounded	annually	at	certain	assumed	rates,	are	expected	to	be	sufficient	to	meet	the	Company's	policy	obligations	at	their	maturities	or	in	the	event	of	an insured's	death.	Changes	in	or	deviations	from	the	assumptions	used	for	mortality,	morbidity,	expected	future	premiums	and	interest	can	significantly	affect	the	Company's reserve	levels	and	related	future	operations	and,	as	such,	provisions	for	adverse	deviation	are	built	into	the	long-tailed	liability	assumptions.

The	Hartford	establishes	property	and	casualty	reserves	to	provide	for	the	estimated	costs	of	paying	claims	under	insurance	policies	written	by	the	Company.	These	reserves include	estimates	for	both	claims	that	have	been	reported	and	those	that	have	been	incurred	but	not	reported,	and	include	estimates	of	all	expenses	associated	with processing	and	settling	these	claims.	Estimating	the	ultimate	cost	of	future	claims	and	claim	adjustment	expenses	is	an	uncertain	and	complex	process.	This	estimation process	is	based	largely	on	the	assumption	that	past	developments	are	an	appropriate	predictor	of	future	events	and	involves	a	variety	of	actuarial	techniques	that	analyze experience,	trends	and	other	relevant	factors.	Reserve	estimates	can	change	over	time	because	of	unexpected	changes	in	the	external	environment.	Potential	external	factors include	(1)	changes	in	the	inflation	rate	for	goods	and	services	related	to	covered	damages	such	as	medical	care,	hospital	care,	auto	parts,	wages	and	home	repair, (2)	changes	in	the	general	economic	environment	that	could	cause	unanticipated	changes	in	the	claim	frequency	per	unit	insured,	(3)	changes	in	the	litigation	environment as	evidenced	by	changes	in	claimant	attorney	representation	in	the	claims	negotiation	and	settlement	process,	(4)	changes	in	the	judicial	environment	regarding	the interpretation	of	policy	provisions	relating	to	the	determination	of	coverage	and/or	the	amount	of	damages	awarded	for	certain	types	of	damages,	(5)	changes	in	the	social environment	regarding	the	general	attitude	of	juries	in	the	determination	of	liability	and	damages,	(6)	changes	in	the	legislative	environment	regarding	the	definition	of damages	and	(7)	new	types	of	injuries	caused	by	new	types	of	injurious	exposure:	past	examples	include	breast	implants,	lead	paint	and	construction	defects.	Reserve estimates	can	also	change	over	time	because	of	changes	in	internal	company	operations.	Potential	internal	factors	include	(1)	periodic	changes	in	claims	handling procedures,	(2)	growth	in	new	lines	of	business	where	exposure	and	loss	development	patterns	are	not	well	established	or	(3)	changes	in	the	quality	of	risk	selection	in	the underwriting	process.	In	the	case	of	assumed	reinsurance,	all	of	the	above	risks	apply.	In	addition,	changes	in	ceding	company	case	reserving	and	reporting	patterns	can create	additional	factors	that	need	to	be	considered	in	estimating	the	reserves.	Due	to	the	inherent	complexity	of	the	assumptions	used,	final	claim	settlements	may	vary significantly	from	the	present	estimates,	particularly	when	those	settlements	may	not	occur	until	well	into	the	future.

The	Hartford,	like	other	insurance	companies,	categorizes	and	tracks	its	insurance	reserves	for	its	segments	by	"line	of	business",	such	as	property,	auto	physical	damage, auto	liability,	commercial	multi-peril	package	business,	workers'	compensation,	general	liability	and	professional	liability.	Furthermore,	The	Hartford	regularly	reviews	the appropriateness	of	reserve	levels	at	the	line	of	business	level,	taking	into	consideration	the	variety	of	trends	that	impact	the	ultimate	settlement	of	claims	for	the	subsets	of claims	in	each	particular	line	of	business.	In	addition,	within	the	Other	Operations	segment,	the	Company	has	reserves	for	asbestos	and	environmental	(A&E)	claims. Adjustments	to	previously	established	reserves,	which	may	be	material,	are	reflected	in	the	operating	results	of	the	period	in	which	the	adjustment	is	determined	to	be necessary.	In	the	judgment	of	management,	information	currently	available	has	been	properly	considered	in	the	reserves	established	for	claims	and	claim	adjustment expenses.

Incurred	but	not	reported	(IBNR)	reserves	represent	the	difference	between	the	estimated	ultimate	cost	of	all	claims	and	the	actual	reported	loss	and	loss	adjustment expenses	("reported	losses").	Reported	losses	represent	cumulative	loss	and	loss	adjustment	expenses	paid	plus	case	reserves	for	outstanding	reported	claims.	Company actuaries	evaluate	the	total	reserves	(IBNR	and	case	reserves)	on	an	accident	year	basis.	An	accident	year	is	the	calendar	year	in	which	a	loss	is	incurred,	or,	in	the	case	of claims-made	policies,	the	calendar	year	in	which	a	loss	is	reported.

The	following	table	shows	loss	and	loss	adjustment	expense	reserves	by	line	of	business	and	by	operating	segment	as	of	December	31,	2004,	net	of	reinsurance:

|  | Business<br>Insurance | Personal<br>Lines | Specialty<br>Commercial | Other<br>Operations | Total<br>P&amp;C |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Reserve\tLine\tof\tBusiness |  |  |  |  |  |
| Property | $45 | $208 | $154 | $— | $407 |
| Auto\tphysical\tdamage | 9 | 49 | (2) | — | 56 |
| Auto\tliability | 549 | 1,522 | 72 | — | 2,143 |
| Package\tbusiness | 1,499 | — | — | — | 1,499 |
| Workers'\tcompensation | 2,864 | 5 | 1,451 | — | 4,320 |
| General\tliability | 604 | 24 | 1,125 | — | 1,753 |
| Professional\tliability | — | — | 493 | — | 493 |
| Bond | — | — | 128 | — | 128 |
| Reinsurance\t—\t[1] | — | — | — | 1,339 | 1,339 |
| All\tother\tnon-A&amp;E | — | — | — | 1,175 | 1,175 |
| A&amp;E | 13 | 2 | 7 | 2,856 | 2,878 |
| Total\treserves-net | 5,583 | 1,810 | 3,428 | 5,370 | 16,191 |
| Reinsurance\tand\tother\trecoverables | 474 | 190 | 2,091 | 2,383 | 5,138 |
| Total\treserves—gross | $6,057 | $2,000 | $5,519 | $7,753 | $21,329 |

[1]	These	net	loss	and	loss	adjustment	expense	reserves	relate	to	assumed	reinsurance	underwritten	by	Reinsurance	operations	that	were	moved	into	Other	Operations	in 2002	and	2004	("HartRe	assumed	reinsurance").

# Reserving	for	non-A&E	reserves	within	Ongoing	and	Other	Operations:

# How	non-A&E	reserves	are	set

Reserves	are	set	by	line	of	business	within	the	various	operating	segments.	As	indicated	in	the	above	table,	a	single	line	of	business	may	be	written	in	one	or	more	of	the segments.	Case	reserves	are	established	by	a	claims	handler	on	each	individual	claim	and	are	adjusted	as	new	information	becomes	known	during	the	course	of	handling	the claim.	Lines	of	business	for	which	loss	data	(e.g.	paid	losses	and	case	reserves)	emerge	(i.e.	is	reported)	over	a	long	period	of	time	are	referred	to	as	long-tail	lines	of business.	Lines	of	business	for	which	loss	data	emerge	more	quickly	are	referred	to	as	short-tail	lines	of	business.	Within	the	Company's	Ongoing	Operations	the	shortest- tail	lines	of	business	are	property	and	auto	physical	damage.	The	longest	tail	lines	of	business	within	Ongoing	Operations	include	workers'	compensation,	general	liability, and	professional	liability.	HartRe	assumed	reinsurance,	which	is	within	Other	Operations,	is	also	long-tail	business.

Company	actuaries	regularly	review	reserves	for	both	current	and	prior	accident	years	using	the	most	current	claim	data.	These	quarterly	reserve	reviews	incorporate	a variety	of	actuarial	methods	and	judgments	and	involve	rigorous	analysis.	For	most	lines	of	business,	a	variety	of	actuarial	methods	are	reviewed	and	the	actuaries	select methods	and	specific	assumptions	appropriate	for	each	line	of	business	based	on	the	current	circumstances	affecting	that	line	of	business.	These	selections	incorporate	input from	claims	personnel,	pricing	actuaries	and	operating	management	on	reported	loss	cost	trends	and	other	factors	that	could	affect	the	reserve	estimates.

For	short-tail	lines	of	business,	emergence	of	paid	loss	and	case	reserves	is	credible	and	likely	indicative	of	ultimate	losses.	The	method	used	to	set	reserves	for	these	lines incorporates	two	key	assumptions.	The	first	key	assumption	is	an	expected	loss	ratio	for	the	current	accident	year.	This	loss	ratio	is	determined	through	a	review	of	prior accident	years'	loss	ratios	and	expected	changes	to	earned	pricing,	loss	costs,	mix	of	business,	ceded	reinsurance	and	other	factors	that	are	expected	to	impact	the	loss	ratio for	the	current	accident	year.	The	second	key	assumption	is	a	development	pattern	for	reported	losses	(also	referred	to	as	the	loss	emergence	pattern).	IBNR	reserves	for	the current	year	are	set	as	the	product	of	the	expected	loss	ratio	for	the	period,	earned	premium	for	the	period	and	the	proportion	of	losses	expected	to	be	reported	in	future calendar	periods	for	the	current	accident	period.	IBNR	reserves	for	prior	accident	years	are	similarly	determined,	again	relying	on	an	expected	development	pattern	for reported	losses.

For	long-tail	lines	of	business,	emergence	of	paid	losses	and	case	reserves	is	less	credible	in	the	early	periods	and,	accordingly	may	not	be	indicative	of	ultimate	losses.	For these	lines,	methods	which	incorporate	a	development	pattern	assumption	are	given	less	weight	in	calculating	IBNR	reserves	for	the	early	stages	of	loss	emergence	because such	a	low	percentage	of	ultimate	losses	are	reported	in	that	time	frame.	Accordingly,	for	any	given	accident	year,	the	rate	at	which	losses	emerge	in	the	early	periods	is generally	not	as	reliable	an	indication	of	the	ultimate	loss	costs	as	it	would	be	for	shorter-tail	lines	of	business.	The	estimation	of	reserves	for	these	lines	of	business	in	the early	stages	of	loss	emergence	is	therefore	largely	influenced	by	prior	accident	years'	loss	ratios	and	expected	changes	to	earned	pricing,	loss	costs,	mix	of	business,	ceded reinsurance	and	other	factors	that	are	expected	to	affect	the	loss	ratio.	For	later	periods	of	loss	emergence,	methods	which	incorporate	a	development	pattern	assumption	are given	more	weight	in	estimating	ultimate	losses.

Based	on	the	results	of	the	quarterly	reserve	reviews,	the	Company	will	determine	the	appropriate	reserve	adjustments,	if	any,	to	record.	Recorded	reserve	estimates	are changed	after	consideration	of	numerous	factors,	including	but	not	limited	to,	the	magnitude	of	the	difference	between	the	actuarial	indication	and	the	recorded	reserves, improvement	or	deterioration	of	actuarial	indications	in	the	period,	the	maturity	of	the	accident	year,	trends	observed	over	the	recent	past	and	the	level	of	volatility	within	a particular	line	of	business.	In	general,	changes	are	made	more	quickly	to	more	mature	accident	years	and	less	volatile	lines	of	business.	At	year-end	2004,	total	recorded reserves	excluding	asbestos	and	environmental	were	within	0.2%	of	the	actuarial	indication.	Annually,	as	part	of	the	statutory	reporting	requirements,	IBNR	is	allocated	to accident	year	by	statutory	line	of	business.	This	work	forms	the	basis	for	the	loss	development	table	and	reserve	re-estimates	table	shown	in	the	"Business"	section.

During	2004	there	were	numerous	changes	to	reserve	estimates.	Among	other	loss	developments	in	2004,	these	changes	included	a	reduction	in	estimated	ultimate	losses associated	with	September	11	and	increases	in	estimated	ultimate	losses	associated	with	construction	defect	claims	and	HartRe	assumed	reinsurance.	Changes	in	2004	also included	increases	in	the	estimated	ultimate	losses	for	auto	liability	and	package	business	in	Business	Insurance,	as	well	as	a	reduction	in	the	expected	loss	ratio	for	accident year	2004	for	Bond	within	Specialty	Commercial.	See	"Reserves"	within	the	Property	and	Casualty	MD&A	for	further	discussion	of	reserve	developments.

# Current	trends	contributing	to	reserve	uncertainty

The	Hartford	is	a	multi-line	company	in	the	property	and	casualty	business.	The	Hartford	is	therefore	subject	to	reserve	uncertainty	stemming	from	a	number	of	conditions, including	but	not	limited	to	those	noted	above,	any	of	which	could	be	material	at	any	point	in	time	for	any	segment.	Certain	issues	may	become	more	or	less	important	over time	as	conditions	change.	As	various	market	conditions	develop,	management	must	assess	whether	those	conditions	constitute	a	long-term	trend	that	should	result	in	a reserving	action	(i.e.	increasing	or	decreasing	the	reserve).	Below	is	a	discussion	of	certain	market	conditions	that	Company	management	has	observed	during	2004.

Within	the	commercial	segments	and	the	Other	Operations	segment,	the	Company	has	exposure	to	claims	asserted	for	bodily	injury	as	a	result	of	long-term	or	continuous exposure	to	harmful	products	or	substances.	Examples	include,	but	are	not	limited	to,	pharmaceutical	products,	latex	gloves,	silica	and	lead	paint.	The	Company	also	has exposure	to	claims	from	construction	defects,	where	property	damage	or	bodily	injury	from	negligent	construction	is	alleged.	The	Company	also	has	exposure	to	claims asserted	against	religious	institutions	and	other	organizations	relating	to	molestation	or	abuse.	Such	exposures	may	involve	potentially	long	latency	periods	and	may implicate	coverage	in	multiple	policy	periods.	These	factors	make	reserves	for	such	claims	more	uncertain	than	other	bodily	injury	or	property	damage	claims.	With	regard to	these	exposures,	the	Company	is	monitoring	trends	in	litigation,	the	external	environment,	the	similarities	to	other	mass	torts	and	the	potential	impact	on	the	Company's reserves.

In	Personal	Lines,	reserving	estimates	are	generally	less	variable	than	for	the	Company's	other	property	and	casualty	segments.	This	is	largely	due	to	the	coverages	having relatively	shorter	periods	of	loss	emergence.	Estimates,	however,	can	still	vary	due	to	a	number	of	factors,	including	interpretations	of	frequency	and	severity	trends	and their	impact	on	recorded	reserve	levels.	Severity	trends	can	be	impacted	by	changes	in	internal	claim	handling	and	reserving	practices	in	addition	to	changes	in	the	external environment.	These	changes	in	claim	practices	increase	the	uncertainty	in	the	interpretation	of	case	reserve	data,	which	increases	the	uncertainty	in	recorded	reserve	levels.

In	Business	Insurance,	workers'	compensation	is	the	Company's	single	biggest	line	of	business	and	the	line	of	business	with	the	longest	pattern	of	loss	emergence.	Reserve estimates	for	workers'	compensation	are	particularly	sensitive	to	assumptions	about	medical	inflation,	which	has	been	increasing	steadily	over	the	past	few	years.	In addition,	changes	in	state	legislative	and	regulatory	environments	impact	the	Company's	estimates.	In	particular,	the	California	environment	has	been	very	volatile,	in	part due	to	reforms	intended	to	reduce	loss	costs.	It	is	still	uncertain	how	these	reforms	will	ultimately	impact	the	timing	of	future	payments	and	the	needed	amount	of	reserves.

In	the	Specialty	Commercial	segment,	many	lines	of	insurance,	such	as	excess	insurance	and	deductible	workers'	compensation	insurance	are	"long-tail"	lines	of	insurance. For	long-tail	lines,	the	period	of	time	between	the	incidence	of	the	insured	loss	and	either	the	reporting	of	the	claim	to	the	insurer,	the	settlement	of	the	claim,	or	the payment	of	the	claim	can	be	substantial,	and	in	some	cases,	several	years.	As	a	result	of	this	extended	period	of	time	for	losses	to	emerge,	reserve	estimates	for	these	lines are	more	uncertain	(i.e.	more	variable)	than	reserve	estimates	for	shorter-tail	lines	of	insurance.	Estimating	required	reserve	levels	for	deductible	workers'	compensation insurance	is	further	complicated	by	the	uncertainty	of	whether	losses	that	are	attributable	to	the	deductible	amount	can	be	paid	by	the	insured;	if	such	losses	are	not	paid	by the	insured	due	to	financial	difficulties,	the	Company	would	be	contractually	liable.	Another	example	of	reserve	variability	relates	to	reserves	for	directors	and	officers insurance.	There	is	uncertainty	in	the	required	level	of	reserves	due	to	the	impact	of	recent	allegations	within	the	financial	services	industry,	including	those	in	the	mutual fund,	investment	banking	and	insurance	industries,	as	well	as	due	to	various	highly-publicized	bankruptcies.

# Impact	of	changes	in	key	assumptions	on	reserve	volatility

As	stated	above,	the	Company's	practice	is	to	estimate	reserves	using	a	variety	of	methods,	assumptions	and	data	elements.	Within	its	reserve	estimation	process	for reserves	other	than	asbestos	and	environmental,	the	Company	does	not	derive	statistical	loss	distributions	or	confidence	levels	around	its	reserve	estimate	and,	as	a	result, do	not	have	reserve	range	estimates	to	disclose.

The	reserve	estimation	process	includes	explicit	assumptions	about	a	number	of	factors	in	the	internal	and	external	environment.	Across	most	lines	of	business,	the	most important	assumptions	are	future	loss	development	factors	applied	to	paid	or	reported	losses	to	date.	For	most	lines,	the	reported	loss	development	factor	is	most	important. In	workers'	compensation,	paid	loss	development	factors	are	also	important.	The	trend	in	loss	costs	is	also	a	key	assumption,	particularly	in	the	most	recent	accident	years, where	loss	development	factors	are	less	credible.

The	following	discussion	includes	disclosure	of	possible	variation	from	current	estimates	of	loss	reserves	due	to	a	change	in	certain	key	assumptions.	Each	of	the	impacts described	below	is	estimated	individually,	without	consideration	for	any	correlation	among	key	assumptions	or	among	lines	of	business.	Therefore,	it	would	be inappropriate	to	take	each	of	the	amounts	described	below	and	add	them	together	in	an	attempt	to	estimate	volatility	for	the	Company's	reserves	in	total.	The	estimated variation	in	reserves	due	to	changes	in	key	assumptions	is	a	reasonable	estimate	of	possible	variation	that	may	occur	in	the	future,	likely	over	a	period	of	several	calendar years.	It	is	important	to	note	that	the	variation	discussed	is	not	meant	to	be	a	worst-case	scenario,	and	therefore,	it	is	possible	that	future	variation	may	be	more	than amounts	discussed	below.

Recorded	reserves	for	workers'	compensation,	net	of	reinsurance,	are	$4.3	billion,	across	Business	Insurance	and	Specialty	Commercial.	The	two	most	important assumptions	for	workers'	compensation	reserves	are	loss	development	factors	and	loss	cost	trends,	particularly	medical	cost	inflation.	The	Company	has	reviewed	the historical	variation	in	paid	loss	development	patterns.	If	the	paid	loss	development	patterns	change	by	3%,	a	change	that	is	within	historical	variation,	the	estimated	reserve need	would	change	by	$300,	in	either	direction.	Approximately	half	of	the	workers'	compensation	net	reserves	are	related	to	future	medical	costs.	A	review	of	National Council	on	Compensation	Insurance	("NCCI")	data	suggests	that	the	annual	growth	in	industry	medical	claim	costs	has	varied	from	-2%	to	+12%	since	1991.	Across	the entire	reserve	base,	a	1	point	change	in	calendar	year	medical	inflation	would	change	the	estimated	net	reserve	by	$350,	in	either	direction.	A	change	in	calendar	year medical	inflation	will	impact	paid	loss	development	patterns,	so	the	individual	variation	amounts	shown	above	for	a	3%	change	in	paid	loss	development	patterns	and	a	1 point	change	in	medical	inflation	should	not	be	added	together	to	determine	the	combined	impact	of	both	changes.

Recorded	reserves	for	auto	liability,	net	of	reinsurance,	are	$2.1	billion	across	all	lines,	$1.5	billion	of	which	is	in	Personal	Lines.	Personal	auto	liability	reserves	are shorter-tailed	than	other	lines	of	business	(such	as	workers'	compensation)	and,	therefore,	less	volatile.	However,	the	size	of	the	reserve	base	means	that	future	changes	in estimate	could	be	material	to	the	Company's	results	of	operations	in	any	given	period.	The	key	assumption	for	Personal	Lines	auto	liability	is	the	annual	loss	cost	trend, particularly	the	severity	trend	component	of	loss	costs.	A	review	of	Insurance	Services	Office	("ISO")	data	suggests	that	annual	growth	in	industry	severity	since	1999	has varied	from	+1%	to	+6%.	A	2.5	point	change	in	assumed	annual	severity	for	the	two	most	recent	accident	years	would	change	the	estimated	net	reserve	need	by	$60,	in either	direction.

Recorded	reserves	for	general	liability,	net	of	reinsurance,	are	$1.8	billion	across	Business	Insurance	and	Specialty	Commercial.	Reported	loss	development	patterns	are	a key	assumption	for	this	line	of	business,	particularly	for	more	mature	accident	years.	Historically,	assumptions	on	reported	loss	development	patterns	have	been	impacted by,	among	other	things,	emergence	of	new	types	of	claims	(e.g.	construction	defect	claims)	or	a	shift	in	the	mixture	between	smaller,	more	routine	claims	and	larger,	more complex	claims.	The	Company	has	reviewed	the	historical	variation	in	reported	loss	development	patterns.	If	the	reported	loss	development	patterns	change	by	7%,	a change	that	is	within	historical	variation,	the	estimated	net	reserve	need	would	change	by	$200,	in	either	direction.

Similar	to	general	liability,	HartRe	assumed	casualty	reinsurance	is	affected	by	reported	loss	development	pattern	assumptions.	In	addition	to	the	items	identified	above	that would	affect	both	direct	and	reinsurance	liability	claim	development	patterns,	there	is	also	an	impact	to	assumed	reporting	patterns	for	any	changes	in	claim	notification from	ceding	companies	to	the	reinsurer.	Recorded	net	reserves	for	HartRe	assumed	reinsurance	business,	excluding	asbestos	and	environmental	liabilities,	within	Other Operations	were	$1.3	billion	as	of	December	31,	2004.	If	the	development	patterns	underlying	the	Company's	net	reserves	for	HartRe	assumed	casualty	reinsurance	are incorrect	by	10	points,	the	estimated	net	reserve	need	would	change	by	$270,	in	either	direction.

# Reserving	for	Asbestos	and	Environmental	Claims	within	Other	Operations

# How	A&E	reserves	are	set

The	Hartford	continues	to	receive	claims	that	assert	damages	from	asbestos-related	and	environmental-related	exposures.	Asbestos	claims	relate	primarily	to	bodily	injuries asserted	by	those	who	came	in	contact	with	asbestos	or	products	containing	asbestos.	Environmental	claims	relate	primarily	to	pollution	and	related	clean-up	costs.

The	Hartford	wrote	several	different	categories	of	insurance	coverage	to	which	asbestos	and	environmental	claims	may	apply.	First,	The	Hartford	wrote	primary	policies providing	the	first	layer	of	coverage	in	an	insured's	liability	program.	Second,	The	Hartford	wrote	excess	policies	providing	higher	layers	of	coverage	for	losses	that exhaust	the	limits	of	underlying	coverage.	Third,	The	Hartford	acted	as	a	reinsurer	assuming	a	portion	of	risks	previously	assumed	by	other	insurers	writing	primary,	excess and	reinsurance	coverages.	Fourth,	The	Hartford	participated	in	the	London	Market,	writing	both	direct	insurance	and	assumed	reinsurance	business.

In	establishing	reserves	for	asbestos	claims,	The	Hartford	evaluates	each	insured's	estimated	liability	for	such	claims	using	a	ground-up	approach.	The	Hartford	considers	a variety	of	factors,	including	the	jurisdictions	where	underlying	claims	have	been	brought,	past,

pending	and	anticipated	future	claim	activity,	disease	mix,	past	settlement	values	of	similar	claims,	dismissal	rates,	allocated	claim	adjustment	expense,	and	potential bankruptcy	impact.

Similarly,	a	ground-up	exposure	review	approach	is	used	to	establish	environmental	reserves.	The	Hartford's	evaluation	of	each	insured's	estimated	liability	for environmental	claims	involves	consideration	of	several	factors,	including	historical	values	of	similar	claims,	the	number	of	sites	involved,	the	insured's	alleged	activities	at each	site,	the	alleged	environmental	damage	at	each	site,	the	respective	shares	of	liability	of	potentially	responsible	parties	at	each	site,	the	appropriateness	and	cost	of remediation	at	each	site,	the	nature	of	governmental	enforcement	activities	at	each	site,	and	potential	bankruptcy	impact.

Having	evaluated	the	insured's	probable	liability	for	asbestos	and/or	environmental	claims,	The	Hartford	then	evaluates	each	insured's	insurance	coverage	program	for	such claims.	The	Hartford	considers	each	insured's	total	available	insurance	coverage,	including	the	coverage	issued	by	The	Hartford.	The	Hartford	also	considers	relevant judicial	interpretations	of	policy	language	and	applicable	coverage	defenses	or	determinations,	if	any.

Evaluation	of	both	the	insured's	estimated	liability	and	The	Hartford's	exposure	to	the	insured	depends	heavily	on	an	analysis	of	the	relevant	legal	issues	and	litigation environment.	This	analysis	is	conducted	by	the	Company's	lawyers	and	is	subject	to	applicable	privileges.

For	both	asbestos	and	environmental	reserves,	The	Hartford	also	compares	its	historical	direct	net	loss	and	expense	paid	and	incurred	experience,	and	net	loss	and	expense paid	and	incurred	experience	year	by	year,	to	assess	any	emerging	trends,	fluctuations	or	characteristics	suggested	by	the	aggregate	paid	and	incurred	activity.

Once	the	gross	ultimate	exposure	for	indemnity	and	allocated	claim	adjustment	expense	is	determined	for	each	insured	by	each	policy	year,	The	Hartford	calculates	its ceded	reinsurance	projection	based	on	any	applicable	facultative	and	treaty	reinsurance	and	the	Company's	experience	with	reinsurance	collections.

# Uncertainties	Regarding	Adequacy	of	Asbestos	and	Environmental	Reserves

With	regard	to	both	environmental	and	particularly	asbestos	claims,	significant	uncertainty	limits	the	ability	of	insurers	and	reinsurers	to	estimate	the	ultimate	reserves necessary	for	unpaid	losses	and	related	expenses.	Traditional	actuarial	reserving	techniques	cannot	reasonably	estimate	the	ultimate	cost	of	these	claims,	particularly	during periods	where	theories	of	law	are	in	flux.	The	degree	of	variability	of	reserve	estimates	for	these	exposures	is	significantly	greater	than	for	other	more	traditional	exposures. In	particular,	The	Hartford	believes	there	is	a	high	degree	of	uncertainty	inherent	in	the	estimation	of	asbestos	loss	reserves.

In	the	case	of	the	reserves	for	asbestos	exposures,	factors	contributing	to	the	high	degree	of	uncertainty	include	inadequate	loss	development	patterns,	plaintiffs'	expanding theories	of	liability,	the	risks	inherent	in	major	litigation,	and	inconsistent	emerging	legal	doctrines.	Furthermore,	over	time,	insurers,	including	The	Hartford,	have experienced	significant	changes	in	the	rate	at	which	asbestos	claims	are	brought,	the	claims	experience	of	particular	insureds,	and	the	value	of	claims,	making	predictions	of future	exposure	from	past	experience	uncertain.	For	example,	in	the	past	few	years,	insurers	in	general,	including	The	Hartford,	have	experienced	an	increase	in	the	number of	asbestos-related	claims	due	to,	among	other	things,	plaintiffs'	increased	focus	on	new	and	previously	peripheral	defendants,	and	an	increase	in	the	number	of	insureds seeking	bankruptcy	protection	as	a	result	of	asbestos-related	liabilities.	Plaintiffs	and	insureds	have	sought	to	use	bankruptcy	proceedings,	including	"pre-packaged" bankruptcies,	to	accelerate	and	increase	loss	payments	by	insurers.	In	addition,	some	policyholders	have	asserted	new	classes	of	claims	for	so-called	"non-products" coverages	to	which	an	aggregate	limit	of	liability	may	not	apply.	Further	uncertainties	include	insolvencies	of	other	carriers	and	unanticipated	developments	pertaining	to The	Hartford's	ability	to	recover	reinsurance	for	asbestos	and	environmental	claims.	Management	believes	these	issues	are	not	likely	to	be	resolved	in	the	near	future.

In	the	case	of	the	reserves	for	environmental	exposures,	factors	contributing	to	the	high	degree	of	uncertainty	include	expanding	theories	of	liabilities	and	damages;	the risks	inherent	in	major	litigation;	inconsistent	decisions	concerning	the	existence	and	scope	of	coverage	for	environmental	claims;	and	uncertainty	as	to	the	monetary amount	being	sought	by	the	claimant	from	the	insured.

It	is	also	not	possible	to	predict	changes	in	the	legal	and	legislative	environment	and	their	impact	on	the	future	development	of	asbestos	and	environmental	claims.	It	is unknown	whether	potential	Federal	asbestos-related	legislation	will	be	enacted,	and	if	so,	what	its	effect	will	be	on	The	Hartford's	aggregate	asbestos	liabilities.

The	reporting	pattern	for	assumed	reinsurance	claims	is	much	longer	than	for	direct	claims.	In	many	instances,	it	takes	months	or	years	to	determine	that	the	policyholder's own	obligations	have	been	met	and	how	the	reinsurance	in	question	may	apply	to	such	claims.	The	delay	in	reporting	reinsurance	claims	and	exposures	adds	to	the uncertainty	of	estimating	the	related	reserves.

Given	the	factors	and	emerging	trends	described	above,	The	Hartford	believes	the	actuarial	tools	and	other	techniques	it	employs	to	estimate	the	ultimate	cost	of	claims	for more	traditional	kinds	of	insurance	exposure	are	less	precise	in	estimating	reserves	for	its	asbestos	and	environmental	exposures.	For	this	reason,	The	Hartford	relies	on	an exposure-based	analysis	to	estimate	the	ultimate	costs	of	these	claims	and	regularly	evaluates	new	information	in	assessing	its	potential	asbestos	and	environmental exposures.

The	variability	of	estimates	for	asbestos	and	environmental	reserves	is	affected	by	a	number	of	factors	including	assumptions	with	respect	to	the	frequency	of	claims,	the average	severity	of	those	claims	settled	with	payment,	the	dismissal	rate	of	claims	with	no	payment	and	the	expense	to	indemnity	ratio.	The	uncertainty	with	respect	to	the underlying	reserve	assumptions	for	asbestos	and

environmental	adds	a	greater	degree	of	variability	and	risk	to	these	reserve	estimates	than	reserve	estimates	for	more	traditional	exposures.	While	this	variability	is reflected	in	part	in	the	size	of	the	range	of	reserves	developed	by	the	Company,	that	range	may	still	not	be	indicative	of	the	potential	variance	between	the	ultimate	outcome and	the	recorded	reserves.	The	recorded	net	reserves	as	of	December	31,	2004	of	$2.9	billion	($2.5	billion	and	$394	for	asbestos	and	environmental,	respectively)	is	within an	estimated	range,	unadjusted	for	covariance,	of	$2.4	billion	to	$3.4	billion.	The	process	of	estimating	asbestos	and	environmental	reserves	remains	subject	to	a	wide variety	of	uncertainties,	which	are	detailed	in	Note	12	of	Notes	to	Consolidated	Financial	Statements.	Due	to	these	uncertainties,	further	developments	could	cause	The Hartford	to	change	its	estimates	and	ranges	of	its	asbestos	and	environmental	reserves,	and	the	effect	of	these	changes	could	be	material	to	the	Company's	consolidated operating	results,	financial	condition	and	liquidity.

In	the	opinion	of	management,	based	upon	the	known	facts	and	current	law,	the	reserves	recorded	for	The	Hartford's	property	and	casualty	businesses	at	December	31, 2004	represent	the	Company's	best	estimate	of	its	ultimate	liability	for	claims	and	claim	adjustment	expenses	related	to	losses	covered	by	policies	written	by	the	Company. However,	because	of	the	significant	uncertainties	surrounding	environmental,	and	particularly	asbestos	exposures,	it	is	possible	that	management's	estimate	of	the	ultimate liabilities	for	these	claims	may	change	and	that	the	required	adjustment	to	recorded	reserves	could	exceed	the	currently	recorded	reserves	by	an	amount	that	could	be material	to	The	Hartford's	results	of	operations,	financial	condition	and	liquidity.

# Valuation	of	Investments	and	Derivative	Instruments	and	Evaluation	of	Other-Than-Temporary	Impairments

The	Hartford's	investments	in	fixed	maturities,	which	include	bonds,	redeemable	preferred	stock	and	commercial	paper;	and	certain	equity	securities,	which	include common	and	non-redeemable	preferred	stocks,	are	classified	as	"available-for-sale"	as	defined	in	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	115, "Accounting	for	Certain	Investments	in	Debt	and	Equity	Securities"	("SFAS	No.	115").	Accordingly,	these	securities	are	carried	at	fair	value	with	the	after-tax	difference from	amortized	cost,	as	adjusted	for	the	effect	of	deducting	the	life	and	pension	policyholders'	share	of	the	immediate	participation	guaranteed	contracts	and	certain	life	and annuity	deferred	policy	acquisition	costs,	reflected	in	stockholders'	equity	as	a	component	of	accumulated	other	comprehensive	income	("AOCI").	The	equity	investments associated	with	the	variable	annuity	products	offered	in	Japan	are	recorded	at	fair	value	and	are	classified	as	"trading"	as	defined	in	SFAS	No.	115,	with	changes	in	fair value	recorded	in	net	investment	income.	Policy	loans	are	carried	at	outstanding	balance,	which	approximates	fair	value.	Other	investments	primarily	consist	of	limited partnership	interests,	derivatives	and	mortgage	loans.	The	limited	partnerships	are	accounted	for	under	the	equity	method	and	accordingly	the	Company's	share	of partnership	earnings	are	included	in	net	investment	income.	Derivatives	are	carried	at	fair	value	and	mortgage	loans	on	real	estate	are	recorded	at	the	outstanding	principal balance	adjusted	for	amortization	of	premiums	or	discounts	and	net	of	valuation	allowances,	if	any.

# Valuation	of	Fixed	Maturities

The	fair	value	for	fixed	maturity	securities	is	largely	determined	by	one	of	three	primary	pricing	methods:	independent	third	party	pricing	service	market	quotations, independent	broker	quotations	or	pricing	matrices,	which	use	data	provided	by	external	sources.	With	the	exception	of	short-term	securities	for	which	amortized	cost	is predominantly	used	to	approximate	fair	value,	security	pricing	is	applied	using	a	hierarchy	or	"waterfall"	approach	whereby	prices	are	first	sought	from	independent	pricing services	with	the	remaining	unpriced	securities	submitted	to	brokers	for	prices	or	lastly	priced	via	a	pricing	matrix.

Prices	from	independent	pricing	services	are	often	unavailable	for	securities	that	are	rarely	traded	or	are	traded	only	in	privately	negotiated	transactions.	As	a	result,	certain of	the	Company's	asset-backed	and	commercial	mortgage-backed	securities	are	priced	via	broker	quotations.	A	pricing	matrix	is	used	to	price	securities	for	which	the Company	is	unable	to	obtain	either	a	price	from	an	independent	third	party	service	or	an	independent	broker	quotation.	The	pricing	matrix	begins	with	current	treasury rates	and	uses	credit	spreads	and	issuer-specific	yield	adjustments	received	from	an	independent	third	party	source	to	determine	the	market	price	for	the	security.	The	credit spreads	incorporate	the	issuer's	credit	rating	as	assigned	by	a	nationally	recognized	rating	agency	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	annually,	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	matrix-priced	securities	at	December	31,	2004	and	2003,	primarily consisted	of	non-144A	private	placements	and	have	an	average	duration	of	4.8	and	4.5,	respectively.

The	following	table	identifies	the	fair	value	of	fixed	maturity	securities	by	pricing	source	as	of	December	31,	2004	and	2003:

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
|  | Fair\tValue | Percentage\tof\nTotal\tFair\tValue | Fair\tValue | Percentage\tof\nTotal\tFair\tValue |
| Priced\tvia\tindependent\tmarket\tquotations | $62,568 | 83.3% | $60,584 | 83.0% |
| Priced\tvia\tbroker\tquotations | 4,233 | 5.6% | 4,113 | 5.6% |
| Priced\tvia\tmatrices | 4,847 | 6.5% | 4,253 | 5.8% |
| Priced\tvia\tother\tmethods | 52 | 0.1% | 337 | 0.5% |
| Short-term\tinvestments\t[1] | 3,400 | 4.5% | 3,711 | 5.1% |
| Total | $75,100 | 100.0% | $72,998 | 100.0% |
| Total\tgeneral\taccounts |  |  | $61,263 | 83.9% |
| Total\tguaranteed\tseparate\taccounts\t[2] |  |  | $11,735 | 16.1% |

[1]	Short-term	investments	are	primarily	valued	at	amortized	cost,	which	approximates	fair	value.

[2]	Effective	January	1,	2004,	guaranteed	separate	account	assets	were	included	with	general	account	assets	as	a	result	of	adopting	SOP	03-1.

The	fair	value	of	a	financial	instrument	is	the	amount	at	which	the	instrument	could	be	exchanged	in	a	current	transaction	between	knowledgeable,	unrelated	willing	parties.

As	such,	the	estimated	fair	value	of	a	financial	instrument	may	differ	significantly	from	the	amount	that	could	be	realized	if	the	security	was	sold	immediately.

# Valuation	of	Derivative	Instruments

Derivative	instruments	are	reported	at	fair	value	based	upon	either	independent	market	quotations	or	pricing	valuation	models	which	utilize	independent	third	party	data	as inputs.	Other	than	the	guaranteed	minimum	withdrawal	benefit	("GMWB")	and	the	associated	reinsurance	contracts,	which	are	discussed	below,	approximately	69%	of derivatives,	based	upon	notional	values,	were	priced	via	valuation	models	and	the	remaining	31%	of	derivatives	were	priced	via	independent	market	quotations.

# Other-Than-Temporary	Impairments

One	of	the	significant	estimations	inherent	in	the	valuation	of	investments	is	the	evaluation	of	other-than-temporary	impairments.	The	evaluation	of	impairments	is	a quantitative	and	qualitative	process,	which	is	subject	to	risks	and	uncertainties	and	is	intended	to	determine	whether	declines	in	the	fair	value	of	investments	should	be recognized	in	current	period	earnings.	The	risks	and	uncertainties	include	changes	in	general	economic	conditions,	the	issuer's	financial	condition	or	near	term	recovery prospects	and	the	effects	of	changes	in	interest	rates.	The	Company's	accounting	policy	requires	that	a	decline	in	the	value	of	a	security	below	its	amortized	cost	basis	be assessed	to	determine	if	the	decline	is	other-than-temporary.	If	the	security	is	deemed	to	be	other-than-temporarily	impaired,	a	charge	is	recorded	in	net	realized	capital losses	equal	to	the	difference	between	the	fair	value	and	amortized	cost	basis	of	the	security.	In	addition,	for	securities	expected	to	be	sold,	an	other-than-temporary impairment	charge	is	recognized	if	the	Company	does	not	expect	the	fair	value	of	a	security	to	recover	to	amortized	cost	prior	to	the	expected	date	of	sale.	The	fair	value	of the	other-than-temporarily	impaired	investment	becomes	its	new	cost	basis.	The	Company	has	a	security	monitoring	process	overseen	by	a	committee	of	investment	and accounting	professionals	("the	committee")	that	identifies	securities	that,	due	to	certain	characteristics,	as	described	below,	are	subjected	to	an	enhanced	analysis	on	a quarterly	basis.

Securities	not	subject	to	Emerging	Issues	Task	Force	("EITF")	Issue	No.	99-20,	"Recognition	of	Interest	Income	and	Impairment	on	Purchased	and	Retained	Beneficial Interests	in	Securitized	Financial	Assets"	("non-EITF	Issue	No.	99-20	securities"),	that	are	in	an	unrealized	loss	position,	are	reviewed	at	least	quarterly	to	determine	if	an other-than-temporary	impairment	is	present	based	on	certain	quantitative	and	qualitative	factors.	The	primary	factors	considered	in	evaluating	whether	a	decline	in	value	for non-EITF	Issue	No.	99-20	securities	is	other-than-temporary	include:	(a)	the	length	of	time	and	the	extent	to	which	the	fair	value	has	been	less	than	cost,	(b)	the	financial condition,	credit	rating	and	near-term	prospects	of	the	issuer,	(c)	whether	the	debtor	is	current	on	contractually	obligated	interest	and	principal	payments	and	(d)	the	intent and	ability	of	the	Company	to	retain	the	investment	for	a	period	of	time	sufficient	to	allow	for	recovery.	Non-EITF	Issue	No.	99-20	securities	depressed	by	twenty	percent	or more	for	six	months	are	presumed	to	be	other-than-temporarily	impaired	unless	significant	objective	verifiable	evidence	supports	that	the	security	price	is	temporarily depressed	and	is	expected	to	recover	within	a	reasonable	period	of	time.	The	evaluation	of	non-EITF	Issue	No.	99-20	securities	depressed	more	than	ten	percent	is documented	and	discussed	quarterly	by	the	committee.

For	certain	securitized	financial	assets	with	contractual	cash	flows	(including	asset-backed	securities),	EITF	Issue	No.	99-20	requires	the	Company	to	periodically	update its	best	estimate	of	cash	flows	over	the	life	of	the	security.	If	the	fair	value	of	a	securitized	financial	asset	is	less	than	its	carrying	amount	and	there	has	been	a	decrease	in the	present	value	of	the	estimated	cash	flows	since	the	last	revised	estimate,	considering	both	timing	and	amount,	then	an	other-than-temporary	impairment	charge	is recognized.	Estimating	future	cash	flows	is	a	quantitative	and	qualitative	process	that	incorporates	information	received	from	third	party	sources	along	with	certain	internal assumptions	and	judgments	regarding	the	future	performance	of	the	underlying	collateral.	As	a	result,	actual	results	may	differ	from	current	estimates.	In	addition, projections	of	expected	future	cash	flows	may	change	based	upon	new	information	regarding	the	performance	of	the	underlying	collateral.

Once	an	impairment	charge	has	been	recorded,	the	Company	continues	to	review	the	other-than-temporarily	impaired	securities	for	additional	other-than-temporary impairments.	As	discussed	in	Note	1	of	the	Notes	to	Consolidated	Financial	Statements,	the	Financial	Accounting	Standards	Board	("FASB")	voted	to	delay	the implementation	of	the	impairment	measurement	and	recognition	guidance	contained	in	paragraphs	10-20	of	EITF	Issue	No.	03-1,	"The	Meaning	of	Other-Than-Temporary Impairments	and	Its	Application	to	Certain	Investments"	("EITF	Issue	No.	03-1"),	in	order	to	redeliberate	certain	aspects	of	the	consensus.	The	ultimate	completion	of EITF	Issue	No.	03-1	may	impact	the	Company's	current	other-than-temporary	impairment	evaluation	process.

# Valuation	of	Guaranteed	Minimum	Withdrawal	Benefit	Derivatives

An	embedded	derivative	instrument	is	reported	at	fair	value	based	upon	internally	established	valuations	that	are	consistent	with	external	valuation	models,	quotations furnished	by	dealers	in	such	instruments	or	market	quotations.	The	Company	has	calculated	the	fair	value	of	the	guaranteed	minimum	withdrawal	benefit	("GMWB") embedded	derivative	based	on	actuarial	assumptions	related	to	the	projected	cash	flows,	including	benefits	and	related	contract	charges,	over	the	lives	of	the	contracts, incorporating	expectations	concerning	policyholder	behavior.	Because	of	the	dynamic	and	complex	nature	of	these	cash	flows,	stochastic	techniques	under	a	variety	of market	return	scenarios	and	other	best	estimate	assumptions	are	used.	Estimating	these	cash	flows	involves	numerous	estimates	and	subjective	judgments	including	those regarding	expected	market	rates	of	return,	market	volatility,	correlations	of	market	returns	and	discount	rates.	At	each	valuation	date,	the	Company	assumes	expected returns	based	on	risk-free	rates	as	represented	by	the	current	LIBOR	forward	curve	rates;	market	volatility	assumptions	for	each	underlying	index	based	on	a	blend	of observed	market

"implied	volatility"	data	and	annualized	standard	deviations	of	monthly	returns	using	the	most	recent	20	years	of	observed	market	performance;	correlations	of	market returns	across	underlying	indices	based	on	actual	observed	market	returns	and	relationships	over	the	ten	years	preceding	the	valuation	date;	and	current	risk-free	spot	rates as	represented	by	the	current	LIBOR	spot	curve	to	determine	the	present	value	of	expected	future	cash	flows	produced	in	the	stochastic	projection	process.

# Life	Deferred	Policy	Acquisition	Costs	and	Present	Value	of	Future	Profits

Policy	acquisition	costs	include	commissions	and	certain	other	expenses	that	vary	with	and	are	primarily	associated	with	acquiring	business.	Present	value	of	future	profits is	an	intangible	asset	recorded	upon	applying	purchase	accounting	in	an	acquisition	of	a	life	insurance	company.	Deferred	policy	acquisition	costs	and	the	present	value	of future	profits	intangible	asset	are	amortized	in	the	same	way.	Both	are	amortized	over	the	estimated	life	of	the	contracts	acquired,	usually	20	years.	Within	the	following discussion,	deferred	policy	acquisition	costs	and	the	present	value	of	future	profits	intangible	asset	will	be	referred	to	as	"DAC".	At	December	31,	2004	and	2003,	the carrying	value	of	Life's	DAC	was	$7.4	billion	and	$6.6	billion,	respectively.	For	statutory	accounting	purposes,	such	costs	are	expensed	as	incurred.

DAC	related	to	traditional	policies	are	amortized	over	the	premium-paying	period	in	proportion	to	the	present	value	of	annual	expected	premium	income.	DAC	related	to investment	contracts	and	universal	life-type	contracts	are	deferred	and	amortized	using	the	retrospective	deposit	method.	Under	the	retrospective	deposit	method, acquisition	costs	are	amortized	in	proportion	to	the	present	value	of	estimated	gross	profits	("EGPs"),	arising	principally	from	projected	investment,	mortality	and	expense margins	and	surrender	charges.	The	attributable	portion	of	the	DAC	amortization	is	allocated	to	realized	gains	and	losses	on	investments.	The	DAC	balance	is	also	adjusted through	other	comprehensive	income	by	an	amount	that	represents	the	amortization	of	deferred	policy	acquisition	costs	that	would	have	been	required	as	a	charge	or	credit to	operations	had	unrealized	gains	and	losses	on	investments	been	realized.	Actual	gross	profits	can	vary	from	management's	estimates,	resulting	in	increases	or	decreases in	the	rate	of	amortization.

Life	regularly	evaluates	its	EGPs	to	determine	if	actual	experience	or	other	evidence	suggests	that	earlier	estimates	should	be	revised.	In	the	event	that	Life	were	to	revise its	EGPs,	the	cumulative	DAC	amortization	would	be	adjusted	to	reflect	such	revised	EGPs	in	the	period	the	revision	was	determined	to	be	necessary.	Several	assumptions considered	to	be	significant	in	the	development	of	EGPs	include	separate	account	fund	performance,	surrender	and	lapse	rates,	estimated	interest	spread	and	estimated mortality.	The	separate	account	fund	performance	assumption	is	critical	to	the	development	of	the	EGPs	related	to	Life's	variable	annuity	and	to	a	lesser	extent,	variable universal	life	insurance	businesses.	The	average	annual	long-term	rate	of	assumed	separate	account	fund	performance	(before	mortality	and	expense	charges)	used	in estimating	gross	profits	for	the	variable	annuity	and	variable	universal	life	business	was	9%	for	the	years	ended	December	31,	2004	and	2003.	For	other	products	including fixed	annuities	and	other	universal	life-type	contracts,	the	average	assumed	investment	yield	ranged	from	5.7%	to	7.9%	for	both	years	ended	December	31,	2004	and	2003.

Life	had	developed	models	to	evaluate	its	DAC	asset,	which	allowed	it	to	run	a	large	number	of	stochastically	determined	scenarios	of	separate	account	fund	performance. These	scenarios	were	then	utilized	to	calculate	a	statistically	significant	range	of	reasonable	estimates	of	EGPs.	This	range	was	then	compared	to	the	present	value	of	EGPs currently	utilized	in	the	DAC	amortization	model.	As	of	December	31,	2004,	the	present	value	of	the	EGPs	utilized	in	the	DAC	amortization	model	fall	within	a	reasonable range	of	statistically	calculated	present	value	of	EGPs.	As	a	result,	Life	does	not	believe	there	is	sufficient	evidence	to	suggest	that	a	revision	to	the	EGPs	(and	therefore,	a revision	to	the	DAC)	as	of	December	31,	2004	is	necessary;	however,	if	in	the	future	the	EGPs	utilized	in	the	DAC	amortization	model	were	to	fall	outside	of	the	margin	of the	reasonable	range	of	statistically	calculated	EGPs,	a	revision	could	be	necessary.	Furthermore,	Life	has	estimated	that	the	present	value	of	the	EGPs	is	likely	to	remain within	a	reasonable	range	if	overall	separate	account	returns	decline	by	25%	or	less	over	the	next	twelve	months,	and	if	certain	other	assumptions	that	are	implicit	in	the computations	of	the	EGPs	are	achieved.

Additionally,	Life	continues	to	perform	analyses	with	respect	to	the	potential	impact	of	a	revision	to	future	EGPs.	If	such	a	revision	to	EGPs	were	deemed	necessary,	Life would	adjust,	as	appropriate,	all	of	its	assumptions	for	products	accounted	for	in	accordance	with	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	97, "Accounting	and	Reporting	by	Insurance	Enterprises	for	Certain	Long-Duration	Contracts	and	for	Realized	Gains	and	Losses	from	the	Sale	of	Investments",	and	reproject its	future	EGPs	based	on	current	account	values	at	the	end	of	the	quarter	in	which	a	revision	is	deemed	to	be	necessary.	To	illustrate	the	effects	of	this	process,	assume	Life had	concluded	that	a	revision	of	Life's	EGPs	was	required	at	December	31,	2004.	If	Life	assumed	a	9%	average	long-term	rate	of	growth	from	December	31,	2004	forward along	with	other	appropriate	assumption	changes	in	determining	the	revised	EGPs,	Life	estimates	the	cumulative	decrease	to	amortization	would	be	approximately	$60-$65, after-tax.	If	instead	Life	were	to	assume	a	long-term	growth	rate	of	8%	in	determining	the	revised	EGPs,	the	adjustment	would	be	approximately	$20-$25,	after-tax.	Any such	adjustment	would	not	affect	statutory	income	or	surplus,	due	to	the	prescribed	accounting	for	such	amounts	that	is	discussed	above.

Aside	from	absolute	levels	and	timing	of	market	performance	assumptions,	additional	factors	that	will	influence	this	determination	include	the	degree	of	volatility	in separate	account	fund	performance	and	shifts	in	asset	allocation	within	the	separate	account	made	by	policyholders.	The	overall	return	generated	by	the	separate	account	is dependent	on	several	factors,	including	the	relative	mix	of	the	underlying	sub-accounts	among	bond	funds	and	equity	funds	as	well	as	equity	sector	weightings.	Life's overall	separate	account	fund	performance	has	been	reasonably	correlated	to	the	overall	performance	of	the	S&P	500	Index	(which	closed	at	1,212	on	December	31,	2004), although	no	assurance	can	be	provided	that	this	correlation	will	continue	in	the	future.

The	overall	recoverability	of	the	DAC	asset	is	dependent	on	the	future	profitability	of	the	business.	Life	tests	the	aggregate	recoverability	of	the	DAC	asset	by	comparing the	amounts	deferred	to	the	present	value	of	total	EGPs.	In	addition,	Life	routinely

stress	tests	its	DAC	asset	for	recoverability	against	severe	declines	in	its	separate	account	assets,	which	could	occur	if	the	equity	markets	experienced	another	significant sell-off,	as	the	majority	of	policyholders'	funds	in	the	separate	accounts	is	invested	in	the	equity	market.	As	of	December	31,	2004,	Life	believed	variable	annuity	separate account	assets	could	fall	by	at	least	45%	before	portions	of	its	DAC	asset	would	be	unrecoverable.

# Pension	and	Other	Postretirement	Benefit	Obligations

Pursuant	to	accounting	principles	related	to	the	Company's	pension	and	other	postretirement	benefit	obligations	to	employees	under	its	various	benefit	plans,	the	Company is	required	to	make	a	significant	number	of	assumptions	in	order	to	estimate	the	related	liabilities	and	expenses	each	period.	The	two	economic	assumptions	that	have	the most	impact	on	pension	expense	are	the	discount	rate	and	the	expected	long-term	rate	of	return	on	plan	assets.	In	determining	the	discount	rate	assumption,	the	Company utilizes	current	market	information	provided	by	its	plan	actuaries,	including	a	discounted	cash	flow	analysis	of	the	Company's	pension	obligation	and	general	movements	in the	current	market	environment.	In	particular,	the	Company	uses	an	interest	rate	yield	curve	developed	by	its	plan	actuaries.	The	yield	curve	is	comprised	of	bonds	rated AA	or	higher	with	maturities	primarily	between	zero	and	thirty	years.	Based	on	all	available	information,	it	was	determined	that	5.75%	was	the	appropriate	discount	rate	as of	December	31,	2004	to	calculate	the	Company's	accrued	benefit	liability.	Accordingly,	the	5.75%	discount	rate	will	also	be	used	to	determine	the	Company's	2005 pension	expense.	At	December	31,	2003,	the	discount	rate	was	6.25%.

The	Company	determines	the	long-term	rate	of	return	assumption	for	the	pension	plan's	asset	portfolio	based	on	analysis	of	the	portfolio's	historical	rates	of	return	balanced with	future	long-term	return	expectations.	Based	on	its	long-term	outlook	with	respect	to	the	markets,	the	Company	maintained	its	long-term	rate	of	return	assumption	at 8.50%	as	of	December	31,	2004.

To	illustrate	the	impact	of	these	assumptions	on	annual	pension	expense	for	2005	and	going	forward,	a	25	basis	point	change	in	the	discount	rate	will	increase/decrease pension	expense	by	approximately	$13	and	a	25	basis	point	change	in	the	long-term	asset	return	assumption	will	increase/decrease	pension	expense	by	approximately	$6.

# Contingencies

Management	follows	the	requirements	of	SFAS	No.	5	"Accounting	for	Contingencies".	This	statement	requires	management	to	evaluate	each	contingent	matter	separately. A	loss	is	recorded	if	estimable	and	probable.	Management	establishes	reserves	for	these	contingencies	at	its	"best	estimate",	or,	if	no	one	number	within	the	range	of possible	losses	is	more	probable	than	any	other,	the	Company	records	an	estimated	reserve	at	the	low	end	of	the	range	of	losses.	The	majority	of	contingencies	currently being	evaluated	by	the	Company	relate	to	litigation	matters,	which	are	inherently	difficult	to	evaluate	and	subject	to	significant	changes.

# CONSOLIDATED	RESULTS	OF	OPERATIONS

| Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Earned\tpremiums | $13,566 | $11,891 | $10,811 |
| Fee\tincome | 3,252 | 2,760 | 2,577 |
| Net\tinvestment\tincome | 5,162 | 3,233 | 2,929 |
| Other\trevenues | 437 | 556 | 476 |
| Net\trealized\tcapital\tgains\t(losses) | 276 | 293 | (376) |
| Total\trevenues | 22,693 | 18,733 | 16,417 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 13,640 | 13,548 | 10,034 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 2,828 | 2,411 | 2,241 |
| Insurance\toperating\tcosts\tand\texpenses | 2,776 | 2,314 | 2,220 |
| Interest\texpense | 251 | 271 | 265 |
| Other\texpenses | 675 | 739 | 589 |
| Total\tbenefits,\tclaims\tand\texpenses | 20,170 | 19,283 | 15,349 |
| Income\t(loss)\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 2,523 | (550) | 1,068 |
| Income\ttax\texpense\t(benefit) | 385 | (459) | 68 |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchange | 2,138 | (91) | 1,000 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax\t[1] | (23) | — | — |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |
| Net\tIncome\t(Loss)\tby\tOperation\tand\tLife\tSegment |  |  |  |
| Life |  |  |  |
| Retail\tProducts\tGroup | $526 | $430 | $356 |
| Institutional\tSolutions\tGroup | 124 | 83 | 108 |
| Individual\tLife | 153 | 145 | 133 |
| Group\tBenefits | 229 | 148 | 128 |
| Other\t[1] | 350 | 39 | (95) |
| Total\tLife | 1,382 | 845 | 630 |
| Total\tProperty\t&amp;\tCasualty\t[1] | 910 | (745) | 543 |
| Corporate | (177) | (191) | (173) |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |

[1]	For	the	year	ended	December	31,	2004,	Life	includes	a	$190	tax	benefit	recorded	in	its	Other	category	and	Property	&	Casualty	includes	a	$26	tax	benefit,	which relate	to	agreement	with	the	IRS	on	the	resolution	of	matters	pertaining	to	tax	years	prior	to	2004.	For	further	discussion	of	this	benefit,	see	Note	12	of	Notes	to Consolidated	Financial	Statements.

| Business	Insurance | $360 | $158 | $94 |
| :--- | :--- | :--- | :--- |
| Personal\tLines | 138 | 130 | (31) |
| Specialty\tCommercial | (53) | 10 | 6 |
| Other\tOperations\t[1] | (448) | (2,840) | (220) |

[1]	Includes	$2,604	of	before-tax	net	asbestos	reserve	strengthening	in	2003.

# Operating	Results

2004	Compared	to	2003	-	Net	income	for	the	year	ended	December	31,	2004	increased	$2.2	billion,	compared	to	the	prior	year	which	reflected	a	$1.7	billion	after-tax charge	to	strengthen	net	asbestos	reserves	based	on	a	ground	up	study.	Also	contributing	to	the	increase	was	a	$216	tax	benefit,	of	which	$190	was	recorded	in	Life	and	$26 was	recorded	in	Property	&	Casualty,	primarily	consisting	of	the	benefit	related	to	the	separate	account	dividends-received	deduction	("DRD")	and	interest.	For	further discussion,	see	Note	12	of	Notes	to	Consolidated	Financial	Statements.	Also	contributing	to	the	change	in	net	income	was	growth	in	all	of	Life's	segments	and	improved underwriting	results	in	the	Business	Insurance	segment.	Offsetting	these	increases	were	increased	Property	&	Casualty	catastrophe	losses,	primarily	related	to	hurricanes Charley,	Frances,	Ivan	and	Jeanne.

Revenues	for	the	year	ended	December	31,	2004	increased	$4.0	billion	over	the	comparable	2003	period.	The	primary	contributors	to	this	increase	were	higher	earned premiums	in	the	Group	Benefits,	Business	Insurance,	Personal	Lines	and	Specialty	Commercial	segments;	increased	fee	income	in	the	Retail	Products	Group	segment;	and an	increase	in	net	investment	income.	The	increase	in	earned	premiums	for	Group	Benefits	was	driven	by	primarily	the	CNA	acquisition,	sales	growth	and	favorable persistency.	The	increase	in	earned	premiums	in	the	Business	Insurance,	Personal	Lines	and	Specialty	Commercial	segments	was	due	to	earned	pricing	increases	and growth	in	new	business	premiums	out	pacing	non-renewals	for	Personal	Lines	and	Business	Insurance.	The	increase	in

fee	income	for	Retail	Products	resulted	from	an	increase	in	variable	annuity	average	account	values.	The	increase	in	net	investment	income	was	due	primarily	to	the adoption	of	Statement	of	Position	03-1,	"Accounting	and	Reporting	by	Insurance	Enterprises	for	Certain	Nontraditional	Long-Duration	Contracts	and	for	Separate Accounts"	("SOP	03-1"),	which	resulted	in	$1.6	billion	of	net	investment	income.

2003	Compared	to	2002	—	Revenues	for	the	year	ended	December	31,	2003	increased	$2.3	billion	over	the	comparable	2002	period.	Revenues	increased	due	to	earned premium	growth	within	the	Business	Insurance,	Specialty	Commercial	and	Personal	Lines	segments,	primarily	as	a	result	of	earned	pricing	increases,	higher	earned premiums	and	net	investment	income	in	the	Retail	Products	segment	and	net	realized	capital	gains	in	2003	as	compared	to	net	realized	capital	losses	in	2002.

Total	benefits,	claims	and	expenses	increased	$3.9	billion	for	the	year	ended	December	31,	2003	over	the	comparable	prior	year	period	primarily	due	to	the	Company's $2.6	billion	asbestos	reserve	strengthening	during	the	first	quarter	of	2003	and	due	to	increases	in	the	Retail	Products	segment	associated	with	the	growth	in	the	individual annuity	and	institutional	investments	businesses.

The	net	loss	for	the	year	ended	December	31,	2003	was	primarily	due	to	the	Company's	first	quarter	2003	asbestos	reserve	strengthening	of	$1.7	billion,	after-tax.	Included in	net	loss	for	the	year	ended	December	31,	2003	are	$40	of	after-tax	expense	related	to	the	settlement	of	litigation	with	Bancorp	Services,	LLC	("Bancorp")	and	$27	of severance	charges,	after-tax,	in	Property	&	Casualty.	Included	in	net	income	for	the	year	ended	December	31,	2002	are	the	$8	after-tax	benefit	recognized	by	Hartford	Life, Inc.	("HLI")	related	to	the	reduction	of	HLI's	reserves	associated	with	September	11	and	$11	of	after-tax	expense	related	to	litigation	with	Bancorp.

# Net	Realized	Capital	Gains	and	Losses

See	"Investment	Results"	in	the	Investments	section.

# Income	Taxes

The	effective	tax	rate	for	2004,	2003	and	2002	was	15%,	83%	and	6%,	respectively.	The	principal	causes	of	the	difference	between	the	effective	rates	and	the	U.S.	statutory rate	of	35%	were	tax-exempt	interest	earned	on	invested	assets,	the	dividends-received	deduction,	the	tax	benefit	associated	with	the	settlement	of	the	1998-2001	IRS	audit in	2004	and	the	tax	benefit	associated	with	the	settlement	of	the	1996-1997	IRS	audit	in	2002.	Income	taxes	paid	(received)	in	2004,	2003	and	2002	were	$32,	($107)	and ($102)	respectively.	For	additional	information,	see	Note	13	of	Notes	to	Consolidated	Financial	Statements.

# Per	Common	Share

The	following	table	represents	earnings	per	common	share	data	for	the	past	three	years:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Basic\tearnings\t(loss)\tper\tshare | $7.24 | $(0.33) | $4.01 |
| Diluted\tearnings\t(loss)\tper\tshare\t[1] | $7.12 | $(0.33) | $3.97 |
| Weighted\taverage\tcommon\tshares\toutstanding\t(basic) | 292.3 | 272.4 | 249.4 |
| Weighted\taverage\tcommon\tshares\toutstanding\tand\tdilutive\tpotential\tcommon\tshares\t(diluted)\t[1] | 297.0 | 272.4 | 251.8 |

[1]			As	a	result	of	the	net	loss	for	the	year	ended	December	31,	2003,	SFAS	No.	128,	"Earnings	Per	Share",	requires	the	Company	to	use	basic	weighted	average	common shares	outstanding	in	the	calculation	of	the	year	ended	December	31,	2003	diluted	earnings	(loss)	per	share,	since	the	inclusion	of	options	of	1.8	would	have	been antidilutive	to	the	earnings	per	share	calculation.	In	the	absence	of	the	net	loss,	weighted	average	common	shares	outstanding	and	dilutive	potential	common	shares would	have	totaled	274.2.

# Executive	Overview

The	Company	provides	investment	and	retirement	products	such	as	variable	and	fixed	annuities,	mutual	funds	and	retirement	plan	services	and	other	institutional	products; individual	and	corporate	owned	life	insurance;	and,	group	benefit	products,	such	as	group	life	and	group	disability	insurance.

The	Company	derives	its	revenues	principally	from:	(a)	fee	income,	including	asset	management	fees,	on	separate	account	and	mutual	fund	assets	and	mortality	and expense	fees,	as	well	as	cost	of	insurance	charges;	(b)	net	investment	income	on	general	account	assets;	(c)	fully	insured	premiums;	and	(d)	certain	other	fees.	Asset management	fees	and	mortality	and	expense	fees	are	primarily	generated	from	separate	account	assets,	which	are	deposited	with	the	Company	through	the	sale	of	variable annuity	and	variable	universal	life	products	and	from	mutual	funds.	Cost	of	insurance	charges	are	assessed	on	the	net	amount	at	risk	for	investment-oriented	life	insurance products.	Premium	revenues	are	derived	primarily	from	the	sale	of	group	life,	and	group	disability	and	individual	term	insurance	products.

The	Company's	expenses	essentially	consist	of	interest	credited	to	policyholders	on	general	account	liabilities,	insurance	benefits	provided,	amortization	of	the	deferred policy	acquisition	costs,	expenses	related	to	the	selling	and	servicing	the	various	products	offered	by	the	Company,	dividends	to	policyholders,	and	other	general	business expenses.

The	Company's	profitability	in	its	variable	annuity,	mutual	fund	and	to	a	lesser	extent,	variable	universal	life	businesses	depends	largely	on	the	amount	of	the	contract holder	account	value	or	assets	under	management	on	which	it	earns	fees	and	the	level	of	fees	charged.	Changes	in	account	value	or	assets	under	management	are	driven	by two	main	factors:	net	flows,	which	measure	the	success	of	the	Company's	asset	gathering	and	retention	efforts,	and	the	market	return	of	the	funds,	which	is	heavily influenced	by	the	return	on	the	equity	markets.	Net	flows	are	comprised	of	new	sales	and	other	deposits	less	surrenders,	death	benefits,	policy	charges	and	annuitizations	of investment	type	contracts,	for	instance,	variable	annuity	contracts.	In	the	mutual	fund	business,	net	flows	are	known	as	net	sales.	Net	sales	are	comprised	of	new	sales	less redemptions	of	mutual	fund	customers.	The	Company	uses	the	average	daily	value	of	the	S&P	500	Index	as	an	indicator	for	evaluating	market	returns	of	the	underlying account	portfolios	in	the	United	States.	Relative	profitability	of	variable	products	is	highly	correlated	to	the	growth	in	account	values	or	assets	under	management	since these	products	generally	earn	fee	income	on	a	daily	basis.	Thus,	a	prolonged	downturn	in	the	financial	markets	could	reduce	revenues	and	potentially	raise	the	possibility	of a	charge	against	deferred	policy	acquisition	costs.

The	profitability	of	the	Company's	fixed	annuities	and	other	spread	based	products	depends	largely	on	its	ability	to	earn	target	spreads	between	earned	investment	rates	on its	general	account	assets	and	interest	credited	to	policyholders.	Profitability	is	also	influenced	by	operating	expense	management	including	the	benefits	of	economies	of scale	in	the	administration	of	its	United	States	variable	annuity	businesses	in	particular.	In	addition,	the	size	and	persistency	of	gross	profits	from	these	businesses	is	an important	driver	of	earnings	as	it	affects	the	rate	of	amortization	of	the	deferred	policy	acquisition	costs.

The	Company's	profitability	in	its	individual	life	insurance	and	group	benefits	businesses	depends	largely	on	the	size	of	its	in	force	block,	the	adequacy	of	product	pricing and	underwriting	discipline,	actual	mortality	and	morbidity	experience,	and	the	efficiency	of	its	claims	and	expense	management.

# Performance	Measures

# Fee	Income

Fee	income	is	largely	driven	from	amounts	collected	as	a	result	of	contractually	defined	percentages	of	assets	under	management	on	investment	type	contracts.	These	fees are	generally	collected	on	a	daily	basis	from	the	contract	holder's	account.	For	individual	life	insurance	products,	fees	are	contractually	defined	percentages	based	on	levels of	insurance,	age,	premiums	and	deposits	collected	and	contractholder	account	value.	Life	insurance	fees	are	generally	collected	on	a	monthly	basis.	Therefore,	the	growth in	assets	under	management	either	through	positive	net	flows	or	net	sales	and	favorable	equity	market	performance	will	have	a	favorable	impact	on	fee	income.	Conversely, negative	net	flows	or	net	sales	and	unfavorable	equity	market	performance	will	reduce	fee	income	generated	from	investment	type	contracts.

| Product/Key	Indicator	Information | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| United\tStates\tVariable\tAnnuities |  |  |  |
| Account\tvalue\tat\tDecember\t31, | $99,617 | $86,501 | $64,343 |
| Net\tflows | 5,471 | 7,709 | 2,127 |
| Change\tin\tmarket\tvalue | 7,645 | 14,449 | (12,365) |
| Retail\tMutual\tFunds |  |  |  |
| Assets\tunder\tmanagement\tat\tDecember\t31, | $25,240 | $20,301 | $14,079 |
| Net\tsales | 2,505 | 2,155 | 1,951 |
| Change\tin\tmarket\tvalue | 2,522 | 4,142 | (3,232) |
| Individual\tLife\tInsurance |  |  |  |
| Variable\tuniversal\tlife\taccount\tvalue\tat\tDecember\t31, | $5,356 | $4,725 | $3,648 |
| Total\tlife\tinsurance\tinforce | 139,889 | 130,798 | 126,680 |
| S&amp;P500\tIndex |  |  |  |
| Year\tend\tclosing\tvalue | 1,212 | 1,112 | 880 |
| Daily\taverage\tvalue | 1,131 | 965 | 995 |

# Net	Investment	Income	and	Interest	Credited

Certain	investment	type	contracts	such	as	fixed	annuities	and	other	spread-based	contracts	generate	deposits	that	the	Company	collects	and	invests	to	earn	investment income.	In	addition,	insurance	type	contracts	such	as	those	sold	by	the	Group	Benefits	segment	collect	premiums	(discussed	below)	for	protection	from	losses	specified	in the	particular	insurance	contract.	These	deposits	and	premiums	together	comprise	the	majority	of	the	assets	of	the	general	account	that	are	invested	to	generate	investment income	for	the	Company.	The	investment	type	contracts	use	this	investment	income	to	credit	the	contract	holder	an	amount	of	interest	specified	in	the	respective	contract. As	discussed	in	the	overview,	the	amount	of	investment	income	earned	in	excess	of	the	interest	credited	to	the	contract	holder	is	the	spread	income	earned	by	the	Company. For	insurance	type	contracts,	net	investment	income	earned	during	the	time	that	premiums	are	invested	prior	to	paying	claims	and	expenses	supports	the	profitability	of these	products.

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tInvestment\tIncome |  |  |  |
| Retail\tProducts\tGroup\tsegment | $1,077 | $494 | $368 |
| Institutional\tSolutions\tGroup\tsegment | 1,061 | 995 | 977 |
| Individual\tLife\tsegment | 302 | 256 | 262 |
| Group\tBenefits\tsegment | 375 | 264 | 258 |
| Other | 1,079 | 32 | (16) |
| Total\tnet\tinvestment\tincome | $3,894 | $2,041 | $1,849 |
| Interest\tCredited\ton\tGeneral\tAccount\tAssets |  |  |  |
| Retail\tProducts\tGroup\tsegment | $880 | $325 | $256 |
| Institutional\tSolutions\tGroup\tsegment | 587 | 566 | 547 |
| Individual\tLife\tsegment | 216 | 192 | 196 |
| Other | 798 | — | — |
| Total\tinterest\tcredited\ton\tgeneral\taccount\tassets | $2,481 | $1,083 | $999 |

The	significant	increase	in	net	investment	income	and	interest	credited	in	the	Retail	Products	Group	segment	and	Other	and,	to	a	lesser	extent	Individual	Life	segment	was largely	the	result	of	the	adoption	of	SOP	03-1.	The	adoption	of	SOP	03-1	resulted	in	certain	changes	in	presentation	in	the	Company's	financial	statements,	including reporting	of	the	spreads	on	the	Company's	MVA	fixed	annuities	and	variable	annuity	products	offered	in	Japan	on	a	gross	basis	in	net	investment	income	and	interest credited.	The	increase	in	net	investment	income	for	the	Group	Benefits	segment	was	primarily	due	to	the	acquisition	of	the	group	benefits	business	of	CNA	at	December	31, 2003.

# Premiums

As	discussed	above,	traditional	insurance	type	products	collect	premiums	from	policyholders	in	exchange	for	financial	protection	of	the	policy	holder	from	a	specified insurable	loss,	such	as	death	or	disability.	These	premiums	together	with	net	investment	income	earned	from	the	overall	investment	strategy	are	used	to	pay	the	contractual obligations	under	these	insurance	contracts.	Two	major	factors,	new	sales	and	persistency,	impact	premium	growth.	Sales	can	increase	or	decrease	in	a	given	year	based	on a	number	of	factors,	including	but	not	limited	to,	customer	demand	for	the	Company's	product	offerings,	pricing	competition,	distribution	channels	and	the	Company's reputation	and	ratings.	A	majority	of	sales	correspond	with	the	open	enrollment	periods	of	employers'	benefits,	typically	January	1	or	July	1.	Persistency	is	a	measure	of business	retention	during	a	renewal	period.

|  |  | For	the	Years	Ended |  |
| :--- | :--- | :--- | :--- |
| Group\tBenefits\tSegment | 2004 | 2003 | 2002 |
| Total\tpremiums\tand\tother\tconsiderations | $3,652 | $2,362 | $2,327 |
| Fully\tinsured\tongoing\tsales | 632 | 507 | 597 |
| Persistency\t[1] | 88% | 81% | 83% |

[1]			The	persistency	rate	represents	the	employer	group	life	and	disability	business,	which	accounts	for	65-70%	of	inforce	premiums,	excluding	the	CNA	acquisition.	For comparability	purposes,	the	2004	persistency	rate	excludes	the	CNA	acquisition.

The	significant	increase	in	premiums	for	the	Group	Benefits	segment	in	2004	compared	to	2003	is	the	result	of	the	earned	premium	growth	as	the	result	of	the	CNA acquisition	as	well	as	in	the	pre-acquisition	Group	Benefits	business.	The	increase	in	earned	premiums	of	the	pre-acquisition	Group	Benefits	business	was	driven	by	sales and	favorable	persistency.

# Expenses

There	are	three	major	categories	for	expenses.	The	first	major	category	of	expenses	is	benefits	and	claims.	These	include	the	costs	of	mortality	and	morbidity,	particularly	in the	group	benefits,	and	mortality	in	the	individual	life	businesses,	as	well	as	other	contractholder	benefits	to	policyholders.	In	addition,	traditional	insurance	type	products generally	use	a	loss	ratio	which	is	expressed	as	the	amount	of	benefits	incurred	during	a	particular	period	divided	by	total	premiums	and	other	considerations,	as	a	key indicator	of	underwriting	performance.	Since	the	Group	Benefits	segment	occasionally	buys	a	block	of	claims	for	a	stated	premium	amount,	the	Company	excludes	this buyout	from	the	loss	ratio	used	for	evaluating	the	underwriting	results	of	the	business	as	buyouts	may	distort	the	loss	ratio.

The	second	major	category	is	insurance	operating	costs	and	expenses,	which	is	commonly	expressed	in	a	ratio	of	a	revenue	measure	depending	on	the	type	of	business.	The third	category	is	the	amortization	of	deferred	policy	acquisition	costs	and	the	present	value	of	future	profits,	which	is	typically	expressed	as	a	percentage	of	pre-tax	income before	the	cost	of	this	amortization.	The	individual	annuity	business	within	the	Retail	Products	Group	segment	accounts	for	the	majority	of	the	amortization	of	deferred policy	acquisition	costs	and	present	value	of	future	profits	for	the	Company.

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Retail\tProducts\tGroup\tSegment |  |  |  |
| Insurance\texpenses,\tnet\tof\tdeferrals | $742 | $602 | $568 |
| Expense\tratio\t(individual\tannuity\tbusiness) | 18.3bps | 22.0bps | 24.5bps |
| DAC\tamortization\tratio\t(individual\tannuity) | 50.8% | 49.6% | 47.0% |
| Individual\tLife\tSegment |  |  |  |
| Death\tbenefits | $245 | $224 | $232 |
| Insurance\texpenses,\tnet\tof\tdeferrals | $164 | $161 | $159 |
| Group\tBenefits\tSegment |  |  |  |
| Total\tbenefits\tand\tclaims | $2,703 | $1,862 | $1,878 |
| Loss\tratio\t(excluding\tbuyout\tpremiums) | 74.0% | 78.5% | 80.6% |
| Insurance\texpenses,\tnet\tof\tdeferrals | $989 | $553 | $524 |
| Expense\tratio | 27.7% | 24.6% | 23.4% |

The	increase	in	the	expense	ratio	for	the	Group	Benefits	segment	in	2004	compared	to	2003	is	the	result	of	the	CNA	Acquisition.	As	part	of	the	CNA	Acquisition,	a	larger block	of	affinity	business	is	now	included	in	the	Group	Benefits	segment	and	this	business	typically	has	lower	expected	loss	ratios	and	higher	expected	commission	ratios than	other	products	within	the	business.

# Profitability

Management	evaluates	the	rates	of	return	various	businesses	can	provide	as	a	way	of	determining	where	additional	capital	is	invested	to	increase	net	income	and shareholder	returns.	Specifically,	because	of	the	importance	of	its	individual	annuity	products,	the	Company	uses	the	return	on	assets	for	the	individual	annuity	business	for evaluating	profitability.	In	Group	Benefits,	after	tax	margin	is	a	key	indicator	of	overall	profitability.

| Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Fee\tincome | $3,245 | $2,760 | $2,577 |
| Earned\tpremiums | 4,072 | 3,086 | 2,697 |
| Net\tinvestment\tincome\t[1] | 3,894 | 2,041 | 1,849 |
| Other\trevenues | — | 131 | 120 |
| Net\trealized\tcapital\tgains\t(losses) | 149 | 40 | (308) |
| Total\trevenues | 11,360 | 8,058 | 6,935 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses\t[1] | 6,630 | 4,616 | 4,158 |
| Insurance\toperating\tcosts\tand\texpenses | 2,133 | 1,535 | 1,438 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 978 | 769 | 628 |
| Other\texpenses | 12 | 72 | 32 |
| Total\tbenefits,\tclaims\tand\texpenses | 9,753 | 6,992 | 6,256 |
| Income\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 1,607 | 1,066 | 679 |
| Income\ttax\texpense | 202 | 221 | 49 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 1,405 | 845 | 630 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax\t[2] | (23) | — | — |
| Net\tincome | $1,382 | $845 | $630 |

[1]			With	the	adoption	of	SOP	03-1,	certain	annuity	and	individual	life	products	were	required	to	be	accounted	for	in	the	general	account.	This	change	in	accounting resulted	in	an	increase	of	$1,637	in	net	investment	income,	an	increase	of	$1,387	in	benefits,	claims	and	claim	adjustment	expenses	and	a	decrease	of	$131	in	other revenues	for	the	year	ended	December	31,	2004,	respectively.

[2]			For	the	years	ended	December	31,	2004,	represents	the	cumulative	impact	of	the	Company's	adoption	of	SOP	03-1.

Life	changed	its	reportable	operating	segments	in	2004	from	Investment	Products,	Individual	Life,	Group	Benefits	and	Corporate	Owned	Life	Insurance	("COLI")	to	Retail Products	Group	("Retail"),	Institutional	Solutions	Group	("Institutional"),	Individual	Life	and	Group	Benefits.	Retail	offers	individual	variable	and	fixed	annuities,	mutual funds,	retirement	plan	products	and	services	to	corporations	under	Section	401(k)	plans	and	other	investment	products.	Institutional	primarily	offers	retirement	plan products	and	services	to	municipalities	under	Section	457	plans,	other	institutional	investment	products,	structured	settlements,	and	private	placement	life	insurance. Individual	Life	sells	a	variety	of	life	insurance	products,	including	variable	universal	life,	universal	life,	interest	sensitive	whole	life	and	term	life	insurance.	Group	Benefits sells	group	insurance	products,	including	group	life	and	group	disability	insurance	as	well	as	other	products,	including	medical	stop	loss	and	supplementary	medical coverages	to	employers	and	employer	sponsored	plans,	accidental	death	and	dismemberment,	travel	accident	and	other	special	risk	coverages	to	employers	and	associations. Life	also	includes,	in	an	Other	category,	its	international	operations,	which	are	primarily	located	in	Japan	and	Brazil;	net	realized	capital	gains	and	losses	other	than periodic	net	coupon	settlements	on	non-qualifying	derivatives	and	net	realized	capital	gains	and	losses	related	to	guaranteed	minimum	withdrawal	benefits;	corporate	items not	directly	allocated	to	any	of	its	reportable	operating	segments;	and	intersegment	eliminations.	Periodic	net	coupon	settlements	on	non-qualifying	derivatives	and	net realized	capital	gains

and	losses	related	to	guaranteed	minimum	withdrawal	benefits	are	reflected	in	each	applicable	segment	in	net	realized	capital	gains	and	losses.

2004	Compared	to	2003	—	Life's	net	income	increased	due	primarily	to	business	growth	in	virtually	all	lines	of	business	as	discussed	below,	a	lower	effective	income	tax rate,	and	higher	net	realized	capital	gains.	(See	the	Investments	section	for	further	discussion	of	investment	results	and	related	realized	capital	gains.)	During	the	third quarter	of	2004,	the	Internal	Revenue	Service	completed	its	examination	of	the	1998-2001	tax	years.	(For	further	discussion	see	Note	12	of	Notes	to	Consolidated	Financial Statements	under	Tax	Matters).	Life	recorded	in	the	third	quarter	of	2004	a	tax	benefit	of	$190,	consisting	primarily	of	a	change	in	estimate	of	the	dividends-received deduction	("DRD")	tax	benefit	reported	during	2003	and	prior	years	and	interest,	and	changed	the	estimate	of	the	after-tax	benefit	for	the	DRD	benefit	related	to	the	2004 tax	year.

Net	income	in	the	Retail	segment	increased,	principally	driven	by	growth	in	the	variable	annuity	and	mutual	fund	businesses	as	a	result	of	increasing	assets	under management.	Partially	offsetting	the	increase	in	the	Retail	segment	was	lower	spread	income	on	market	value	adjusted	("MVA")	fixed	annuities	due	to	the	adoption	of	SOP 03-1.	Net	income	in	the	Group	Benefits	segment	increased	due	primarily	to	increased	earned	premiums	and	net	investment	income	growth,	primarily	resulting	from	the Company's	acquisition	of	the	group	life	and	accident,	and	short-term	and	long-term	disability	businesses	of	CNA	Financial	Corporation	("CNA	Acquisition").	In	addition, the	Group	Benefits	segment	was	impacted	by	favorable	persistency	in	most	businesses	and	lower	benefit	costs	in	the	group	life	line.	Net	income	in	the	Institutional	segment was	higher	as	a	result	of	a	decrease	in	other	expenses	related	to	private	placement	life	insurance	business	compared	to	the	respective	prior	year	period.	The	decrease	in	other expenses	for	the	current	year	is	attributed	to	a	$40	after-tax	charge,	recorded	in	the	third	quarter	ended	September	30,	2003,	associated	with	the	settlement	of	the	Bancorp Services,	LLC	("Bancorp")	litigation.	Additionally,	net	income	was	higher	for	Individual	Life	and	the	international	operations.	The	increase	in	Individual	Life	earnings	was primarily	driven	by	improved	net	investment	spread	income	including	the	effects	of	prepayments	and	growth	in	account	values	and	life	insurance	in	force.	Net	income	for the	international	operations,	which	is	included	in	the	other	category,	increased	over	the	prior	year	primarily	driven	by	the	increase	in	assets	under	management	of	the	Japan annuity	business.	Japan's	assets	under	management	have	grown	to	$14.7	billion	at	December	31,	2004	from	$6.2	billion	at	December	31,	2003.	During	2004,	the	Company introduced	market	value	adjusted	fixed	annuity	products	to	provide	a	diversified	product	portfolio	to	customers	in	Japan.

The	effective	tax	rate	was	13%	for	Life	operations	for	the	current	year	as	compared	to	an	effective	tax	rate	of	21%	for	Life	operations	for	the	respective	prior	year	period. The	lower	effective	tax	rate	was	attributed	to	tax	related	items,	as	discussed	above,	of	$190	and	a	2004	tax	year	DRD	benefit	of	$132,	as	compared	to	tax	related	items	of $30	and	a	2003	tax	year	DRD	benefit	of	$87	reported	for	the	years	ended	December	31,	2004	and	2003,	respectively.	Slightly	offsetting	the	positive	earnings	drivers	for	the year	ended	December	31,	2004	was	the	cumulative	effect	of	accounting	change	from	the	Company's	adoption	of	SOP	03-1.	The	adoption	of	SOP	03-1	also	resulted	in certain	changes	in	presentation	in	the	Company's	financial	statements,	including	reporting	of	the	spreads	on	the	Company's	MVA	fixed	annuities	and	variable	annuity products	offered	in	Japan	on	a	gross	basis	in	net	investment	income	and	benefits	expense.	Exclusive	of	the	cumulative	effect,	overall	application	of	SOP	03-1	resulted	in	an immaterial	reduction	in	net	income.	(For	further	discussion	of	the	impact	of	the	Company's	adoption	of	SOP	03-1,	see	Note	1	of	Notes	to	Consolidated	Financial Statements).

2003	Compared	to	2002	—	Net	income	increased	for	the	year	ended	December	31,	2003	due	primarily	to	the	growth	in	the	Retail	segment	and	a	decrease	in	net	realized capital	losses	compared	to	2002.	The	earnings	growth	in	the	Retail	segment	is	due	to	an	increase	in	fee	income	and	net	investment	income.	Fee	income	in	the	Retail segment	was	higher	in	2003	compared	to	2002,	as	a	result	of	higher	average	account	values,	specifically	in	individual	annuities	and	mutual	fund	businesses,	due	primarily	to stronger	variable	annuity	sales	as	well	as	market	appreciation.	Net	investment	income	in	Retail	increased	due	to	higher	general	account	assets	in	the	individual	annuity business.	Also	contributing	to	the	net	income	growth	was	higher	earnings	in	Group	Benefits,	primarily	due	to	increases	in	earned	premiums	and	favorable	claims. Additionally,	Individual	Life	experienced	earnings	growth	due	to	increases	in	fees	and	cost	of	insurance	as	life	insurance	in-force	grew	and	aged,	and	variable	universal	life account	values	increased	30%	due	primarily	to	the	growth	in	the	equity	markets	and	favorable	mortality.	Partially	offsetting	these	increases	was	a	decrease	in	Institutional net	income	for	the	year	ended	December	31,	2003,	as	compared	to	the	prior	year	period.	This	decrease	is	attributed	to	a	$40	after-tax	charge,	recorded	in	the	third	quarter	of 2003	associated	with	the	settlement	of	the	Bancorp	litigation.	In	addition,	there	was	an	$8	after-tax	benefit	recorded	in	the	first	quarter	of	2002	related	to	favorable development	on	the	Company's	estimated	September	11	exposure.

The	effective	tax	rate	increased	in	2003	when	compared	with	2002	as	a	result	of	higher	earnings	and	lower	DRD	related	tax	items.	The	tax	provision	recorded	during	2003 reflects	a	benefit	of	$30,	consisting	primarily	of	a	change	in	estimate	of	the	DRD	tax	benefit	reported	during	2002.	The	change	in	estimate	was	the	result	of	actual	2002 investment	performance	on	the	related	separate	accounts	being	unexpectedly	out	of	pattern	with	past	performance,	which	had	been	the	basis	for	the	estimate.	This	compares with	a	tax	benefit	of	$76	recorded	in	2002.	The	total	DRD	benefit	related	to	the	2003	tax	year	for	the	year	ended	December	31,	2003	was	$87	as	compared	to	$63	for	the year	ended	December	31,	2002.

# Outlook

In	2004,	the	Company	experienced	record	earnings	driven	by	strong	growth	in	assets	under	management,	favorable	premium	growth	and	loss	ratios	in	Group	Benefits, strong	expense	management,	and	a	DRD	tax	benefit	related	to	prior	years	of	$190.	Due	to	gains	in	the	equity	markets	and	positive	net	flows,	assets	under	management	grew 18%,	resulting	in	increased	fee	income	earned	on	those	assets.	The	growth	and	profitability	of	the	Company	in	the	future	is	dependent	to	a	large	degree	on	the	performance of	the	equity

markets	as	well	as	each	segment's	ability	to	attract	new	customers	and	attract	and	retain	assets	under	management.	Please	refer	to	each	segment's	results	for	outlooks	on specific	segments	and	products.	Also	contributing	to	the	Company's	performance	in	2004	was	increased	earnings	in	the	Other	category,	which	was	primarily	the	result	of the	growth	in	assets	under	management	in	the	international	operations.	This	growth	was	driven	by	record	sales	of	$7.8	billion	and	positive	net	flows	in	Japan,	which combined	with	gains	in	the	equity	market	increased	assets	under	management	to	$14.7	billion	at	December	31,	2004	from	$6.2	billion	at	December	31,	2003.	Although	the Company's	international	operations	experienced	significant	growth	during	2004,	Japanese	regulations	combined	with	competition	could	adversely	affect	the	Company's ability	to	exceed	or	sustain	the	level	of	new	sales	and	net	flows	attained	in	2004.

A	description	of	each	segment	as	well	as	an	analysis	of	the	operating	results	summarized	above	is	included	on	the	following	pages.

| Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Fee\tincome\tand\tother | $2,098 | $1,703 | $1,591 |
| Earned\tpremiums | 7 | (31) | (24) |
| Net\tinvestment\tincome | 1,077 | 494 | 368 |
| Net\trealized\tcapital\tgains | — | 21 | 7 |
| Total\trevenues | 3,182 | 2,187 | 1,942 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 1,120 | 568 | 486 |
| Insurance\toperating\tcosts\tand\tother\texpenses | 742 | 602 | 568 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 661 | 509 | 436 |
| Total\tbenefits,\tclaims\tand\texpenses | 2,523 | 1,679 | 1,490 |
| Income\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 659 | 508 | 452 |
| Income\ttax\texpense | 114 | 78 | 96 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 545 | 430 | 356 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax\t[1] | (19) | — | — |
| Net\tincome | $526 | $430 | $356 |

| Assets	Under	Management | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Individual\tvariable\tannuity\taccount\tvalues | $99,617 | $86,501 | $64,343 |
| Individual\tfixed\tannuity\tand\tother\taccount\tvalues | 11,384 | 11,215 | 10,565 |
| Other\tretail\tproducts\taccount\tvalues | 6,713 | 4,654 | 2,972 |
| Total\taccount\tvalues\t[2] | 117,714 | 102,370 | 77,880 |
| Retail\tmutual\tfund\tassets\tunder\tmanagement | 25,240 | 20,301 | 14,079 |
| Other\tmutual\tfund\tassets\tunder\tmanagement | 1,396 | 953 | 480 |
| Total\tmutual\tfund\tassets\tunder\tmanagement | 26,636 | 21,254 | 14,559 |
| Total\tassets\tunder\tmanagement | $144,350 | $123,624 | $92,439 |

[1]			Represents	the	cumulative	impact	of	the	Company's	adoption	of	SOP	03-1.

[2]			Includes	policyholders	balances	for	investment	contracts	and	reserve	for	future	policy	benefits	for	insurance	contracts.

The	Retail	Products	Group	segment	focuses	on	the	savings	and	retirement	needs	of	the	growing	number	of	individuals	who	are	preparing	for	retirement,	or	have	already retired,	through	the	sale	of	individual	variable	and	fixed	annuities,	mutual	funds,	retirement	plan	services	and	other	investment	products.	The	Company	is	both	a	leading writer	of	individual	variable	annuities	and	a	top	seller	of	individual	variable	annuities	through	banks	in	the	United	States.

2004	Compared	to	2003	—	Net	income	increased	for	the	year	ended	December	31,	2004,	principally	driven	by	higher	fee	income	from	double	digit	growth	in	the	assets under	management	in	virtually	all	businesses	of	the	segment	and	strong	expense	management.	Fee	income	generated	by	the	variable	annuity	operation	increased,	as	average account	values	were	higher	in	the	current	year	compared	to	the	respective	prior	year	periods.	The	increase	in	average	account	values	can	be	attributed	to	market	appreciation of	$7.6	billion	and	net	flows	of	$5.5	billion	during	2004.	Another	contributing	factor	to	the	increase	in	fee	income	was	the	increase	in	assets	under	management	in	the mutual	fund	and	401(k)	businesses.	Retail	mutual	fund	assets	under	management	increased	24%	principally	due	to	net	sales	and	market	appreciation	of	$2.5	billion	each during	2004.	In	addition,	401(k)	assets	under	management	grew	40%	to	$7.3	billion	as	a	result	of	favorable	net	flows	and	market	conditions.

Partially	offsetting	the	positive	earnings	drivers	discussed	above	were	higher	DAC	amortization	costs,	lower	income	from	the	fixed	annuity	business	and	the	cumulative effect	of	accounting	change	from	the	Company's	adoption	of	SOP	03-1.	DAC	amortization	was	higher	in	the	current	year	as	compared	to	the	prior	year	due	to	higher subsequent	deposit	activity,	primarily	in	individual	annuity.	The	decrease	in	net	income	in	the	fixed	annuity	business	in	2004	compared	to	2003	was	principally	due	to	lower investment	spread	from	the	market	value	adjusted	("MVA")	product.	With	the	adoption	of	SOP	03-1,	the	Company	includes	the	investment	return	from	the	fixed	annuity product	in	net	investment	income	and	includes	interest	credited	to	contract	holders	in	the	benefits,	claims	and	expenses	line	on	the	income	statement	rather	than	reporting the	net	spread	in	fee	income	and	other.	Additionally,	income	tax	expense	was	higher	for	the	current	year	due	primarily	to	higher	income	earned	by	the	segment.	This increase	was	largely	offset	by	a	higher	DRD

tax	benefit	of	$115	related	to	the	2004	tax	year	reported	for	the	year	ended	December	31,	2004,	as	discussed	above,	as	compared	to	the	DRD	tax	benefit	of	$79	related	to the	2003	tax	year	reported	in	the	comparable	prior	year	period.

2003	Compared	to	2002	—	Net	income	was	higher	driven	by	an	increase	in	revenues	in	the	individual	annuity	and	other	retail	product	operations	as	a	result	of	the	strong net	flows	and	growth	in	the	equity	markets	during	2003	and	strong	expense	management.	Net	income	increased	due	to	an	increase	in	fee	income	in	Retail.	Fee	income	in Retail	was	higher	in	2003	compared	to	2002,	as	a	result	of	higher	average	account	values,	specifically	in	individual	annuities	and	mutual	fund	businesses,	due	primarily	to stronger	variable	annuity	sales	and	the	higher	equity	market	values	compared	to	the	prior	year.	Net	investment	income	increased	due	to	higher	general	account	assets. General	account	assets	for	the	individual	annuity	business	were	$9.4	billion	as	of	December	31,	2003,	an	increase	of	approximately	$800	or	9%	from	2002,	due	primarily	to an	increase	in	individual	annuity	sales,	with	the	majority	of	those	new	sales	electing	to	use	the	dollar	cost	averaging	("DCA")	feature.	The	DCA	feature	allows policyholders	to	earn	a	credited	interest	rate	in	the	general	account	for	a	defined	period	of	time	as	their	invested	assets	are	systematically	invested	into	the	separate	account funds.	Additionally,	there	was	increased	interest	credited	in	the	individual	annuity	operation	as	a	result	of	higher	general	account	asset	levels	and	an	increase	in	amortization of	deferred	policy	acquisition	costs	related	to	the	individual	annuity	business	due	to	higher	gross	profits.

In	addition,	net	income	increased	in	2003	compared	to	2002	due	to	the	favorable	impact	of	$19,	resulting	from	the	Company's	previously	discussed	change	in	estimate	of the	DRD	tax	benefit	reported	during	2002.	The	change	in	estimate	was	the	result	of	2002	actual	investment	performance	on	the	related	separate	accounts	being unexpectedly	out	of	pattern	with	past	performance,	which	had	been	the	basis	for	the	estimate.	The	total	DRD	benefit	related	to	the	2003	tax	year	for	the	year	ended December	31,	2003	was	$79	as	compared	to	$59	for	the	year	ended	December	31,	2002.

Management	believes	the	market	for	retirement	products	continues	to	expand	as	individuals	increasingly	save	and	plan	for	retirement.	Demographic	trends	suggest	that	as the	"baby	boom"	generation	matures,	a	significant	portion	of	the	United	States	population	will	allocate	a	greater	percentage	of	their	disposable	incomes	to	saving	for	their retirement	years	due	to	uncertainty	surrounding	the	Social	Security	system	and	increases	in	average	life	expectancy.	Individual	annuity	sales	in	2004	were	$15.7	billion	(a 5%	decrease)	compared	to	$16.5	billion	in	2003,	and	401(k)	products	experienced	an	increase	of	37%	in	sales	in	2004	compared	to	2003.

Significantly	contributing	to	the	Company's	variable	annuity	sales	during	2004	and	2003	was	Principal	First,	a	guaranteed	minimum	withdrawal	benefit	("GMWB")	rider, which	was	developed	in	response	to	our	customers'	needs.	However,	competition	has	increased	substantially	in	this	market	with	most	major	variable	annuity	writers	now offering	GMWB	riders	and	as	a	result,	the	Company	may	not	be	able	to	sustain	the	level	of	sales	attained	in	2004.	In	an	effort	to	meet	diverse	customer	needs,	in	the	fourth quarter	of	2004	the	Company	introduced	Principal	First	Preferred,	a	lower	cost	GMWB	alternative	to	Principal	First.	The	success	of	this	new	product	will	ultimately	be based	on	customer	acceptance.	According	to	VARDS,	the	Company	had	11.87%	market	share	as	of	December	31,	2004	as	compared	to	12.6%	at	December	31,	2003.	With the	increased	competition	in	the	variable	annuity	market	causing	lower	sales	levels	from	the	record	level	in	2003,	combined	with	an	aging	block	of	business,	net	flows	may decline	from	levels	experienced	in	2004.	This	will	be	largely	dependent	on	the	Company's	ability	to	retain	contractholder's	account	values	as	they	reach	the	end	of	the surrender	charge	period	of	their	contract.	In	addition,	net	flows	in	the	Company's	fixed	annuity	block	may	be	impacted	by	approximately	$2	billion	of	contracts	reaching renewal	dates	in	2005	at	crediting	rates	significantly	above	those	offered	currently.

The	growth	and	profitability	of	the	individual	annuity	and	mutual	fund	businesses	is	dependent	to	a	large	degree	on	the	performance	of	the	equity	markets.	In	periods	of favorable	equity	market	performance,	the	Company	may	experience	stronger	sales	and	higher	net	flows,	which	will	increase	assets	under	management	and	thus	increase	fee income	earned	on	those	assets.	In	addition,	higher	equity	market	levels	will	generally	reduce	certain	costs	to	the	Company	of	individual	annuities,	such	as	guaranteed minimum	death	benefits	("GMDB")	and	GMWB	benefits.	Conversely,	weak	equity	markets	may	dampen	sales	activity	and	increase	surrender	activity	causing	declines	in assets	under	management	and	lower	fee	income.	Such	declines	in	the	equity	markets	will	also	increase	the	cost	to	the	Company	of	GMDB	and	GMWB	benefits	associated with	individual	annuities.	The	Company	attempts	to	mitigate	some	of	the	volatility	associated	with	the	GMDB	and	GMWB	benefits	using	reinsurance	or	other	risk management	strategies,	such	as	hedging.	Future	net	income	for	the	Company	will	be	affected	by	the	effectiveness	of	the	risk	management	strategies	the	Company	has implemented	to	mitigate	the	net	income	volatility	associated	with	the	GMDB	and	GMWB	benefits	of	variable	annuity	contracts.	For	spread	based	products	sold	in	the	Retail segment,	the	future	growth	will	depend	on	the	ability	to	earn	targeted	returns	on	new	business	given	competition,	retention	of	account	values	in	the	fixed	annuity	business where	the	contract	holder's	rate	guarantee	expires	in	the	upcoming	year,	and	the	future	interest	rate	environment.

| Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Fee\tincome\tand\tother | $307 | $308 | $356 |
| Earned\tpremiums | 471 | 795 | 421 |
| Net\tinvestment\tincome | 1,061 | 995 | 977 |
| Net\trealized\tcapital\tgains | 7 | 12 | 3 |
| Total\trevenues | 1,846 | 2,110 | 1,757 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 1,513 | 1,749 | 1,369 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 37 | 34 | 8 |
| Insurance\toperating\tcosts\tand\texpenses | 127 | 212 | 224 |
| Total\tbenefits,\tclaims\tand\texpenses | 1,677 | 1,995 | 1,601 |
| Income\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 169 | 115 | 156 |
| Income\ttax\texpense | 44 | 32 | 48 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 125 | 83 | 108 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax\t[1] | (1) | — | — |
| Net\tincome | $124 | $83 | $108 |

| Assets	Under	Management | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Institutional\taccount\tvalues | $14,599 | $12,660 | $9,738 |
| Governmental\taccount\tvalues | 9,962 | 8,965 | 7,211 |
| Private\tPlacement\tLife\tInsurance\taccount\tvalues |  |  |  |
| Variable\tproducts | 22,498 | 20,993 | 19,674 |
| Leveraged\tCOLI | 2,529 | 2,524 | 3,321 |
| Total\tPrivate\tPlacement\tLife\tInsurance\taccount\tvalues\t[2] | 25,027 | 23,517 | 22,995 |
| Mutual\tfund\tassets\tunder\tmanagement | 1,432 | 1,208 | 762 |
| Total\tassets\tunder\tmanagement | $51,020 | $46,350 | $40,706 |

[2]				Includes	policyholder	balances	for	investment	contracts	and	reserves	for	future	policy	benefits	for	insurance	contracts

The	Institutional	Solutions	Group	primarily	offers	customized	wealth	creation	and	financial	protection	for	institutions,	corporate	and	government	employers	and	high	net worth	individuals	through	its	three	business	units:	Government,	Institutional	Investment	Products	("IIP")	and	private	placement	life	insurance	("PPLI")	(formerly	Corporate Owned	Life	Insurance	or	"COLI").

2004	Compared	to	2003	—	Net	income	for	the	year	ended	December	31,	2004	increased	primarily	due	to	decreases	in	other	expenses	related	to	PPLI	business	compared	to the	prior	year.	The	decrease	in	other	expenses	was	primarily	attributed	to	a	$40	after-tax	charge,	recorded	in	the	third	quarter	ended	September	30,	2003,	associated	with	the settlement	of	the	Bancorp	litigation.	In	addition,	the	governmental	business	contributed	higher	income	for	the	current	year.	This	increase	was	primarily	attributable	to	higher revenues	earned	from	the	growth	in	the	average	account	values	as	a	result	of	positive	net	flows	and	market	appreciation	since	the	prior	year	coupled	with	improved	spreads and	expense	management.

Partially	offsetting	increases	in	segment	net	income	for	the	current	year	was	lower	income	from	the	IIP	and	PPLI	businesses,	excluding	the	settlement	of	the	Bancorp litigation.	For	a	discussion	of	the	Bancorp	litigation,	see	Note	12	of	Notes	to	Consolidated	Financial	Statements.	The	decrease	in	net	income	in	the	IIP	was	due	primarily	to lower	spread	income	and	slightly	higher	insurance	operating	costs	for	the	year	ended	December	31,	2004	as	compared	to	2003.	In	addition,	the	IIP	reported	lower	earnings for	the	current	year	compared	to	the	prior	year	due	to	favorable	mortality	experience	in	2003.	PPLI	also	experienced	lower	earnings	for	the	year	ended	December	31,	2004 as	compared	to	2003	due	to	lower	average	leveraged	COLI	account	values.

Additionally,	income	tax	expense	was	higher	for	the	current	year	due	primarily	to	decreases	in	other	expenses	related	to	the	PPLI	business,	as	discussed	above.	This increase	in	income	tax	expense	was	partially	offset	by	a	higher	DRD	tax	benefit	of	$11	related	to	the	2004	tax	year,	as	compared	to	the	DRD	tax	benefit	of	$4	related	to	the 2003	tax	year	reported	in	the	prior	year	period.

2003	Compared	to	2002	—	Net	income	decreased	in	2003	compared	to	2002	principally	as	a	result	of	lower	income	from	the	PPLI	business	due	to	an	increase	in	other expenses.	Other	expenses	increased	due	primarily	to	a	$40	after-tax	expense,	related	to	the	Bancorp	litigation	expense	recorded	in	2003	compared	with	the	$11	after-tax expense	recorded	in	2002.

Excluding	the	expenses	associated	with	the	Bancorp	litigation,	net	income	increased	$4	or	9%,	primarily	due	to	higher	income	in	the	institutional	investment	products business	as	a	result	of	favorable	mortality	experience	and	growth	in	average	assets	over	the	last	twelve	months.	General	account	assets	under	management	related	to	the	IIP increased	32%	since	December	31,	2002,	to	$9.9	billion	as	of	December	31,	2003.	The	increase	in	general	account	assets	was	primarily	due	to	higher	net	flows	and	market appreciation	related	to	institutional	annuities	and	structured	settlement	products.	Partially	offsetting	the	increase	in	earnings	in	the	IIP	was	lower	PPLI	income	due	to	the decline	in	leveraged	COLI	account	values	as	a	result	of	surrender	activity	and	lower	sales	volume	of	PPLI	products	in	2003	as	compared	to	the	prior	year.	In	addition, amortization	of	deferred	policy	acquisition	costs	increased	as	a	result	of	higher	sales	in	the	institutional	investment	products	business.

The	future	net	income	of	this	segment	will	depend	on	the	Company's	ability	to	increase	assets	under	management	and	maintain	its	investment	spread	earnings	on	the majority	of	the	products	sold	in	largely	the	IIP	and	Government	businesses.	These	markets	are	highly	competitive	from	a	pricing	perspective,	and	a	small	number	of	cases often	account	for	a	significant	portion	of	sales,	therefore	the	Company	may	not	be	able	to	sustain	the	level	of	assets	under	management	growth	attained	in	2004.	In	2004, IIP	introduced	the	Hartford	Income	Notes,	a	new	funding	agreement	backed	product	that	provides	the	Company	with	opportunity	for	future	growth.	This	product	provides access	to	both	a	multi-billion-dollar	retail	market,	and	a	nearly	trillion	dollar	institutional	market.	These	markets	are	very	competitive	and	the	Company's	success	depends in	part	on	the	level	of	credited	interest	rates	and	the	Company's	credit	rating.	The	focus	of	the	PPLI	business	is	variable	PPLI	products	to	fund	non-qualified	benefits	or other	post	employment	benefit	liabilities.	The	leveraged	COLI	business,	while	in	run-off,	has	been	an	important	contributor	to	PPLI's	profitability	in	recent	years	and	will continue	to	contribute	to	the	profitability	of	the	Company	albeit	at	lower	levels.	The	market	served	by	PPLI	is	subject	to	extensive	legal	and	regulatory	review	that	could have	an	adverse	effect	on	its	business.

| Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Fee\tincome\tand\tother | $767 | $747 | $705 |
| Earned\tpremiums | (21) | (20) | (8) |
| Net\tinvestment\tincome | 302 | 256 | 262 |
| Net\trealized\tcapital\tlosses | — | (1) | (1) |
| Total\trevenues | 1,048 | 982 | 958 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 480 | 436 | 443 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 180 | 176 | 160 |
| Insurance\toperating\tcosts\tand\tother\texpenses | 164 | 161 | 159 |
| Total\tbenefits,\tclaims\tand\texpenses | 824 | 773 | 762 |
| Income\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 224 | 209 | 196 |
| Income\ttax\texpense | 70 | 64 | 63 |
| Income\tbefore\tcumulative\teffect\tof\taccounting\tchange | 154 | 145 | 133 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax\t[1] | (1) | — | — |
| Net\tincome | $153 | $145 | $133 |
| Account\tValue |  |  |  |
| Variable\tuniversal\tlife\taccount\tvalues | $5,356 | $4,725 | 3,648 |
| Universal\tlife/interest\tsensitive\twhole\tlife | 3,402 | 3,259 | 3,139 |
| Modified\tguaranteed\tlife\tand\tother | 729 | 742 | 770 |
| Total\taccount\tvalues | $9,487 | $8,726 | $7,557 |
| Life\tInsurance\tInforce |  |  |  |
| Variable\tuniversal\tlife\tinsurance\tinforce | $69,089 | $67,031 | 66,715 |
| Universal\tlife/interest\tsensitive\twhole\tlife | 39,109 | 38,320 | 38,457 |
| Modified\tguaranteed\tlife\tand\tother | 31,691 | 25,447 | 21,508 |
| Total\tlife\tinsurance\tinforce | $139,889 | $130,798 | 126,680 |

The	Individual	Life	segment	provides	life	insurance	solutions	to	a	wide	array	of	partners	to	solve	the	wealth	protection,	accumulation	and	transfer	needs	of	their	affluent, emerging	affluent	and	business	insurance	clients.

2004	Compared	to	2003	—	Net	income	in	the	Individual	Life	segment	increased	for	the	year	ended	December	31,	2004	as	compared	to	the	prior	year,	primarily	driven	by business	growth	and	improved	investment	spreads.	Account	values	and	inforce	grew	9%	and	7%	from	2003	to	2004.	Net	investment	income	increased	for	the	current	year as	compared	to	the	prior	year	primarily	due	to	the	adoption	of	SOP	03-1,	growth	in	general	account	values	and	prepayments	on	bonds.	The	adoption	of	SOP	03-1	also resulted	in	increases	in	benefits,	claims	and	claim	adjustment	expenses	and	a	decrease	to	fee	income	and	other	for	the	year	ended	December	31,	2004	as	compared	to	the prior	year	period	for	the	segment's	Modified	Guarantee	Life	Insurance	product,	which	was	formerly	classified	as	a	separate	account	product.	Fee	income	increased primarily	due	to	increased	cost	of	insurance	charges	as	life	insurance	inforce	grew	and	aged	and	variable	universal	life	account	values	increased	driven	by	favorable	equity markets	and	new	sales.	The	increase	in	benefits,	claims	and	claim	adjustment	expenses	was	primarily	due	to	the	absence	in	2004	of	the	unusually	favorable	mortality experienced	in	2003,	along	with	continued	growth	and	aging	of	the	inforce.	Business	growth	resulted	in	increased	insurance	operating	costs	and	expenses	for	the	year compared	to	prior	year.	Additionally,	income	tax	expense	was	higher	for	the	year	ended	December	31,	2004	due	primarily	to	earnings	growth,	as	discussed	above.	Income tax	expense	includes	a	DRD	tax	benefit	of	$5	related	to	the	2004	tax	year,	whereas,	income	tax	expense	for	2003	includes	a	total	DRD	tax	benefit	of	$6.

2003	Compared	to	2002	—	Net	income	increased	due	to	increases	in	fee	income.	Fees	increased	primarily	due	to	increased	cost	of	insurance	charges	as	life	insurance inforce	grew	and	aged,	and	variable	universal	life	account	values	increased	30%,	driven	by	the	growth	in	the	equity	markets	in	2003.	Also	contributing	to	the	increase	in	net income	was	a	decrease	in	benefit	costs	in	2003	as

compared	to	2002	due	to	favorable	mortality	rates	compared	to	the	prior	year.	Additionally,	net	income	for	the	year	ended	December	31,	2003	includes	the	favorable	impact of	$2	DRD	benefit	resulting	from	the	Company's	previously	discussed	change	in	estimate	of	the	DRD	tax	benefit	reported	during	2002.	The	total	DRD	benefit	related	to the	2003	tax	year	for	the	year	ended	December	31,	2003	was	$4	as	compared	to	$3	for	the	year	ended	December	31,	2002.

Earned	premiums,	which	include	premiums	for	ceded	reinsurance,	decreased	primarily	due	to	increased	use	of	reinsurance.	The	decrease	in	net	investment	income	was	due primarily	to	lower	investment	yields.

Individual	Life	sales	grew	to	$233	in	2004	from	$196	in	2003	with	renewed	customer	interest	in	variable	universal	life	products	and	the	successful	introduction	of	new universal	life	and	variable	universal	life	products.	Variable	universal	life	sales	and	account	values	remain	sensitive	to	equity	market	levels	and	returns.	The	Company	also continues	to	introduce	new	and	enhanced	products,	which	are	expected	to	increase	new	sales.	The	Company	continues	to	pursue	broader	and	deeper	distribution opportunities	to	increase	sales.	However,	the	Company	continues	to	face	uncertainty	surrounding	estate	tax	legislation,	aggressive	competition	from	life	insurance providers,	reduced	availability	and	higher	price	of	reinsurance,	and	the	current	regulatory	environment	regarding	reserving	practices	for	universal	life	products	with	no- lapse	guarantees.

| Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Earned\tpremiums\tand\tother | $3,652 | $2,362 | $2,327 |
| Net\tinvestment\tincome | 375 | 264 | 258 |
| Net\trealized\tcapital\tgains\t(losses) | 1 | (2) | (3) |
| Total\trevenues | 4,028 | 2,624 | 2,582 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 2,703 | 1,862 | 1,878 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts | 23 | 18 | 17 |
| Insurance\toperating\tcosts\tand\tother\texpenses | 989 | 553 | 524 |
| Total\tbenefits,\tclaims\tand\texpenses | 3,715 | 2,433 | 2,419 |
| Income\tbefore\tincome\ttaxes | 313 | 191 | 163 |
| Income\ttax\texpense | 84 | 43 | 35 |
| Net\tincome | $229 | $148 | $128 |
| Earned\tPremiums\tand\tOther |  |  |  |
| Fully\tinsured\t—\tongoing\tpremiums | $3,611 | $2,302 | $2,295 |
| Buyout\tpremiums | 4 | 40 | 13 |
| Other | 37 | 20 | 19 |
| Earned\tpremiums\tand\tother\ttotal | $3,652 | $2,362 | $2,327 |

The	Group	Benefits	segment	provides	employers,	associations,	affinity	groups	and	financial	institutions	with	group	life,	accident	and	disability	coverage,	along	with	other products	and	services,	including	voluntary	benefits,	employee	assistance	programs,	travel	assistance,	group	retiree	health,	and	medical	stop	loss.	The	Company	also	offers disability	underwriting,	administration,	claims	processing	services	and	reinsurance	to	other	insurers	and	self-funded	employer	plans.

2004	Compared	to	2003	—	Net	income	increased	for	the	year	ended	December	31,	2004	as	compared	to	the	prior	year	due	to	earned	premium	growth	and	net	investment income	growth	as	the	result	of	the	CNA	Acquisition.	The	increase	in	earned	premiums	was	driven	by	sales	(excluding	buyouts)	of	$632	for	the	current	year,	representing	an increase	of	25%	over	sales	reported	in	the	prior	year,	and	favorable	persistency.	Although	benefits,	claims	and	claim	adjustment	expenses	increased,	the	segment's	loss	ratio was	74%	for	the	current	year	as	compared	to	79%	for	the	prior	year,	which	contributed	favorably	to	net	income.	The	loss	ratio	for	the	year	was	the	result	of	improved mortality	and	morbidity	experience	as	well	as	a	change	in	mix	of	business	(discussed	below)	that	results	in	a	lower	loss	ratio	and	higher	expense	ratio.	Partially	offsetting these	favorable	items	for	current	year	as	compared	to	the	prior	year	were	higher	commissions	due	to	higher	sales	and	premiums	previously	discussed.	Additionally, operating	costs	increased	due	to	the	growth	in	the	segment	and	the	CNA	Acquisition.	Consistent	with	the	increase	in	operating	costs,	the	segment's	ratio	of	insurance operating	costs	and	other	expenses	to	premiums	and	other	considerations	(excluding	buyouts)	increased	to	28%	for	the	year	ended	December	31,	2004,	respectively,	from 25%	for	prior	year.	As	part	of	the	CNA	Acquisition,	a	larger	block	of	affinity	business	is	now	included	in	the	Group	Benefits	segment.	This	business	typically	has	lower expected	loss	ratios	and	higher	expected	commission	ratios	than	other	products	within	the	business.

2003	Compared	to	2002	—	Net	income	increased	primarily	due	to	increases	in	earned	premiums	and	favorable	claims	experience.	Premium	growth	was	not	as	high	as anticipated	however	due	to	lower	sales	to	new	customers	in	2003	and	lower	persistency	on	renewals	reflecting	a	competitive	marketplace.	However,	the	segment	reported an	increase	in	total	buyout	premiums.	Buyouts	involve	the	acquisition	of	claim	liabilities	from	another	carrier	for	a	purchase	price	calculated	to	cover	the	run	off	of	those liabilities	plus	administration	expenses	and	profit.	Due	to	the	nature	of	the	buyout	marketplace,	the	predictability	of	buyout	premiums	is	uncertain.	Although,	total	benefits, claims	and	expenses	increased	for	the	year	ended	December	31,	2003,	total	benefits,	claims	and	expenses	excluding	buyouts	decreased	$43,	or	2%,	over	the	same	period. The	segment's	loss	ratio	was	79%,	down	from	81%	in	2002.	Partially	offsetting	these	factors	that	contributed	to	the	increased	net	income	was	an	increase	in	insurance operating	costs	and	other

expenses	due	to	the	premium	growth	previously	described	and	continued	investments	in	technology,	service	and	distribution.	The	segment's	ratio	of	insurance	operating costs	and	other	expenses	to	premiums	and	other	considerations	(excluding	buyouts)	was	25%,	increasing	slightly	from	23%	in	2002.

Following	the	majority	of	the	integration	effort	of	the	acquired	group	life	and	accident,	and	short-term	and	long-term	disability	businesses	of	CNA	Financial	Corporation, the	Company	anticipates	the	increased	scale	of	the	group	life	and	disability	operations	and	the	expanded	distribution	network	for	its	products	and	services	will	generate	low double	digit	sales	growth	in	2005.	Sales,	however,	may	be	negatively	affected	by	the	competitive	pricing	environment	in	the	marketplace.	Management	is	committed	to selling	competitively	priced	products	that	meet	the	Company's	internal	rate	of	return	guidelines.	The	two	significant	factors	in	evaluating	this	business	are	the	loss	ratio	and the	expense	ratio.	Based	on	historical	experience	trends	and	variability	in	the	Group	Benefits	business,	management	expects	the	loss	ratio	in	future	periods	to	be	in	the range	of	73%	to	76%	and	the	expense	ratio	to	be	in	the	range	of	27%	to	29%.

Despite	the	current	market	conditions,	including	low	interest	rates,	rising	medical	costs,	the	changing	regulatory	environment	and	cost	containment	pressure	on	employers, the	Group	Benefits	segment	continues	to	leverage	off	of	its	strength	in	claim	practices	risk	management,	service	and	distribution,	enabling	the	Company	to	capitalize	on market	opportunities.	Additionally,	employees	continue	to	look	to	the	workplace	for	a	broader	and	ever	expanding	array	of	insurance	products.	As	employers	design	benefit strategies	to	attract	and	retain	employees,	while	attempting	to	control	their	benefit	costs,	management	believes	that	the	need	for	the	Group	Benefits	segment's	products	will continue	to	expand.	This,	combined	with	the	significant	number	of	employees	who	currently	do	not	have	coverage	or	adequate	levels	of	coverage,	creates	unique opportunities	for	our	products	and	services.

Property	&	Casualty	is	organized	into	four	reportable	operating	segments:	the	underwriting	segments	of	Business	Insurance,	Personal	Lines	and	Specialty	Commercial (collectively	"Ongoing	Operations");	and	the	Other	Operations	segment.	Prior	to	the	first	quarter	of	2004,	Property	&	Casualty	had	also	included	the	domestic	assumed reinsurance	business	of	HartRe.	With	the	discontinuance	of	writing	new	assumed	domestic	reinsurance,	HartRe	assumed	reinsurance	is	now	fully	included	in	the	Other Operations	segment	for	all	periods	presented.

Property	&	Casualty	provides	a	number	of	coverages,	as	well	as	insurance	related	services,	to	businesses	throughout	the	United	States,	including	workers'	compensation, property,	automobile,	liability,	umbrella,	specialty	casualty,	marine,	agriculture,	bond,	professional	liability	and	directors	and	officers'	liability	coverages.	Property	& Casualty	also	provides	automobile,	homeowners	and	home-based	business	coverage	to	individuals	throughout	the	United	States	as	well	as	insurance-related	services	to businesses.

Property	&	Casualty	derives	its	revenues	principally	from	premiums	earned	for	insurance	coverages	provided	to	insureds,	investment	income,	and,	to	a	lesser	extent,	from fees	earned	for	services	provided	to	third	parties	and	net	realized	capital	gains	and	losses.	Premiums	charged	for	insurance	coverages	are	earned	principally	on	a	pro	rata basis	over	the	terms	of	the	related	policies	in	force.

Service	fees	principally	include	revenues	from	third	party	claims	administration	services	provided	by	Specialty	Risk	Services	and	revenues	from	member	contact	center services	provided	through	AARP's	Health	Care	Options	program.

Property	&	Casualty	underwriting	segments	are	evaluated	by	The	Hartford's	management	primarily	based	upon	underwriting	results.	Underwriting	results	represent	earned premiums	less	incurred	claims,	claim	adjustment	expenses	and	underwriting	expenses.	Underwriting	results	are	influenced	significantly	by	premium	growth	and	the adequacy	of	the	Company's	pricing.	Property	&	Casualty	seeks	to	price	its	insurance	policies	such	that	insurance	premiums	and	future	net	investment	income	earned	on premiums	received	will	cover	underwriting	expenses	and	the	ultimate	cost	of	paying	claims	reported	on	the	policies	and	provide	for	a	profit	margin.	For	many	of	its insurance	products,	Property	&	Casualty	is	required	to	obtain	approval	for	its	premium	rates	from	state	insurance	departments.

Pricing	adequacy	depends	on	a	number	of	factors,	including	the	ability	to	obtain	regulatory	approval	for	rate	changes,	proper	evaluation	of	underwriting	risks,	the	ability	to project	future	loss	cost	frequency	and	severity	based	on	historical	loss	experience	adjusted	for	known	trends,	the	Company's	response	to	rate	actions	taken	by	competitors, and	expectations	about	regulatory	and	legal	developments	and	expense	levels.

Underwriting	profitability	over	time	is	also	greatly	influenced	by	the	Company's	underwriting	discipline	which	seeks	to	manage	exposure	to	loss	through	favorable	risk selection	and	diversification	and	by	its	ability	to	manage	its	expense	ratio	which	it	accomplishes	through	economies	of	scale	and	its	management	of	acquisition	costs	and other	underwriting	expenses.

In	setting	its	pricing,	Property	&	Casualty	assumes	an	expected	level	of	losses	from	natural	or	man-made	catastrophes	that	will	cover	the	Company's	exposure	to catastrophes	over	the	long-term.	In	most	years,	however,	Property	&	Casualty's	actual	losses	from	catastrophes	will	be	significantly	more	or	less	than	that	assumed	in	its pricing	due	to	the	significant	volatility	of	catastrophe	losses.

ISO	defines	a	catastrophe	loss	as	an	event	that	causes	$25	or	more	in	industry	insured	property	losses	and	affects	a	significant	number	of	property	and	casualty policyholders	and	insurers.

Given	the	lag	in	the	period	from	when	claims	are	incurred	to	when	they	are	reported	and	paid,	final	claim	settlements	may	vary	from	current	estimates	of	incurred	losses and	loss	expenses,	particularly	when	those	payments	may	not	occur	until	well	into	the	future.	Reserves	for	lines	of	business	with	a	longer	lag	(or	"tail")	in	reporting	are more	difficult	to	estimate.	Reserve	estimates	for	longer	tail	lines	are	initially	set	based	on	loss	and	loss	expense	ratio	assumptions	estimated	when	the	business	was	priced and	are	adjusted	as	the	paid	and	reported	claims	develop,	indicating	that	the	ultimate	loss	and	loss	expense	ratio	will	differ	from	the	initial	assumptions.	Adjustments	to previously	established	loss	and	loss	expense	reserves,	if	any,	are	reflected	in	underwriting	results	in	the	period	in	which	the	adjustment	is	determined	to	be	necessary.

Through	its	Other	Operations	segment,	Property	&	Casualty	is	responsible	for	managing	operations	of	The	Hartford	that	have	discontinued	writing	new	or	renewal	business as	well	as	managing	the	claims	related	to	asbestos	and	environmental	exposures.	As	such,	the	underwriting	loss	in	Other	Operations	is	principally	related	to	claim	and	claim adjustment	expense	development.

The	Company	considers	several	measures	and	ratios	to	be	the	key	performance	indicators	for	the	property	and	casualty	underwriting	businesses.	The	following	tables	and the	segment	discussions	for	the	years	ended	December	31,	2004,	2003	and	2002	include	various	premium	measures	and	underwriting	ratios.	Management	believes	that these	measures	and	ratios	are	useful	in	understanding	the	underlying	trends	in	The	Hartford's	property	and	casualty	insurance	underwriting	business.	However,	these	key performance	indicators	should	only	be	used	in	conjunction	with,	and	not	in	lieu	of,	underwriting	income	for	the	individual	Property	&	Casualty	segments	and	net	income for	the	Property	&	Casualty	business	as	a	whole	and	may	not	be	comparable	to	other	performance	measures	used	by	the	Company's	competitors.

The	Company	aims	to	achieve	both	growth	and	profitability	in	the	Business	Insurance	and	Personal	Lines	businesses	and,	therefore,	key	performance	indicators	for	these two	segments	include	both	growth	and	profitability	measures.	Specialty	Commercial,	however,	is	comprised	of	transactional	businesses	where	premium	writings	may fluctuate	based	on	perceived	market	opportunity.	As	such,	the	key	performance	indicators	do	not	include	a	growth	objective	for	Specialty	Commercial.	The	number	of policies	in	force	is	a	growth	measure	used	for	Personal	Lines	only.

| Ongoing	Operations	Premium	Growth	Measures	and	Ratios: | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Polices\tin\tForce\tas\tof\tyear-end |  |  |  |
| Personal\tLines\tAutomobile | 2,166,922 | 2,058,825 | 2,081,208 |
| Personal\tLines\tHomeowners | 1,348,573 | 1,319,629 | 1,339,914 |
| Written\tPrice\tIncrease\t(Decrease) |  |  |  |
| Business\tInsurance | 2% | 9% | 17% |
| Personal\tLines\tAutomobile | 3% | 10% | 8% |
| Personal\tLines\tHomeowners | 9% | 14% | 13% |
| Premium\tRenewal\tRetention |  |  |  |
| Business\tInsurance | 85% | 87% | 89% |
| Personal\tLines\tAutomobile | 89% | 91% | 88% |
| Personal\tLines\tHomeowners | 100% | 101% | 99% |
| New\tBusiness\t%\tto\tNet\tWritten\tPremium |  |  |  |
| Business\tInsurance | 25% | 26% | 26% |
| Personal\tLines\tAutomobile | 18% | 15% | 17% |
| Personal\tLines\tHomeowners | 13% | 10% | 11% |

# 			Policies	in	force	as	of	year	end:

			Policies	in	force	represent	the	number	of	policies	with	coverage	in	effect	as	of	the	end	of	the	period.	In	both	automobile	and	homeowners,	the	policy	in	force	count	in 2004	has	increased	as	a	result	of	the	new	Dimensions	class	plan	rolled	out	in	the	latter	part	of	2003	and	through	the	remainder	of	2004.	The	increase	is	also	attributable	to continued	growth	in	AARP	business,	reflecting	growth	in	the	size	of	the	AARP	target	market	and	direct	marketing	programs	to	increase	premium	writings.	The	policy	in force	count	is	a	reflection	of	both	the	increase	in	new	business	and	strong	policy	renewal	retention	of	prior	year	business.	The	Company	expects	the	number	of	policies	in force	to	continue	to	increase	for	both	automobile	and	homeowners	in	2005.

# 			Written	pricing	increase	(decrease):

			Written	pricing	increase	(decrease)	over	the	comparable	period	of	the	prior	year	includes	the	impact	of	rate	filings,	the	impact	of	changes	in	the	value	of	the	rating	bases and	individual	risk	pricing	decisions.	A	number	of	factors	impact	written	pricing	increases	(decreases)	including	expected	loss	costs	as	projected	by	the	Company's pricing	actuaries,	rate	filings	approved	by	state	regulators,	risk	selection	decisions	made	by	the	Company's	underwriters	and	marketplace

		 competition.	Written	pricing	changes	reflect	the	property	and	casualty	insurance	market	cycle.	Prices	tend	to	increase	for	a	particular	line	of	business	when	insurance carriers	have	incurred	significant	losses	in	that	line	of	business	in	the	recent	past	or	the	industry	as	a	whole	commits	less	of	its	capital	to	writing	exposures	in	that	line	of business.	Prices	tend	to	decrease	when	recent	loss	experience	has	been	favorable	or	when	competition	among	insurance	carriers	increases.	In	2004,	written	pricing	in	both Business	Insurance	and	Personal	Lines	continued	to	increase,	but	at	a	slower	rate	than	in	2003.	In	2005,	the	Company	expects	written	pricing	for	Business	Insurance	to turn	slightly	negative	and	expects	written	pricing	for	Personal	Lines	to	be	slightly	positive.

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

			Within	Personal	Lines	auto,	our	overall	assumption	for	the	line	of	business	is	that	frequency	in	the	2005	accident	year	will	be	generally	flat	and	that	severity	will	continue to	increase.	This	represents	a	change	in	frequency	from	the	recent	past,	where	claim	frequency	had	declined.	Within	Personal	Lines	homeowners,	we	expect	frequency	to decrease	slightly,	compared	to	a	more	significant	decrease	in	recent	years,	and	severity	to	continue	to	increase.	Within	Business	Insurance,	expectations	are	generally	for frequency	to	be	flat,	although	we	expect	frequency	to	continue	to	decline,	albeit	moderately,	in	workers'	compensation.	As	in	Personal	Lines,	recent	history	in	Business Insurance	has	shown	more	significant	declines	in	frequency,	so	this	assumption	is	an	unfavorable	change	from	recent	years.	Consistent	with	recent	experience,	severity within	Business	Insurance	is	expected	to	increase	across	all	coverages.	For	long-tailed	lines	of	business	such	as	workers'	compensation	and	general	liability,	estimates	of severity	are	subject	to	the	same	inherent	uncertainty	as	estimates	of	loss	reserves.	Within	the	Specialty	Commercial	lines	of	business,	the	base	assumptions	for	frequency and	severity	are	similar	to	the	assumptions	for	Business	Insurance,	but	adjustments	are	made	for	the	unique	lines	of	business	and	for	the	individual	risks	or	transactions being	priced	within	Specialty	Commercial.

# 			Premium	renewal	retention:

			Premium	renewal	retention	represents	the	ratio	of	net	written	premium	in	the	current	period	that	is	not	derived	from	new	business	divided	by	total	net	written	premium	of the	prior	period.	Accordingly,	premium	renewal	retention	includes	the	impact	of	written	pricing	increases	(decreases)	on	renewed	business.	In	addition	to	written	pricing changes,	the	renewal	retention	rate	is	impacted	by	a	number	of	other	factors,	including	the	percentage	of	renewal	policy	quotes	accepted	and	decisions	by	the	Company	to non-renew	policies	because	of	specific	policy	underwriting	concerns	or	because	of	a	decision	to	reduce	premium	writings	in	certain	lines	of	business	or	states.	Premium renewal	retention	has	decreased	from	2002	to	2004	due	largely	to	the	effect	of	written	pricing	increases	on	renewals.

# 			New	business	premium	as	a	percentage	of	written	premium:

			New	business	as	a	percentage	of	written	premium	has	remained	relatively	flat	over	2003	and	2004	for	Business	Insurance	and	has	increased	for	both	Personal	Lines automobile	and	homeowners.	Personal	Lines	new	business	growth	has	been	driven	by	rate	increases	filed	in	2003	and	2004	and	by	the	rollout	of	the	Company's	new Dimensions	automobile	and	homeowner's	class	plan	in	2004.	The	Company	expects	the	percentage	of	new	business	premium	to	total	net	written	premium	to	remain relatively	steady	in	2005	as	it	continues	its	growth	initiatives	in	both	Business	Insurance	and	Personal	Lines.

| Underwriting	Profitability	Ratios	and	Measures | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Ongoing\tOperations\tratios\tand\tmeasures: |  |  |  |
| Earned\tPrice\tIncrease\t(Decrease) |  |  |  |
| Business\tInsurance | 5% | 12% | 11% |
| Personal\tLines\tAutomobile | 5% | 9% | 6% |
| Personal\tLines\tHomeowners | 11% | 14% | 7% |
| Loss\tand\tloss\tadjustment\texpense\tratio |  |  |  |
| Current\tyear | 69.2 | 68.8 | 68.2 |
| Prior\tyears\t[1] | 0.1 | 0.5 | 1.7 |
| Total\tloss\tand\tloss\tadjustment\texpense\tratio | 69.3 | 69.2 | 70.0 |
| Expense\tratio | 25.9 | 26.8 | 28.3 |
| Policyholder\tdividend\tratio | 0.1 | 0.4 | 0.8 |
| Combined\tratio | 95.3 | 96.5 | 99.1 |
| Catastrophe\tratio\t[1] | 2.2 | 3.1 | 1.4 |
| Combined\tratio\tbefore\tcatastrophes\tand\tprior\tyear\tdevelopment | 89.7 | 92.8 | 96.1 |
| Other\tOperations\tunderwriting\tresults | ($448) | ($2,840) | ($220) |

			[1]	Included	in	both	the	prior	year	loss	and	loss	adjustment	expense	ratio	and	the	catastrophe	ratio	is	prior	accident	development	on	catastrophe	losses,	including,	in 2004,	the	net	reserve	release	of	(3.1)	points	related	to	September	11.

# 			Earned	pricing	increase	(decrease):

			Because	the	Company	earns	premiums	over	the	6	to	12	month	term	of	the	policies,	earned	pricing	increases	(decreases)	lag	written	pricing	increases	(decreases)	by	6	to 12	months.	As	of	December	31,	2004,	approximately	67%	of	Personal	Lines	Agency	Auto	policies	in	force	were	6	month	policies.	Substantially	all	other	policies	in	force for	Property	and	Casualty	at	that	date	were	12	month	policies.	In	2004,	earned	pricing	increases	have	moderated	as	written	pricing	increases	over	the	prior	6	to	12	months have	declined.

			During	2004	and	2003,	the	Company's	Property	&	Casualty	operations	have	experienced	earned	pricing	increases	in	excess	of	loss	cost	increases	for	Business	Insurance and	Personal	Lines.	The	Company	expects	that	at	some	point	over	the	next	twelve	months,	loss	costs	increases	may	begin	to	outpace	earned	pricing	increases,	although the	Company	still	expects	to	earn	targeted	returns	in	each	of	its	businesses	in	2005.

# 			Loss	and	loss	adjustment	expense	ratio:

			The	current	year	loss	and	loss	adjustment	expense	ratio	is	a	measure	of	the	cost	of	claims	incurred	in	the	current	accident	year	divided	by	earned	premiums.	The	prior	year loss	and	loss	adjustment	expense	ratio	represents	the	increase	(decrease)	in	the	estimated	cost	of	settling	claims	incurred	in	prior	accident	years	as	recorded	in	the	current calendar	year	divided	by	earned	premiums.	Among	other	factors,	the	loss	and	loss	adjustment	expense	ratio	needed	for	the	Company	to	achieve	its	targeted	return	on equity	fluctuates	from	year	to	year	based	on	changes	in	the	expected	investment	yield	over	the	claim	settlement	period,	the	timing	of	expected	claim	settlements	and	the targeted	returns	set	by	management	based	on	the	competitive	environment.	While	relatively	flat	from	2003,	the	2004	current	accident	year	loss	and	loss	adjustment expense	ratio	is	lower	than	anticipated	at	the	time	management	set	its	pricing,	principally	because	the	change	in	the	number	of	reported	claims	per	unit	of	exposure	(or "claim	frequency")	for	property	losses	has	been	lower	than	originally	expected.

			Management	does	not	expect	claim	frequency	for	property	coverages	to	continue	to	be	as	favorable	in	the	future.	In	2005,	management	expects	the	current	accident	year loss	and	loss	adjustment	expense	ratio	to	increase	modestly	as	earned	pricing	increases	moderate.	Management	expects	claim	frequency	to	remain	relatively	flat	and expects	claim	severity	to	increase	as	a	result	of	inflation	in	claim	settlement	costs,	driven	principally	by	medical	cost	inflation,	property	value	increases	and	other indemnity	cost	increases.	Expected	increases	in	total	loss	costs,	however,	are	expected	to	be	partially	offset	by	reductions	in	loss	adjustment	expenses	per	claim.

			Reserve	estimates,	including	reserves	for	catastrophe	claims,	are	inherently	uncertain.	While	the	Company	believes	its	recorded	reserves	are	established	at	a	level	to	meet the	ultimate	cost	of	unpaid	claims,	reserve	estimates	may	change	in	the	future	based	on	information	or	trends	that	are	not	currently	known.	See	"Reserves"	below	for	a discussion	of	prior	accident	year	loss	development	and	"Critical	Accounting	Estimates"	for	a	discussion	of	current	trends	contributing	to	reserve	uncertainty	and	the impact	of	changes	in	key	assumptions	on	reserve	volatility.

# 			Expense	ratio:

			The	expense	ratio	is	the	ratio	of	underwriting	expenses,	excluding	bad	debt	expense,	to	earned	premiums.	Underwriting	expenses	include	the	amortization	of	deferred policy	acquisition	costs	and	insurance	operating	costs	and	expenses.	Deferred	policy	acquisition	costs	include	commissions,	taxes,	licenses	and	fees	and	other underwriting	expenses	and	are	amortized	over	the	policy	term.	While	changes	in	the	expense	ratio	vary	by	segment,	the	overall	expense	ratio	for	Ongoing	segments

			has	decreased	during	the	period	from	2002	to	2004,	principally	due	to	the	increase	in	earned	premium	and	due	to	cost	containment	measures	undertaken	by	management. In	Business	Insurance	and	Personal	Lines,	the	expense	ratio	is	expected	to	decrease	further	in	2005,	largely	as	a	result	of	expected	increases	in	earned	premium.	In Specialty	Commercial,	the	expense	ratio	is	expected	to	increase	slightly	in	2005	due	to	changes	in	the	business	mix,	most	notably	the	Company's	decision	in	the	fourth quarter	of	2004	to	exit	the	multi-peril	crop	insurance	program	which	will	eliminate	significant	expense	reimbursements	from	the	Specialty	Commercial	segment.

# 			Policyholder	dividend	ratio:

			The	policyholder	dividend	ratio	is	the	ratio	of	policyholder	dividends	to	earned	premium.

# 			Combined	ratio:

			The	combined	ratio	is	the	sum	of	the	loss	and	loss	adjustment	expense	ratio,	the	expense	ratio	and	the	policyholder	dividend	ratio.	This	ratio	is	a	relative	measurement	that describes	the	related	cost	of	losses	and	expense	for	every	$100	of	earned	premiums.	A	combined	ratio	below	100.0	demonstrates	underwriting	profit;	a	combined	ratio above	100.0	demonstrates	underwriting	losses.	The	combined	ratio	has	decreased	from	2003	to	2004	primarily	because	of	improvement	in	the	expense	ratio.	The combined	ratio	in	2005	could	be	significantly	higher	or	lower	than	the	2004	combined	ratio	depending	on	the	level	of	catastrophe	losses,	but	will	also	be	impacted	by changes	in	pricing	and	an	expected	moderation	in	favorable	loss	cost	trends.

# 			Catastrophe	ratio:

			The	catastrophe	ratio	(a	component	of	the	loss	and	loss	adjustment	expense	ratio)	represents	the	ratio	of	catastrophe	losses	(net	of	reinsurance)	to	earned	premiums.	A catastrophe	is	an	event	that	causes	$25	or	more	in	industry	insured	property	losses	and	affects	a	significant	number	of	property	and	casualty	policyholders	and	insurers. By	their	nature,	catastrophe	losses	vary	dramatically	from	year	to	year.	Based	on	the	mix	and	geographic	dispersion	of	premium	written	and	estimates	derived	from various	catastrophe	loss	models,	the	Company's	expected	catastrophe	ratio	over	the	long-term	is	3.0	points.	Before	considering	the	reduction	in	Ongoing	Operation's catastrophe	reserves	related	to	September	11	of	$298	in	2004,	the	catastrophe	ratio	in	2004	was	5.3	points.	See	"Risk	Management	Strategy"	below	for	a	discussion	of	the Company's	property	catastrophe	risk	management	program	that	serves	to	mitigate	the	Company's	net	exposure	to	catastrophe	losses.

# 			Combined	ratio	before	catastrophes	and	prior	accident	year	development:

			The	combined	ratio	before	catastrophes	and	prior	accident	year	development	represents	the	combined	ratio	for	the	current	accident	year,	excluding	the	impact	of catastrophes.	The	Company	believes	this	ratio	is	an	important	measure	of	the	trend	in	profitability	since	it	removes	the	impact	of	volatile	and	unpredictable	catastrophe losses	and	prior	accident	year	reserve	development.	Before	considering	catastrophes,	the	combined	ratio	related	to	current	accident	year	business	has	improved	from 2002	to	2004	principally	due	to	earned	pricing	increases	and	favorable	claim	frequency.

# 			Other	Operations	underwriting	results:

			The	Other	Operations	segment	is	responsible	for	managing	operations	of	The	Hartford	that	have	discontinued	writing	new	or	renewal	business	as	well	as	managing	the claims	related	to	asbestos	and	environmental	exposures.	As	such,	neither	earned	premiums	nor	underwriting	ratios	are	meaningful	financial	measures.	Instead, management	believes	that	underwriting	result	is	a	more	meaningful	measure.	The	net	underwriting	loss	for	2002	through	2004	is	primarily	due	to	prior	accident	year	loss development,	including	$2.6	billion	of	net	asbestos	reserve	strengthening	in	2003.	Reserve	estimates	within	Other	Operations,	including	estimates	for	asbestos	and environmental	claims,	are	inherently	uncertain.	Refer	to	the	Other	Operations	segment	MD&A	for	further	discussion	of	Other	Operation's	underwriting	results.

# Total	Property	&	Casualty	Investment	Earnings

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Investment\tyield,\tafter-tax | 4.1% | 4.2% | 4.5% |
| Net\trealized\tcapital\tgains\t(losses),\tafter-tax | $87 | $165 | $(44) |

The	investment	return,	or	yield,	on	Property	&	Casualty's	invested	assets	is	an	important	element	of	the	Company's	earnings	since	insurance	products	are	priced	with	the assumption	that	premiums	received	can	be	invested	for	a	period	of	time	before	loss	and	loss	adjustment	expenses	are	paid.	For	longer	tail	lines,	such	as	workers' compensation	and	general	liability,	claims	are	paid	over	several	years	and,	therefore,	the	premiums	received	for	these	lines	of	business	can	generate	significant	investment income.

HIM	determines	the	appropriate	allocation	of	investments	by	asset	class	and	measures	the	investment	yield	performance	for	each	asset	class	against	market	indices	or	other benchmarks.	Due	to	the	emphasis	on	preservation	of	capital	and	the	need	to	maintain	sufficient	liquidity	to	satisfy	claim	obligations,	the	vast	majority	of	Property	and Casualty's	invested	assets	have	been	held	in	fixed	maturities,	including,	among	other	asset	classes,	corporate	bonds,	municipal	bonds,	government	debt,	short-term	debt, mortgage-

backed	securities	and	asset-backed	securities.	As	of	both	December	31,	2004	and	2003,	approximately	96%	of	Property	&	Casualty's	invested	assets	were	held	in	fixed maturities.

The	Company's	actual	investment	yields	are	influenced	primarily	by,	among	other	factors,	changes	in	market	interest	rates,	prepayments	on	mortgage-backed	securities	and the	credit-worthiness	of	individual	issuers.	During	2005,	management	expects	after-tax	investment	yields	to	decrease	slightly	as	the	before-tax	rate	on	newly	invested	funds is	expected	to	be	4.8%	to	5.0%	in	2005,	compared	to	a	before-tax	investment	yield	of	5.4%	in	2004.

When	fixed	maturity	or	equity	investments	are	sold,	net	realized	capital	gains	(losses)	are	realized.	Individual	securities	may	be	sold	for	a	variety	of	reasons,	including	a decision	to	change	the	Company's	asset	allocation	in	response	to	market	conditions	and	the	need	to	liquidate	funds	to	meet	large	claim	settlements	Accordingly,	net	realized capital	gains	(losses)	for	any	particular	period	are	not	predictable	and	can	vary	significantly.	Refer	to	the	Investment	section	for	further	discussion	of	net	investment	income and	net	realized	capital	gains	(losses).

# Risk	Management	Strategy

The	Hartford's	property	and	casualty	operations	have	well-developed	processes	to	manage	catastrophic	risk	exposures	to	natural	catastrophes,	such	as	hurricanes	and earthquakes,	and	other	perils,	such	as	terrorism.	These	processes	involve	establishing	underwriting	guidelines	for	both	individual	risks	and	in	aggregate	including	individual policy	limits	and	aggregate	exposure	limits	by	geographic	zone	and	peril.	The	Company	establishes	exposure	limits	and	actively	monitors	the	risk	exposures	as	a	percent	of Property	and	Casualty	surplus.	Generally	the	Company	limits	its	exposure	to	natural	catastrophes	from	a	single	250-year	event	to	less	than	30%	of	property	and	casualty statutory	surplus	for	losses	prior	to	reinsurance	and	to	less	than	15%	of	property	and	casualty	statutory	surplus	for	losses	net	of	reinsurance.	In	specifically	identified locations,	the	Company	manages	aggregate	terrorism	exposures	including	exposures	resulting	from	the	Company's	Group	Life	operations.	The	aggregate	terrorism exposure	in	these	locations,	as	measured	by	specific	loss	scenarios,	is	generally	limited	to	an	amount	equivalent	to	approximately	7%	of	the	combined	statutory	surplus	of the	life	and	property	and	casualty	operations.	The	Company	monitors	exposures	monthly	and	employs	both	internally	developed	and	externally	purchased	loss	modeling tools.

The	Hartford	utilizes	reinsurance	to	manage	risk	and	transfer	exposures	to	well-established	and	financially	secure	reinsurers.	Reinsurance	is	used	to	manage	aggregate exposures	as	well	as	specific	risks	based	on	accumulated	property	and	casualty	liabilities	in	certain	geographic	zones.	All	treaty	purchases	related	to	the	Company's property	and	casualty	operations	are	administered	by	a	centralized	function	to	support	a	consistent	strategy	and	ensure	that	the	reinsurance	activities	are	fully	integrated	into the	organization's	risk	management	processes.

To	minimize	the	potential	credit	risk	resulting	from	the	use	of	reinsurance,	a	centralized	group	evaluates	the	credit	standing	of	potential	reinsurers	and	establishes	the Company's	schedule	of	approved	reinsurers.	The	assessment	process	reviews	reinsurers	against	a	set	of	financial	and	management	criteria	and	distinguishes	between	long- tail	casualty	and	short-tail	property	business.	A	committee	meets	regularly	to	review	activity	with	each	reinsurer	and	affirm	the	schedule	of	approved	reinsurers.

A	variety	of	traditional	reinsurance	products	are	used	in	the	development	and	execution	of	the	risk	management	strategy.	The	risk	transfer	products	used	include	excess	of loss	occurrence-based	products	that	protect	aggregate	property	and	workers	compensation	exposures,	and	individual	risk	or	quota	share	products,	that	protect	specific classes	or	lines	of	business.	There	are	currently	no	significant	finite	risk	contracts	in	place	and	the	current	statutory	surplus	benefit	from	all	such	prior	year	contracts	is immaterial.	Facultative	reinsurance	is	also	used	to	manage	policy-specific	risk	exposures	based	on	established	underwriting	guidelines.	The	Hartford	also	participates	in governmentally	administered	reinsurance	facilities	such	as	the	Florida	Hurricane	Catastrophe	Fund	("FHCF"),	the	facility	provided	by	The	Terrorism	Risk	Insurance	Act	of 2002	and	other	reinsurance	programs	relating	to	particular	risks	or	specific	lines	of	business.

The	Hartford's	principal	catastrophe	reinsurance	program	provides	coverage,	on	average,	for	88%	of	the	$695	of	catastrophic	property	losses	incurred	from	a	single	event	in excess	of	a	$125	retention.	The	exact	amount	and	percentage	of	coverage	varies	by	layer.	In	addition	to	the	reinsurance	protection	provided	by	The	Hartford's	principal catastrophe	reinsurance	program,	in	November	2004,	the	Company	purchased	two	fully	collateralized,	four-year	reinsurance	coverages	for	losses	sustained	from	qualifying hurricane	and	earthquake	loss	events.	The	Company	purchased	this	reinsurance	from	Foundation	Re,	a	Cayman	Islands	reinsurance	company,	which	financed	the	provision of	reinsurance	through	the	issuance	of	$248	in	catastrophe	bonds	to	investors	under	two	separate	bond	tranches.	The	first	coverage	provides	reinsurance	protection	above the	Company's	principal	reinsurance	program	and	covers	losses	arising	from	large	hurricane	loss	events	affecting	the	Gulf	and	Eastern	Coast	of	the	United	States.	The coverage	reinsures	45%	of	$400	in	losses	in	excess	of	an	index	loss	trigger	of	$1.3	billion.	The	index	trigger	has	an	estimated	probability	of	attachment	of	approximately	1- in-100	years.	The	second	coverage	purchased	by	the	Company	reinsures	90%	of	$75	in	losses	in	excess	of	$125	in	losses	arising	from	qualifying	hurricane	and	earthquake events.	Qualifying	hurricane	and	earthquake	events	are	those	which	occur	in	the	year	following	a	large	hurricane	or	earthquake	event	that	has	an	estimated	occurrence probability	of	1-in-100	years.

The	Terrorism	Risk	Insurance	Act	of	2002	established	a	program	that	will	run	through	2005	that	provides	a	backstop	for	insurance-related	losses	resulting	from	any	"act	of terrorism"	certified	by	the	Secretary	of	the	Treasury,	in	concurrence	with	the	Secretary	of	State	and	Attorney	General.	Under	the	program,	the	federal	government	would pay	90%	of	covered	losses	after	an	insurer's	losses	exceed	15%	of	the	Company's	direct	commercial	earned	premiums	in	2004,	up	to	a	combined	annual	aggregate	limit	for the	federal

government	and	all	insurers	of	$100	billion.	If	an	act	of	terrorism	or	acts	of	terrorism	result	in	covered	losses	exceeding	the	$100	billion	annual	limit,	insurers	with	losses exceeding	their	deductibles	will	not	be	responsible	for	additional	losses.

Presently,	no	material	catastrophe	reinsurance	capacity	exists	for	certified	acts	of	terrorism,	including	those	related	to	nuclear,	biological,	chemical	or	radiological	attack. The	Company	actively	manages	its	exposures	to	the	peril	of	terrorism	and	has	reduced	exposures	in	specific	locations	through	underwriting	actions.	The	Company	has worked	with	various	industry	groups	to	develop	policy	exclusions	related	to	the	peril	of	terrorism,	including	those	associated	with	nuclear,	biological,	chemical	and radiological	attacks.	The	Company	may	include	such	exclusions	in	policies	in	the	future	in	those	jurisdictions	and	classes	of	business	where	such	exclusions	are	permitted, and	take	additional	underwriting	actions	as	deemed	appropriate.

| Property	and	Casualty	Operating	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Earned\tpremiums | $9,494 | $8,805 | $8,114 |
| Net\tinvestment\tincome | 1,248 | 1,172 | 1,060 |
| Other\trevenues\t[1] | 436 | 428 | 356 |
| Net\trealized\tcapital\tgains\t(losses) | 133 | 253 | (68) |
| Total\trevenues | 11,311 | 10,658 | 9,462 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses\t[2],[3] |  |  |  |
| Current\tyear | 6,590 | 6,102 | 5,577 |
| Prior\tyear\t[4] | 414 | 2,824 | 293 |
| Total\tbenefits,\tclaims\tand\tclaim\tadjustment\texpenses | 7,004 | 8,926 | 5,870 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts | 1,850 | 1,642 | 1,613 |
| Insurance\toperating\tcosts\tand\texpenses | 643 | 779 | 782 |
| Other\texpenses\t[5] | 629 | 634 | 542 |
| Total\tbenefits,\tclaims\tand\texpenses | 10,126 | 11,981 | 8,807 |
| Income\t(loss)\tbefore\tincome\ttaxes | 1,185 | (1,323) | 655 |
| Income\ttax\texpense\t(benefit)\t[6] | 275 | (578) | 112 |
| Net\tincome\t(loss)\t[7] | $910 | $(745) | $543 |
| Ongoing\tOperations\tUnderwriting\tRatios\t[8] |  |  |  |
| Loss\tand\tloss\tadjustment\texpense\tratio |  |  |  |
| Current | 69.2 | 68.8 | 68.2 |
| Prior\tyear | 0.1 | 0.5 | 1.7 |
| Total\tloss\tand\tloss\tadjustment\texpense\tratio | 69.3 | 69.2 | 70.0 |
| Expense\tratio | 25.9 | 26.8 | 28.3 |
| Policyholder\tdividend\tratio | 0.1 | 0.4 | 0.8 |
| Combined\tratio | 95.3 | 96.5 | 99.1 |
| Catastrophe\tratio | 2.2 | 3.1 | 1.4 |
| Combined\tratio\tbefore\tcatastrophes | 93.1 | 93.4 | 97.6 |
| Combined\tratio\tbefore\tcatastrophes\tand\tprior\taccident\tyear\tdevelopment | 89.7 | 92.8 | 96.1 |

# [1]Primarily	servicing	revenue.

[2]Includes	the	impact	of	2003	asbestos	reserve	addition	of	$2,604.

[3]Includes	2004	catastrophes	of	$507,	before	the	net	reserve	release	of	$395	related	to	September	11.

[4]Net	prior	year	incurred	losses	includes	reserve	strengthening	for	construction	defects	claims	of	$190,	a	reduction	in	net	reinsurance	recoverable	asset	of	$181,

environmental	reserve	strengthening	of	$75,	an	increase	in	reserves	of	$170	for	HartRe	assumed	reinsurance,	partially	offset	by	the	net	reserve	release	of	$395	related to	September	11.

[6]Includes	$26	tax	benefit	related	to	tax	years	prior	to	2004.

[8]Ratios	do	not	include	the	effects	of	Other	Operations.	Refer	to	the	"Ratios"	section	below	for	definitions	of	the	underwriting	ratios.

2004	Compared	to	2003	—	Total	revenues	for	Property	&	Casualty	increased	$653	for	the	year	ended	December	31,	2004.	The	increase	was	due	primarily	to	earned premium	growth	of	$689	and	an	increase	in	investment	income	of	$76,	partially	offset	by	a	decrease	in	realized	capital	gains	of	$120.	The	increase	in	earned	premiums	in the	Business	Insurance,	Personal	Lines	and	Specialty	Commercial	segments	was	due	to	earned	pricing	increases	and	growth	in	new	business	premiums	outpacing	non- renewals	for	Personal	Lines	and	Business	Insurance.	Additionally,	earned	premium	growth	was	partially	offset	by	a	$90	decrease	reflecting	a	reduction	in	estimated	earned premium	under	retrospectively-rated	policies.	The	increase	in	investment	income	of	$76	is	primarily	driven	by	an	increase	in	underwriting	cash	flow,	partially	offset	by	a decrease	in	the	after-tax	investment	yield.

Net	income	for	the	year	ended	December	31,	2004	increased	$1.7	billion,	primarily	due	to	the	net	asbestos	reserve	strengthening	of	$1.7	billion,	after-tax,	in	the	first	quarter of	2003,	a	decrease	in	after-tax	catastrophe	losses	related	to	September	11	of	$257	and	an	improved	combined	ratio	before	catastrophes	and	prior	accident	year development	in	Business	Insurance,	Personal	Lines	and	Specialty	Commercial.	The	increase	in	net	income	is	partially	offset	by	an	increase	in	after-tax	catastrophe	losses	of $159	before	considering	the	September	11	reserve	release,	a	decrease	in	after-tax	realized	capital	gains	of	$78,	and	an	increase	in	after-tax	prior

accident	year	development	of	$383	before	considering	both	the	September	11	reserve	release	and	the	2003	net	asbestos	reserve	strengthening.	Before	the	September	11 reserve	release,	after-tax	catastrophe	losses	in	2004	of	$330	includes	after-tax	losses	of	$76	from	Hurricane	Charley,	$69	from	Hurricane	Frances,	$54	from	Hurricane	Ivan and	$60	from	Hurricane	Jeanne.	Before	the	September	11	reserve	release,	2004	prior	accident	year	development	of	$526,	after-tax,	includes,	among	other	movements,	a $124	after-tax	reserve	strengthening	for	construction	defect	claims,	a	$118	after-tax	provision	related	to	a	reduction	in	the	reinsurance	recoverable	asset	on	older,	long-term casualty	liabilities,	a	$111	after-tax	increased	in	assumed	casualty	reinsurance	reserves,	and	a	$49	after-tax	increase	in	environmental	reserves.	The	combined	ratio	before catastrophes	and	prior	accident	year	development	for	Ongoing	Operations	improved	by	3.1	points,	from	92.8	in	2003	to	89.7	in	2004.	Strong	earned	pricing	and	favorable claim	frequency	contributed	to	the	improvement	across	Business	Insurance,	Personal	Lines	and	Specialty	Commercial.

2003	Compared	to	2002	—	Revenues	for	Property	&	Casualty	increased	$1.2	billion	for	the	year	ended	December	31,	2003.	The	improvement	was	due	primarily	to	earned premium	growth	in	the	Business	Insurance,	Specialty	Commercial	and	Personal	Lines	segments,	primarily	as	a	result	of	earned	pricing	increases,	as	well	as	an	increase	in net	realized	capital	gains	of	$321,	and	an	increase	in	net	investment	income	of	$112.	Partially	offsetting	the	increase	was	a	$412	earned	premium	decline	in	the	Other Operations	segment	primarily	as	a	result	of	the	Company's	decision	to	withdraw	from	the	assumed	reinsurance	business	as	discussed	more	fully	below.

On	May	16,	2003,	as	part	of	the	Company's	decision	to	withdraw	from	the	assumed	reinsurance	business,	the	Company	entered	into	a	quota	share	and	purchase	agreement with	Endurance	Reinsurance	Corporation	of	America	("Endurance")	whereby	HartRe	assumed	reinsurance	retroceded	the	majority	of	its	domestic	inforce	book	of	business as	of	April	1,	2003	and	sold	renewal	rights	to	Endurance.	Under	the	quota	share	agreement,	Endurance	reinsured	most	of	the	segment's	assumed	reinsurance	contracts	that were	written	on	or	after	January	1,	2002	and	that	had	unearned	premium	as	of	April	1,	2003.	In	consideration	for	Endurance	reinsuring	the	unearned	premium	as	of	April	1, 2003,	the	Company	paid	Endurance	an	amount	equal	to	unearned	premiums	less	the	related	unamortized	commissions/deferred	acquisition	costs.	Under	the	quota	share agreement,	Endurance	pays	an	override	commission	based	on	a	percentage	of	all	ceded	premium	and	a	profit	sharing	commission	based	on	the	performance	of	property treaty,	property	catastrophe	and	aviation	pool	unearned	premium.	Both	the	override	commission	and	the	profit	sharing	commission	are	recognized	as	income	over	the period	the	ceded	contracts	are	in	force.	Under	the	purchase	agreement,	Endurance	will	pay	a	renewal	rights	fee,	subject	to	a	guaranteed	minimum	of	$15,	based	on	the	level of	renewal	premium	on	the	reinsured	contracts	over	the	two	year	period	following	the	agreement.	Given	that	the	Company	did	not	have	a	continuing	obligation	with	respect to	the	renewal	rights,	the	guaranteed	minimum	was	recorded	in	income	during	the	second	quarter	of	2003,	when	the	purchase	agreement	was	entered.	During	the	first quarter	of	2004,	the	Company	fully	transferred	HartRe	assumed	reinsurance	to	its	Other	Operations	segment,	where	it	remains	subject	to	ongoing	reserve	development relating	to	all	retained	business.

Net	income	decreased	$1.3	billion	for	the	year	ended	December	31,	2003	primarily	due	to	the	net	asbestos	reserve	strengthening	of	$1.7	billion,	after-tax,	in	the	first	quarter of	2003.	Results	for	the	year	were	favorably	impacted	by	an	increase	in	net	realized	capital	gains	(losses)	and	improved	underwriting	results	in	the	Personal	Lines	and Business	Insurance	segments.	Strong	earned	pricing	and	favorable	claim	frequency	resulted	in	an	increase	in	underwriting	results	in	both	the	Personal	Lines	and	Business Insurance	segments.	In	addition,	net	investment	income,	after-tax,	rose	$69	for	the	year	ended	December	31,	2003	due	to	higher	invested	assets,	primarily	from	strong	cash flows	and	additional	capital	raised	during	the	second	quarter	of	2003.

On	September	1,	2003,	the	Company	sold	a	wholly	owned	subsidiary,	Trumbull	Associates,	LLC,	for	$33,	resulting	in	a	gain	of	$15,	after-tax.	The	gain	is	included	in	net realized	capital	gains.	The	revenues	and	net	income	of	Trumbull	Associates,	LLC	were	not	material	to	the	Company	or	the	Property	&	Casualty	operation.

Reserving	for	property	and	casualty	losses	is	an	estimation	process.	As	additional	experience	and	other	relevant	claim	data	become	available,	reserve	levels	are	adjusted accordingly.	Such	adjustments	of	reserves	related	to	claims	incurred	in	prior	years	are	a	natural	occurrence	in	the	loss	reserving	process	and	are	referred	to	as	"reserve development".	Reserve	development	that	increases	previous	estimates	of	ultimate	loss	cost	is	called	"reserve	strengthening".	Reserve	development	that	decreases	previous estimates	of	ultimate	loss	cost	is	called	"reserve	releases".	Reserve	development	can	influence	the	comparability	of	year	over	year	underwriting	results	and	is	set	forth	in	the paragraphs	and	tables	that	follow.	The	"prior	accident	year	development"	in	the	following	table	represents	the	ratio	of	reserve	development	to	earned	premiums.	For	a detailed	discussion	of	the	Company's	reserve	policies,	see	Notes	1,	11	and	12	of	Notes	to	Consolidated	Financial	Statements	and	the	discussion	in	Critical	Accounting Estimates.

A	rollforward	of	liabilities	for	unpaid	claims	and	claim	adjustment	expenses	by	segment	for	Property	&	Casualty	follows:

|  | Business<br>Insurance | Personal<br>Lines | Specialty<br>Commercial | Ongoing<br>Operations | Other<br>Operations	[2] | Total<br>P&amp;C |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Beginning\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-gross | $5,296 | $1,733 | $5,148 | $12,177 | $9,538 | $21,715 |
| Reinsurance\tand\tother\trecoverables | 395 | 43 | 2,096 | 2,534 | 2,963 | 5,497 |
| Beginning\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-net | 4,901 | 1,690 | 3,052 | 9,643 | 6,575 | 16,218 |
| Provision\tfor\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |  |  |  |
| Current\tyear | 2,700 | 2,509 | 1,345 | 6,554 | 36 | 6,590 |
| Prior\tyears | (67) | 3 | 69 | 5 | 409 | 414 |
| Total\tprovision\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses | 2,633 | 2,512 | 1,414 | 6,559 | 445 | 7,004 |
| Less:\tPayments\t[1] | (1,951) | (2,392) | (1,038) | (5,381) | (1,650) | (7,031) |
| Ending\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-net | 5,583 | 1,810 | 3,428 | 10,821 | 5,370 | 16,191 |
| Reinsurance\tand\tother\trecoverables | 474 | 190 | 2,091 | 2,755 | 2,383 | 5,138 |
| Ending\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-gross | $6,057 | $2,000 | $5,519 | $13,576 | $7,753 | $21,329 |
| Earned\tpremiums | $4,299 | $3,445 | $1,726 | $9,470 | $24 | $9,494 |
| Loss\tand\tloss\texpense\tpaid\tratio\t[3] | 45.4 | 69.4 | 59.9 | 56.8 |  |  |
| Loss\tand\tloss\texpense\tincurred\tratio | 61.2 | 72.9 | 81.9 | 69.3 |  |  |
| Prior\taccident\tyear\tdevelopment\t(pts.) | (1.6) | 0.1 | 4.0 | 0.1 |  |  |

# [1]	Other	Operations	included	payments	pursuant	to	the	MacArthur	settlement.

[2]	The	financial	results	of	HartRe	assumed	reinsurance	are	reported	in	Other	Operations.

[3]	The	"loss	and	loss	expense	paid	ratio"	represents	the	ratio	of	paid	claims	and	claim	adjustment	expenses	to	earned	premiums.

# Ongoing	Operations

At	the	end	of	2003,	several	areas	of	reserve	exposure	were	being	closely	monitored.	Consistent	with	the	Company's	practices	to	regularly	review	its	reserves,	the	Company continued	to	monitor	these	reserve	exposures	and	completed	several	reserve	studies,	including	studies	related	to	September	11	reserves	and	construction	defects	claims.	As a	result	of	these	monitoring	activities	and	studies,	during	the	first	quarter	of	2004,	the	Company	made	reserve	adjustments	with	regard	to	certain	of	those	reserve	exposures, most	notably	related	to	September	11	and	construction	defects.	During	2004,	the	Company	made	other	reserve	adjustments	based	on	regular	reserve	evaluations	performed each	quarter.	These	reserve	adjustments,	and	the	effects	on	the	Company's	segments,	are	more	fully	discussed	in	the	paragraphs	that	follow.

With	respect	to	September	11	claim	reserves,	the	Company	observed	favorable	developments,	including	the	closure	of	all	but	44	primary	insurance	property	cases,	a	high participation	rate	within	the	Victim's	Compensation	Fund	and	the	expiration	of	the	deadline	for	filing	a	liability	claim	in	March	2004.	Based	on	these	favorable	events,	the Company	determined	that	it	was	appropriate	to	reduce	both	the	gross	and	net	estimate	of	loss	from	September	11.	The	Company's	(Ongoing	Operations	and	Other Operations)	gross	estimate	of	loss	of	$1.1	billion	was	reduced	to	$845.	The	corresponding	reduction	in	net	reserves	for	September	11	related	to	Ongoing	Operations	was $175	in	Business	Insurance,	$116	in	Specialty	Commercial	and	$7	in	Personal	Lines.	As	of	December	31,	2004,	loss	and	loss	expense	reserves	remaining	related	to September	11,	both	gross	and	net	of	reinsurance,	are	as	follows:

| Segment | September	11<br>Gross	Reserves	as	of	December	31,	2004 | September	11<br>Net	Reserves	as	of	December	31,	2004 |
| :--- | :--- | :--- |
| Personal\tLines | $0 | $0 |
| Business\tInsurance | 160 | 37 |
| Specialty\tCommercial | 66 | 37 |
| Total\tOngoing\tOperations | $226 | $74 |

Substantially	all	of	the	net	reserve	balance	is	incurred	but	not	reported	("IBNR")	and	the	majority	of	the	balance	is	related	to	workers'	compensation	exposures.

The	Company	has	exposure	to	losses	from	construction	defects,	particularly	from	contractors	in	California.	The	Company's	exposure	to	losses	from	construction	defects relates	primarily	to	years	prior	to	2000.	The	Company	has	been	evaluating	and	closely	monitoring	these	reserves.	Based	on	the	Company's	2004	reserve	study	that	used various	predictive	models	and	reflected	the	increasing	severity	of	construction	defect	claims,	the	Company	concluded	an	increase	in	reserves	of	$190	was	required.	This increase	consisted	of	$23	for	Business	Insurance	and	$167	for	Specialty	Commercial	and	is	included	in	the	general	liability	line	of	business.	As	of	December	31,	2004, reserves	for	Specialty	Commercial	general	liability,	net	of	reinsurance,	were	$1,125.	The	$167	strengthening	related	to	Specialty	Commercial	represents	15%	of	the	net reserves.

In	addition	to	the	release	in	September	11	reserves	and	strengthening	for	construction	defect	claims,	Business	Insurance	reserves	were	strengthened	by	$85	during	2004. Most	of	this	reserve	strengthening	relates	to	auto	liability	($25)	and	package	business	($38),	reflecting	an	increase	in	the	actuarial	estimates	of	ultimate	incurred	losses	for these	lines,	attributable	to	accident	years	1998-2002.	As	of	December	31,	2004,	Business	Insurance	reserves	for	auto	liability,	net	of	reinsurance,	were	$549.	The	$25	of strengthening	represents	5%	of	the	net	reserves.	Package	business	reserves,	net	of	reinsurance,	for	Business	Insurance	as	of	December	31,	2004	were	$1,499,	so	the	$38	of strengthening	represents	3%	of	the	net	reserves.	During	normal	quarterly	reserve	reviews,	the	Company's	actuaries	noted	that,	for	both	auto	liability	and	package	business, actual	reported	losses	were	above	previous	expectations.	In	particular,	the	analysis	indicated	that	there	was	a	higher	frequency	of	large	claims	(generally	those	greater	than $100,000)	than	had	been	anticipated	in	prior	estimates.	The	Company	increased	its	estimate	of	ultimate	incurred	losses	to	recognize	this.

In	addition	to	the	foregoing	reserve	adjustments,	within	the	Specialty	Commercial	segment	there	were	other	offsetting	positive	and	negative	adjustments.	The	principal offsetting	adjustments	related	to	a	strengthening	in	specialty	large	deductible	workers'	compensation	reserves	and	a	release	in	other	liability	reserves,	each	approximately $150.

Reserves	and	reserve	activity	in	the	Other	Operations	segment	are	categorized	and	reported	as	asbestos,	environmental	or	"all	other"	activity.	Total	net	reserve strengthening	for	Other	Operations	was	$409	in	2004,	including	$262	of	strengthening	for	asbestos	and	environmental	reserves.	The	asbestos	and	environmental strengthening	primarily	includes	a	$75	increase	in	environmental	reserves	and	a	$181	reduction	in	the	reinsurance	recoverable	asset	associated	with	older,	long-term casualty	liabilities,	including	asbestos	liabilities.	These	actions	are	further	discussed	in	the	Other	Operations	segment	MD&A	discussion.

The	largest	component	of	the	remaining	$147	of	net	"all	other"	strengthening	for	Other	Operations	was	related	to	assumed	casualty	reinsurance.	The	"all	other"	category	of reserves	covers	a	wide	range	of	insurance	and	assumed	reinsurance	coverages,	including,	but	not	limited	to,	potential	liability	for	breast	implants,	construction	defects,	lead paint,	molestation,	silica,	pharmaceutical	products	and	other	long-tail	liabilities.	As	of	December	31,	2004,	total	reserves	for	HartRe	assumed	reinsurance	and	"all	other" liabilities	within	Other	Operations,	net	of	ceded	reinsurance,	were	$2.5	billion,	so	the	$147	strengthening	represents	a	6%	of	these	reserves.

The	Company	has	been	evaluating	and	closely	monitoring	assumed	reinsurance	reserves	in	Other	Operations.	During	2003	and	2002,	the	Company	booked	unfavorable reserve	development	of	$129	and	$77,	respectively.	Unfavorable	trends	continued	during	2004	and,	as	a	result,	the	Company	increased	reserves	by	$170.	The	majority	of the	$170	increase	was	for	assumed	casualty	treaty	reinsurance	for	the	years	1997	through	2001.	Assumed	reinsurance	exposures	are	inherently	less	predictable	than	direct insurance	exposures	because	the	Company	may	not	receive	notice	of	a	reinsurance	claim	until	the	underlying	direct	insurance	claim	is	mature.	This	causes	a	delay	in	the receipt	of	information	from	the	ceding	companies.	In	recent	years,	the	Company	has	seen	an	increase	in	reported	claims	above	previous	expectations	and	this	increase	in reported	claims	contributed	to	the	reserve	re-estimates.

As	noted	in	the	Ongoing	Operations	discussion,	the	Company	continued	to	observe	favorable	developments	with	respect	to	reserves	related	to	September	11.	Particularly for	Other	Operations,	these	favorable	trends	included	a	lack	of	significant	additional	loss	notices	on	assumed	reinsurance	property	treaties.	The	reduction	in	net	reserves	for September	11	for	Other	Operations	was	$97.	As	of	December	31,	2004,	gross	reserves	and	net	reserves	remaining	in	Other	Operations	related	to	September	11	were	$171 and	$68,	respectively.	All	September	11	reserves	within	Other	Operations	relate	to	HartRe	assumed	reinsurance	exposures,	both	property	and	casualty.

|  | Business<br>Insurance | Personal<br>Lines | Specialty<br>Commercial | Ongoing<br>Operations | Other<br>Operations | Total<br>P&amp;C |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Beginning\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-gross | $4,744 | $1,692 | $5,000 | $11,436 | $5,655 | $17,091 |
| Reinsurance\tand\tother\trecoverables | 366 | 49 | 2,007 | 2,422 | 1,528 | 3,950 |
| Beginning\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-net | 4,378 | 1,643 | 2,993 | 9,014 | 4,127 | 13,141 |
| Provision\tfor\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |  |  |  |
| Current\tyear | 2,346 | 2,324 | 1,130 | 5,800 | 302 | 6,102 |
| Prior\tyears | (6) | (6) | 52 | 40 | 2,784 | 2,824 |
| Total\tprovision\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses | 2,340 | 2,318 | 1,182 | 5,840 | 3,086 | 8,926 |
| Payments | (1,761) | (2,211) | (1,017) | (4,989) | (860) | (5,849) |
| Other\t[1] | (56) | (60) | (106) | (222) | 222 | -- |
| Ending\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-net | 4,901 | 1,690 | 3,052 | 9,643 | 6,575 | 16,218 |
| Reinsurance\tand\tother\trecoverables | 395 | 43 | 2,096 | 2,534 | 2,963 | 5,497 |
| Ending\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-gross | $5,296 | $1,733 | $5,148 | $12,177 | $9,538 | $21,715 |
| Earned\tpremiums | $3,696 | $3,181 | $1,558 | $8,435 | $370 | $8,805 |
| Loss\tand\tloss\texpense\tpaid\tratio\t[2] | 47.7 | 69.5 | 65.4 | 59.2 |  |  |
| Loss\tand\tloss\texpense\tincurred\tratio | 63.3 | 72.9 | 75.8 | 69.2 |  |  |
| Prior\taccident\tyear\tdevelopment\t(pts.) | (0.2) | (0.2) | 3.3 | 0.4 |  |  |

[1]	Represents	the	transfer	of	reserves	pursuant	to	the	MacArthur	settlement.

There	was	no	significant	reserve	strengthening	or	release	in	the	Business	Insurance	and	Personal	Lines	segments	for	the	year	ended	December	31,	2003.	Specialty Commercial	strengthened	prior	accident	year	reserves	by	$52	for	the	year	ended	December	31,	2003	primarily	as	a	result	of	losses	in	the	bond	and	professional	liability lines	of	business.	The	bond	reserve	strengthening	was	isolated	to	a	few	severe	contract	surety	claims	related	to	accident	year	2002.	The	professional	liability	reserve strengthening	involved	a	provision	for	anticipated	settlements	of	reinsurance	obligations	for	contracts	outstanding	at	the	time	of	the	original	acquisition	of	Reliance	Group Holdings'	auto	residual	value	portfolio	in	the	third	quarter	of	2000.

As	further	discussed	in	the	segment	section,	the	Company	recorded	net	asbestos	reserve	strengthening	of	$2.6	billion	during	the	first	quarter	of	2003.	In	addition, strengthening	of	assumed	reinsurance	reserves	of	$129	in	2003	occurred	across	multiple	accident	years,	primarily	1997	through	2000,	and	principally	in	the	casualty	line	of HartRe	assumed	reinsurance.

|  | Business<br>Insurance | Personal<br>Lines | Specialty<br>Commercial | Ongoing<br>Operations | Other<br>Operations | Total<br>P&amp;C |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Beginning\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-gross | $4,440 | $1,530 | $5,118 | $11,088 | $5,948 | $17,036 |
| Reinsurance\tand\tother\trecoverables | 375 | 51 | 2,097 | 2,523 | 1,653 | 4,176 |
| Beginning\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-net | 4,065 | 1,479 | 3,021 | 8,565 | 4,295 | 12,860 |
| Provision\tfor\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |  |  |  |
| Current\tyear | 1,943 | 2,244 | 820 | 5,007 | 570 | 5,577 |
| Prior\tyears | 19 | 75 | 29 | 123 | 170 | 293 |
| Total\tprovision\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses | 1,962 | 2,319 | 849 | 5,130 | 740 | 5,870 |
| Payments | (1,649) | (2,155) | (877) | (4,681) | (908) | (5,589) |
| Ending\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-net | 4,378 | 1,643 | 2,993 | 9,014 | 4,127 | 13,141 |
| Reinsurance\tand\tother\trecoverables | 366 | 49 | 2,007 | 2,422 | 1,528 | 3,950 |
| Ending\tliabilities\tfor\tunpaid\tclaims\tand\tclaim\tadjustment |  |  |  |  |  |  |
| expenses-gross | $4,744 | $1,692 | $5,000 | $11,436 | $5,655 | $17,091 |
| Earned\tpremiums | $3,126 | $2,984 | $1,222 | $7,332 | $782 | $8,114 |
| Loss\tand\tloss\texpense\tpaid\tratio\t[1] | 52.7 | 72.2 | 71.8 | 63.9 |  |  |
| Loss\tand\tloss\texpense\tincurred\tratio | 62.7 | 77.7 | 69.4 | 70.0 |  |  |
| Prior\taccident\tyear\tdevelopment\t(pts.) | 0.6 | 2.5 | 2.4 | 1.6 |  |  |

Reserve	strengthening	in	the	Business	Insurance	segment	for	the	year	ended	December	31,	2002	was	not	significant.	In	Personal	Lines,	prior	accident	year	loss	and	loss adjustment	expenses	for	non-standard	auto	were	strengthened	due	to	heavier	than	expected	frequency,	severity	and	litigation	rates	on	prior	accident	years.	In	addition,	the prior	accident	year	provision	was	increased	modestly	for	mold	losses.	Virtually	all	of	the	strengthening	in	Specialty	Commercial	is	due	to	deductible	workers'	compensation losses	on	a	few	large	accounts.

Reserve	strengthening	of	$77	in	HartRe	assumed	reinsurance	reserves	occurred	across	multiple	accident	years,	primarily	1997	through	2000,	and	across	several	lines	of business.	High	reported	losses	from	ceding	companies	persisted	throughout	2002	and	loss	ratios	were	revised	upward.	Virtually	all	of	the	remaining	reserve	strengthening	in the	Other	Operations	segment	related	to	asbestos.

# Impact	of	Re-estimates

As	explained	in	connection	with	the	Company's	discussion	of	Critical	Accounting	Estimates,	the	establishment	of	Property	and	Casualty	reserves	is	an	estimation	process, using	a	variety	of	methods,	assumptions	and	data	elements.	Ultimate	losses	may	vary	significantly	from	the	current	estimates.	Many	factors	can	contribute	to	these variations	and	the	need	to	change	the	previous	estimate	of	required	reserve	levels.	Subsequent	changes	can	generally	be	thought	of	as	being	the	result	of	the	emergence	of additional	facts	that	were	not	known	or	anticipated	at	the	time	of	the	prior	reserve	estimate	and/or	changes	in	interpretations	of	information	and	trends.

The	table	below	shows	the	range	of	annual	reserve	re-estimates	experienced	by	The	Hartford	over	the	past	four	years.	The	amount	of	prior	accident	year	development	(as shown	in	the	reserve	rollforward)	for	a	given	calendar	year	is	expressed	as	a	percent	of	the	beginning	calendar	year	reserves,	net	of	reinsurance.	The	percentage relationships	presented	are	significantly	influenced	by	the	facts	and	circumstances	of	each	particular	year	and	by	the	fact	that	only	the	last	four	years	are	included	in	the range.	Accordingly,	these	percentages	are	not	intended	to	be	a	prediction	of	the	range	of	possible	future	variability.	See	"Impact	of	key	assumptions	on	reserve	volatility" within	Critical	Accounting	Estimates	for	further	discussion	of	the	potential	for	variability	in	recorded	loss	reserves.

|  | Business<br>Insurance | Personal<br>Lines | Specialty<br>Commercial | Ongoing<br>Operations | Other<br>Operations | Total<br>P&amp;C |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Range\tof\tprior\taccident\tyear\tdevelopment\tfor\tthe\tfour\tyears\nended\tDecember\t31,\t2004\t[1]\t[2] | (1.4)\t-\t0.5 | (0.4)\t-5.1 | 0.8\t-\t2.3 | 0.1\t-\t1.4 | 2.9-\t67.4 | 1.2\t-\t21.5 |

[1]Bracketed	prior	accident	year	development	indicates	favorable	development.	Unbracketed	amounts	represent	unfavorable	development.

[2]Before	the	$2.6	billion	of	reserve	strengthening	for	asbestos	during	2003	and	the	$785	of	reserve	strengthening	for	asbestos	and	environmental	during	1996,	over	the past	ten	years,	reserve	re-estimates	for	total	Property	and	Casualty	ranged	from	(1.3%)	to	3.0%	.

The	potential	variability	of	the	Company's	Property	and	Casualty	reserves	would	normally	be	expected	to	vary	by	segment	and	the	types	of	loss	exposures	insured	by	those segments.	Illustrative	factors	influencing	the	potential	reserve	variability	for	each	of	the	segments	are	discussed	under	Critical	Accounting	Estimates.	In	general,	the Company	would	expect	the	variability	of	its	Personal	Lines	reserve	estimates	to	be	relatively	less	than	the	variability	of	the	reserve	estimates	for	its	other	property	and casualty	segments.	The	Company	would	expect	the	degree	of	variability	of	the	remaining	segments'	reserve	estimates,	from	lower	variability	to	higher	variability,	to	be generally	Business	Insurance,	Specialty	Commercial,	and	Other	Operations.	The	actual	relative	variability	could	prove	to	be	different	than	anticipated.

# Reinsurance	Recoverables

The	Company's	net	reinsurance	recoverables	from	various	property	and	casualty	reinsurance	arrangements	amounted	to	$5.2	billion	and	$5.4	billion	as	of	December	31, 2004	and	December	31,	2003,	respectively.	Of	the	total	net	reinsurance	recoverables	as	of	December	31,	2004,	8.4%	relates	to	the	Company's	mandatory	participation	in various	involuntary	assigned	risk	pools,	which	are	backed	by	the	financial	strength	of	the	property	and	casualty	insurance	industry.	Of	the	remainder,	$3.4	billion,	or	70.9%, were	rated	by	A.M.	Best.	Of	the	total	rated	by	A.M.	Best,	93%	were	rated	A-	(excellent)	or	better.	The	remaining	$1.4	billion,	or	29.1%,	of	net	recoverables	from	reinsurers were	comprised	of	the	following:	4.8%	related	to	voluntary	pools,	3.2%	related	to	captive	insurance	companies,	and	21.1%	related	to	companies	not	rated	by	A.M.	Best.

Where	its	contracts	permit,	the	Company	secures	future	claim	obligations	with	various	forms	of	collateral	including	irrevocable	letters	of	credit,	secured	trusts,	funds	held accounts	and	group	wide	offsets.	The	allowance	for	uncollectible	reinsurance	was	$374	and	$381	as	of	December	31,	2004	and	December	31,	2003,	respectively.	The allowance	for	uncollectible	reinsurance	is	based	on	an	assessment	of	the	credit	quality	of	the	Company's	reinsurers	as	well	as	an	estimate	of	the	cost	of	resolution	of reinsurer	disputes.

The	Company	completed	an	evaluation	of	the	reinsurance	recoverable	asset	associated	with	older,	long-term	casualty	liabilities,	including	asbestos	liabilities,	reported	in the	Other	Operations	segment.	As	a	result	of	this	evaluation,	the	Company	reduced	its	net	reinsurance	recoverable	by	$181.	The	after-tax	income	effect	of	this	action	was $118.	The	$181	primarily	related	to	a	reduction	of	the	amount	of	liabilities,	principally	asbestos,	that	the	Company	expects	to	cede	to	reinsurers	and,	to	a	lesser	extent,	an increase	in	the	allowance	for	uncollectible	reinsurance	recoverables.

# Premium	Measures

Written	premium	is	a	Statutory	accounting	financial	measure	which	represents	the	amount	of	premiums	charged	for	policies	issued,	net	of	reinsurance,	during	a	fiscal period.	Earned	premium	is	a	GAAP	and	Statutory	measure.	Premiums	are	considered	earned	and	are	included	in	the	financial	results	on	a	pro	rata	basis	over	the	policy period.	The	following	segment	discussions	for	the	years	ended	December	31,	2004,	2003	and	2002,	respectively,	include	the	presentation	of	written	premiums	in	addition	to earned	premiums.	Management	believes	that	this	performance	measure	is	useful	to	investors	as	it	reflects	current	trends	in	the	Company's	sale	of	property	and	casualty insurance	products,	as	compared	to	earned	premium.	Reinstatement	premium	represents	additional	ceded	premium	paid	for	the	reinstatement	of	the	amount	of	reinsurance coverage	that	was	reduced	as	a	result	of	a	reinsurance	loss	payment.

| Underwriting	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Written\tpremiums | $4,575 | $3,957 | $3,412 |
| Change\tin\tunearned\tpremium\treserve | 276 | 261 | 286 |
| Earned\tpremiums | 4,299 | 3,696 | 3,126 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |
| Current\tyear | 2,700 | 2,346 | 1,943 |
| Prior\tyear | (67) | (6) | 19 |
| Total\tbenefits,\tclaims\tand\tclaim\tadjustment\texpenses | 2,633 | 2,340 | 1,962 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts | 1,058 | 913 | 779 |
| Insurance\toperating\tcosts\tand\texpenses | 248 | 285 | 291 |
| Underwriting\tresults | $360 | $158 | $94 |
| Loss\tand\tloss\tadjustment\texpense\tratio |  |  |  |
| Current\tyear | 62.8 | 63.5 | 62.1 |
| Prior\tyear | (1.6) | (0.2) | 0.6 |
| Total\tloss\tand\tloss\tadjustment\texpense\tratio | 61.2 | 63.3 | 62.7 |
| Expense\tratio | 30.1 | 31.8 | 32.7 |
| Policyholder\tdividend\tratio | 0.2 | 0.6 | 1.5 |
| Combined\tratio | 91.6 | 95.7 | 97.0 |
| Catastrophe\tratio | (0.9) | 2.7 | 0.8 |
| Combined\tratio\tbefore\tcatastrophes | 92.5 | 93.0 | 96.2 |
| Combined\tratio\tbefore\tcatastrophes\tand\tprior\taccident\tyear\tdevelopment | 89.7 | 93.0 | 95.7 |

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Written\tPremiums\t[1] |  |  |  |
| Small\tCommercial | $2,255 | $1,862 | $1,678 |
| Middle\tMarket | 2,320 | 2,095 | 1,734 |
| Total | $4,575 | $3,957 | $3,412 |
| Earned\tPremiums\t[1] |  |  |  |
| Small\tCommercial | $2,077 | $1,782 | $1,555 |
| Middle\tMarket | 2,222 | 1,914 | 1,571 |
| Total | $4,299 | $3,696 | $3,126 |

[1]The	difference	between	written	premiums	and	earned	premiums	is	attributable	to	the	change	in	unearned	premium	reserve.

Business	Insurance	provides	standard	commercial	insurance	coverage	to	small	and	middle	market	commercial	businesses,	primarily	throughout	the	United	States.	This segment	offers	workers'	compensation,	property,	automobile,	liability,	umbrella	and	marine	coverages.	The	Business	Insurance	segment	also	provides	commercial	risk management	products	and	services.

2004	Compared	to	2003	—	Earned	premiums	for	the	segment	increased	$603	for	the	year	ended	December	31,	2004,	primarily	due	to	earned	pricing	increases	and	new business	premium	outpacing	non-renewals.	For	the	year	ended	December	31,	2004,	earned	pricing	increases	of	7%	for	small	commercial	and	3%	for	middle	market contributed	to	the	earned	premium	growth	of	$295	in	small	commercial	and	$308	in	middle	market.	The	increase	in	earned	premiums	is	partially	due	to	an	increase	in	Select Xpand	product	sales	for	small	commercial	and	growth	in	workers'	compensation	premium	for	middle	market.	As	substantially	all	premiums	in	the	segment	are	earned	over a	12	month	policy	period,	earned	pricing	increases	in	2004	were	primarily	driven	by	written	pricing	increases	of	9%	in	the	last	six	months	of	2003	and	2%	during	2004.

New	business	written	premium	for	the	year	ended	December	31,	2004	of	$1,148	was	up	from	$1,038	for	the	year	ended	December	31,	2003,	due	to	an	increase	in	new business	written	premium	for	small	commercial	of	$172,	partially	offset	by	a	decrease	in	new	business	written	premium	for	middle	market	of	$61.	The	new	business premium	growth	in	Small	Commercial	was	due	primarily	to	growth	from	the	Select	Xpand	product	and	growth	from	an	increase	in	the	number	of	agents,	partially	offset	by the	moderation	in	written	pricing	increases.

Premium	renewal	retention	remained	strong,	decreasing	slightly	from	87%	for	the	year	ended	December	31,	2003	to	85%	for	the	year	ended	December	31,	2004.	The moderation	in	written	pricing	increases	for	middle	market	from	2003	to	2004	contributed	to	the	decrease	in	premium	renewal	retention.

Underwriting	results	for	the	year	ended	December	31,	2004	improved	$202,	with	a	corresponding	4.1	point	decrease	in	the	combined	ratio.	The	improvement	in	the combined	ratio	is	mainly	due	to	a	decrease	in	the	loss	and	loss	adjustment	expense	ratio	of	2.1	points	and	a	decrease	in	the	expense	ratio	of	1.7	points.	The	improvement	in the	loss	and	loss	adjustment	expense	ratio	of	2.1	points	was	due	to	a	$175	reduction	in	reserves	for	September	11	and	the	impact	of	earning	pricing	increases	in	excess	of loss	cost	increases,	partially	offset	by	$108	of	strengthening	of	prior	accident	year	reserves,	excluding	September	11,	and	an	increase	in	catastrophe	losses,

excluding	September	11,	of	0.5	points.	The	2004	prior	accident	year	reserve	strengthening	excluding	September	11	of	$108,	or	2.5	points,	includes	an	increase	in	reserves of	$38	for	small	commercial	package	business,	$25	for	auto	liability	claims	and	$23	for	construction	defect	claims.	Catastrophe	losses,	excluding	the	reduction	in September	11	reserves,	were	$136	in	2004	and	included	losses	from	hurricanes	Charley,	Frances,	Ivan	and	Jeanne	in	the	third	quarter	of	2004.

Before	catastrophes	and	all	prior	accident	year	development,	underwriting	results	for	the	year	ended	December	31,	2004	improved	$181,	with	a	corresponding	3.3	point decrease	in	the	combined	ratio,	due	to	a	lower	loss	and	loss	adjustment	expense	ratio	and	a	lower	expense	ratio.	The	decrease	in	the	loss	and	loss	adjustment	expense	ratio was	primarily	due	to	earned	pricing	increases	and	to	improved	claim	frequency,	partially	offset	by	increased	claim	severity.	The	expense	ratio	improved	1.7	points, primarily	due	to	earned	premium	growth	coupled	with	a	decrease	in	commissions	as	a	percentage	of	earned	premium.	Commissions	are	a	lower	percentage	of	earned premium	on	workers'	compensation	policies	and	workers	compensation	premiums	were	a	higher	percentage	of	earned	premium	in	2004	than	in	2003.

2003	Compared	to	2002	—	Earned	premiums	for	the	segment	increased	by	$570	for	the	year	ended	December	31,	2003,	primarily	due	to	earned	pricing	increases	of	12% and	new	business	growth	outpacing	non-renewals.	As	substantially	all	premiums	in	the	segment	are	earned	over	a	12	month	policy	period,	earned	pricing	increases	in	2003 were	primarily	driven	by	written	pricing	increases	of	14%	in	the	last	six	months	of	2002	and	9%	during	2003.	New	business	growth	of	17%	in	2003	was	primarily	driven	by growth	in	middle	market	business.	Premium	renewal	retention	for	the	year	ended	December	31,	2003	remained	strong	at	87%	compared	to	89%	in	2002.

Underwriting	results	improved	$64,	with	a	corresponding	1.3	point	decrease	in	the	combined	ratio,	for	the	year	ended	December	31,	2003,	despite	a	significant	increase	in catastrophe	losses	due	largely	to	Hurricane	Isabel	and	severe	tornadoes	in	the	Midwest.	Before	catastrophes,	underwriting	results	improved	$140,	or	119%,	with	a corresponding	3.2	point	decrease	in	the	combined	ratio.	The	improvement	was	driven	by	a	decrease	in	the	loss	and	loss	expense	ratio	before	catastrophes	for	both	small commercial	and	middle	market,	primarily	due	to	improved	claim	frequency	and	double-digit	earned	pricing	increases.	In	addition,	double-digit	earned	pricing	increases	and prudent	expense	management	favorably	impacted	the	expense	ratio	for	the	year	ended	December	31,	2003.

Management	expects	the	Business	Insurance	segment	to	continue	to	deliver	strong	results	in	2005.	Although	some	price	decreases	within	many	markets	of	the	commercial industry	are	expected,	the	Company	expects	to	achieve	mid-	to	high-single-digit	written	premium	growth	due,	in	part,	to	implementing	continued	strategic	actions.	These actions	include	working	with	distribution	channels	to	expand	market	share	in	targeted	states,	improving	pricing	opportunities	through	better	segmentation	of	the	market, offering	flexible	products	that	allow	agents	to	tailor	offerings	to	each	customer,	maintaining	disciplined	renewal	underwriting	and	enhancing	agency	technology,	including e-submission	capability.	Loss	costs	are	expected	to	increase	due	to	less	favorable	trends	in	claim	frequency	and	continuing	trends	of	increasing	claim	severity.	As	a	result	of the	anticipated	slight	decrease	in	written	pricing	and	increase	in	loss	costs,	management	expects	the	loss	and	loss	expense	ratio	to	increase	moderately	in	2005.	Competition in	middle	market	is	challenging,	but	largely	rational,	with	some	classes	of	business	experiencing	more	aggressive	price	competition.	Written	pricing	in	the	small	commercial market	will	also	continue	to	be	impacted	by	increasing	competition	as	more	national	carriers	enter	the	market.	Nonetheless,	we	anticipate	continued	new	business	growth	in the	small	commercial	segment	through	execution	of	strategic	initiatives	and	the	continued	growth	of	our	Select	Xpand	product	sales.

| Underwriting	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Written\tpremiums | $3,557 | $3,272 | $3,050 |
| Change\tin\tunearned\tpremium\treserve | 112 | 91 | 66 |
| Earned\tpremiums | 3,445 | 3,181 | 2,984 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |
| Current\tyear | 2,509 | 2,324 | 2,244 |
| Prior\tyear | 3 | (6) | 75 |
| Total\tbenefits,\tclaims\tand\tclaim\tadjustment\texpenses | 2,512 | 2,318 | 2,319 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts | 530 | 386 | 415 |
| Insurance\toperating\tcosts\tand\texpenses | 265 | 347 | 281 |
| Underwriting\tresults | $138 | $130 | $(31) |
| Loss\tand\tloss\tadjustment\texpense\tratio |  |  |  |
| Current\tyear | 72.8 | 73.1 | 75.2 |
| Prior\tyear | 0.1 | (0.2) | 2.5 |
| Total\tloss\tand\tloss\tadjustment\texpense\tratio | 72.9 | 72.9 | 77.7 |
| Expense\tratio | 23.1 | 23.0 | 23.3 |
| Combined\tratio | 96.0 | 95.9 | 101.0 |
| Catastrophe\tratio | 7.4 | 4.1 | 2.5 |
| Combined\tratio\tbefore\tcatastrophes | 88.6 | 91.8 | 98.6 |
| Combined\tratio\tbefore\tcatastrophes\tand\tprior\taccident\tyear\tdevelopment | 88.2 | 91.7 | 96.3 |
| Other\tRevenues\t[1] | $123 | $123 | $123 |

# [1]	Represents	servicing	revenue

Personal	Lines	provides	automobile,	homeowners'	and	home-based	business	coverages	to	the	members	of	AARP	through	a	direct	marketing	operation;	to	individuals	who prefer	local	agent	involvement	through	a	network	of	independent	agents	in	the	standard	personal	lines	market	("Standard")	and	in	the	non-standard	automobile	market through	the	Company's	Omni	Insurance	Group,	Inc.	("Omni")	subsidiary.	Personal	Lines	also	operates	a	member	contact	center	for	health	insurance	products	offered through	AARP's	Health	Care	Options.	The	Hartford's	exclusive	licensing	arrangement	with	AARP	continues	through	January	1,	2010	for	automobile,	homeowners	and home-based	business.	The	Health	Care	Options	agreement	continues	through	2007.

2004	Compared	to	2003	—	Earned	premiums	increased	$264	for	the	year	ended	December	31,	2004	due	to	growth	in	both	AARP	and	Agency,	partially	offset	by	a reduction	in	Other	Affinity	earned	premium.	Earned	premiums	for	Omni	were	flat	from	2003	to

2004.	AARP	and	Agency	earned	premium	increased	$190	and	$100,	respectively,	for	the	year	ended	December	31,	2004,	primarily	because	new	business	growth	over	the prior	6	to	12	months	has	exceeded	non-renewals.	Both	AARP	and	Agency	have	experienced	increased	earned	premiums	in	both	automobile	and	homeowners	business.	The growth	in	Agency	earned	premium	is	due,	in	part,	to	the	new	Dimensions	automobile	and	homeowners	class	plans,	which	allows	the	Company	to	write	a	broader	class	of risks.	The	growth	in	AARP	reflects	growth	in	the	size	of	the	AARP	target	market	and	direct	marketing	programs	to	increase	premium	writings.

The	new	Dimensions	auto	class	plan	has	been	rolled	out	to	an	additional	six	states	in	2004,	bringing	the	total	number	of	states	to	37.	The	new	Dimensions	homeowners' class	plan	was	introduced	in	the	first	quarter	of	2004	and	has	been	rolled	out	to	28	states	through	December	31,	2004.	As	a	result	of	the	new	Dimensions	class	plan	initiative and	other	actions	taken	to	increase	growth,	the	number	of	policies	in	force	at	year	end	increased	in	auto	and	homeowners	from	2,058,825	and	1,319,629,	respectively,	as	of December	31,	2003,	to	2,166,922	and	1,348,573,	respectively,	as	of	December	31,	2004.	The	growth	in	policies	in	force	does	not	correspond	directly	with	the	growth	in earned	premium	due	to	the	impact	of	earned	pricing	increases	and	because	policy	in	force	counts	are	as	of	a	point	in	time	rather	than	over	a	period	of	time.	Most	of	the growth	in	homeowners	policies	in	force	was	generated	by	Agency	while	for	auto	policies	in	force,	growth	in	both	AARP	and	Agency	is	partially	offset	by	a	decline	in Omni.	For	the	year	ended	December	31,	2004,	new	business	premiums	for	both	automobile	and	homeowners	in	AARP	and	Agency	were	$311	and	$167,	respectively, which	was	up	from	$226	and	$105,	respectively,	for	the	year	ended	December	31,	2003.

Earned	pricing	increases	have	declined	from	2003	to	2004.	Earned	pricing	increases	in	automobile	of	5%	in	the	year	ended	December	31,	2004,	primarily	reflects	written pricing	increases	of	8%	in	the	last	6	months	of	2003	and	3%	in	2004.	Earned	pricing	increases	in	homeowners	of	11%	in	the	year	ended	December	31,	2004,	primarily reflects	written	pricing	increases	of	13%	in	the	last	6	months	of	2003	and	9%	in	2004.	In	addition	to	earned	pricing	increases,	homeowners	earned	premiums	included	the effect	of	automatic	increases	in	the	amount	of	insurance	coverage	to	adjust	for	construction	cost	inflation.

Premium	renewal	retention	for	automobile	decreased	from	91%	for	the	year	ended	December	31,	2003	to	89%	for	the	year	ended	December	31,	2004.	The	decrease	in premium	renewal	retention	for	automobile	is	driven	largely	by	the	impact	of	declining	written	pricing	increases.	Premium	renewal	retention	for	homeowners	decreased	from 101%	for	the	year	ended	December	31,	2003	to	100%	for	the	year	ended	December	31,	2004,	also	due	to	declining	written	pricing	increases.

Underwriting	results	increased	$8	for	the	year	ended	December	31,	2004	and	the	combined	ratio	remained	relatively	flat	at	96.0.	The	loss	and	loss	adjustment	expense	ratio remained	flat	at	72.9,	due	to	the	impact	of	earned	pricing	increases	in	excess	of	loss	cost	increases,	offset	by	an	increase	in	pre-tax	catastrophe	losses	of	$122,	or	3.3	points. Pre-tax	catastrophes,	including	losses	from	Hurricane	Charley,	Hurricane	Frances,	Hurricane	Ivan	and	Hurricane	Jeanne,	were	$253,	or	7.4	points,	for	the	year	ended December	31,	2004,	compared	to	$131,	or	4.1	points,	for	the	year	ended	December	31,	2003.	Net	prior	accident	year	development	was	not	significant	in	either	2004	or 2003.	Before	catastrophes	and	prior	accident	year	development,	underwriting	results	for	the	year	ended	December	31,	2004	increased	$142,	with	a	corresponding	3.5	point decrease	in	the	combined	ratio,	due	to	earned	pricing	increases	and	favorable	claim	frequency,	offset	by	increased	claim	severity.	Automobile	and	homeowners	results, before	catastrophes,	improved	2.3	and	4.7	combined	ratio	points,	respectively,	for	the	year	ended	December	31,	2004	as	earned	pricing	increases	outpaced	loss	costs	in	both lines	of	business.	The	expense	ratio	remained	relatively	flat	at	23.1%,	despite	earned	premium	growth,	because	of	higher	commissions	as	a	result	of	increased	Agency business	and	increased	other	underwriting	expenses.

2003	Compared	to	2002	—	Earned	premiums	increased	$197	in	2003	due	to	growth	in	both	the	automobile	and	homeowners	lines,	primarily	in	AARP	business,	which grew	by	$209,	or	12%.	The	increase	in	automobile	earned	premium	of	$132	was	primarily	due	to	new	business	growth	in	AARP	and	earned	pricing	increases	of	9%	in	2003 up	from	6%	in	2002.	Homeowners	earned	premium	growth	of	$65	for	the	year	ended	December	31,	2003,	was	largely	driven	by	new	business	growth	in	AARP	and	earned pricing	increases	of	14%	in	2003,	up	from	7%	in	2002.	The	increase	in	earned	premiums	for	AARP	and	Agency	is	partially	offset	by	the	decrease	in	earned	premiums	for other	affinity	business	of	$29	due	to	a	planned	reduction	in	policy	counts	as	a	result	of	the	Company's	strategic	decision	to	de-emphasize	other	affinity	business.

Earned	pricing	increases	in	automobile	of	9%	in	the	year	ended	December	31,	2003	primarily	reflects	written	pricing	increases	of	10%	in	the	last	6	months	of	2002	and	for all	of	2003.	Earned	pricing	increases	in	homeowners	of	14%	in	the	year	ended	December	31,	2003	primarily	reflects	written	pricing	increases	of	14%	in	the	last	6	months	of 2002	and	for	all	of	2003.	Automobile	premium	renewal	retention	increased	from	88%	for	the	year	ended	December	31	2002	to	91%	for	the	year	ended	December	31,	2003. Premium	renewal	retention	for	homeowners	was	101%	for	the	year	ended	December	31,	2003,	which	was	relatively	consistent	with	the	prior	year.

Underwriting	results	increased	$161,	with	a	corresponding	5.1	point	decrease	in	the	combined	ratio.	The	improvement	was	primarily	due	to	the	successful	execution	of	the segment's	state-specific	strategies	to	manage	pricing	and	loss	costs.	Automobile	results	improved	5.1	combined	ratio	points	and	homeowners	results	improved	5.0 combined	ratio	points,	both	due	primarily	to	earned	pricing	increases	and	favorable	claim	frequency.	Personal	Lines	financial	performance	was	negatively	affected	by	an increase	in	pre-tax	catastrophe	losses	over	the	prior	year	of	$58,	or	1.6	points,	due	largely	to	Hurricane	Isabel,	California	wildfires	and	severe	tornadoes	in	the	Midwest. Double-digit	earned	pricing	increases	and	prudent	expense	management	resulted	in	a	0.3	point	decrease	in	the	expense	ratio.

While	the	personal	lines	industry	operating	fundamentals	are	expected	to	be	strong	in	2005,	the	market	will	continue	to	face	significant	challenges.	Price	increases	in automobile	and	homeowners	are	expected	to	be	in	the	low	single	digits.	Regulatory	requirements	applying	to	premium	rates	vary	from	state	to	state,	and,	in	most	states, rates	are	subject	to	prior	regulatory	approval.	State	regulatory	constraints	may	prevent	companies	from	obtaining	the	necessary	rates	to	achieve	an	underwriting	profit. Industry	rates	may	remain	inadequate	in	certain	states	in	2005.	New	business	competition	is	still	rational,	but	with	lower	rate	increases,	consumer	shopping	has	slowed	and fewer	customers	are	switching	carriers.	Loss	cost	inflation	is	expected	to	rise	in	2005,	and	it	is	uncertain	whether	favorable	claim	frequency	trends	can	continue. Automobile	repair	and	medical	cost	inflation	are	expected	to	continue	to	outpace	general	inflation	trends.

In	2005,	the	Personal	Lines	segment	is	expected	to	deliver	written	premium	growth	in	the	high	single	digits	by	expanding	the	number	of	agents	offering	our	Dimensions products	and	increasing	our	direct	marketing	to	the	AARP	membership	base.	Our	new	product	and	technology	investments	are	expected	to	continue	to	deliver	a	competitive value	proposition	to	independent	agents.	Continued	strong	financial	results	in	2005	for	the	Personal	Lines	segment	are	also	expected	as	a	result	of	continued	state-driven pricing,	product	and	underwriting	actions.

| Underwriting	Summary | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Written\tpremiums | $1,772 | $1,612 | $1,362 |
| Change\tin\tunearned\tpremium\treserve | 46 | 54 | 140 |
| Earned\tpremiums | 1,726 | 1,558 | 1,222 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |
| Current\tyear | 1,345 | 1,130 | 820 |
| Prior\tyear | 69 | 52 | 29 |
| Total\tbenefits,\tclaims\tand\tclaim\tadjustment\texpenses | 1,414 | 1,182 | 849 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts | 257 | 254 | 240 |
| Insurance\toperating\tcosts\tand\texpenses | 108 | 112 | 127 |
| Underwriting\tresults | $(53) | $10 | $6 |
| Loss\tand\tloss\tadjustment\texpense\tratio |  |  |  |
| Current\tyear | 77.9 | 72.5 | 67.1 |
| Prior\tyear | 4.0 | 3.3 | 2.4 |
| Total\tloss\tand\tloss\tadjustment\texpense\tratio | 81.9 | 75.8 | 69.4 |
| Expense\tratio | 21.1 | 22.9 | 29.3 |
| Policyholder\tdividend\tratio | 0.1 | 0.7 | 0.7 |
| Combined\tratio | 103.1 | 99.3 | 99.4 |
| Catastrophe\tratio | (0.4) | 1.7 | 0.5 |
| Combined\tratio\tbefore\tcatastrophes | 103.5 | 97.6 | 98.9 |
| Combined\tratio\tbefore\tcatastrophes\tand\tprior\taccident\tyear\tdevelopment | 92.8 | 94.3 | 96.6 |
| Other\tRevenue\t[1] | $314 | $306 | $233 |

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Written\tPremiums\t[1] |  |  |  |
| Property | $443 | $440 | $405 |
| Casualty | 743 | 670 | 556 |
| Bond | 197 | 162 | 157 |
| Professional\tLiability | 342 | 324 | 239 |
| Other | 47 | 16 | 5 |
| Total | $1,772 | $1,612 | $1,362 |
| Earned\tPremiums\t[1] |  |  |  |
| Property | $461 | $429 | $346 |
| Casualty | 635 | 615 | 498 |
| Bond | 188 | 152 | 148 |
| Professional\tLiability | 335 | 296 | 200 |
| Other | 107 | 66 | 30 |
| Total | $1,726 | $1,558 | $1,222 |

Specialty	Commercial	offers	a	variety	of	customized	insurance	products	and	risk	management	services.	The	segment	provides	standard	commercial	insurance	products including	workers'	compensation,	automobile	and	liability	coverages	to	large-sized	companies.	Specialty	Commercial	also	provides	bond,	professional	liability,	specialty casualty	and	agricultural	coverages,	as	well	as	core	property	and	excess	and	surplus	lines	coverages	not	normally	written	by	standard	lines	insurers.	Alternative	markets, within	Specialty	Commercial,	provides	insurance	products	and	services	primarily	to	captive	insurance	companies,	pools	and	self-insurance

groups.	In	addition,	Specialty	Commercial	provides	third-party	administrator	services	for	claims	administration,	integrated	benefits,	loss	control	and	performance measurement	through	Specialty	Risk	Services.

2004	Compared	to	2003	—	Earned	premiums	for	the	Specialty	Commercial	segment	grew	$168	due	primarily	to	earned	pricing	increases	in	casualty,	bond	and professional	liability,	partially	offset	by	earned	pricing	decreases	in	property,	a	decline	in	new	business	growth	in	all	lines	except	bond	and	a	decrease	in	renewal	retention in	all	lines.	The	increase	in	earned	premium	for	the	year	ended	December	31,	2004	is	also	offset	by	a	$90	reduction	in	premiums	receivable	under	retrospectively-rated policies,	reflecting	a	decrease	in	estimated	earned	premium	under	the	terms	of	these	policies.	As	substantially	all	premiums	in	the	segment	are	earned	over	a	12	month policy	period,	the	earned	pricing	increases	in	2004	resulted	primarily	from	written	pricing	increases	over	the	last	6	months	of	2003	and	the	year	ended	December	31,	2004.

Despite	written	pricing	decreases	in	2004,	property	written	premium	is	relatively	flat	for	the	year	ended	December	31,	2004,	primarily	due	to	an	increase	of	$43	in	the portion	of	property	business	derived	from	multi-peril	crop	insurance	premiums.	On	September	30,	2004,	the	Company	agreed	to	transfer	its	entire	book	of	multi-peril	crop insurance	(MPCI)	to	Rural	Community	Insurance	Company	(RCIC),	a	subsidiary	of	Wells	Fargo	&	Company.	The	agreement	transfers	in	bulk	all	2005	crop	year	policies	to RCIC	in	exchange	for	an	initial	payment	and	renewal	fees	based	upon	retention	of	the	transferred	business	over	a	three	year	period.	The	Company	will	retain	responsibility for	the	MPCI	business	written	for	the	2004	and	prior	crop	years.	Earned	premium	for	MPCI	for	the	year	ended	December	31,	2004	was	$127.	Before	considering	the increase	in	MPCI	premiums,	earned	premiums	for	property	declined	by	12%,	reflecting	a	business	decision	to	write	less	new	business	and	renew	less	premium	as	a	result	of the	decline	in	written	pricing.

Casualty	written	premiums	were	up	$73	for	the	year	ended	December	31,	2004,	primarily	because	of	written	premium	growth	in	alternative	markets	business	and	high single-digit	written	pricing	increases,	partially	offset	by	a	decrease	in	premium	renewal	retention.	Of	the	total	growth	in	written	premium	for	the	year	ended	December	31, 2004,	$75	was	attributable	to	a	single	alternative	markets	insured	program.	This	program	was	non-renewed	effective	December	1,	2004,	although	it	will	continue	to	earn premium	into	2005.	The	non-renewal	is	not	expected	to	have	a	significant	impact	on	Specialty	Commercial's	underwriting	results.

Bond	written	premium	grew	$35	for	the	year	ended	December	31,	2004,	primarily	as	a	result	of	an	increase	in	contract	surety	business	and	a	decrease	in	ceded	premiums	of $11	as	well	as	written	pricing	increases,	partially	offset	by	a	slight	decrease	in	premium	renewal	retention.

In	professional	liability,	written	premium	is	up	$18	for	the	year	ended	December	31,	2004	due	to	a	decrease	in	the	portion	of	risks	ceded	to	outside	reinsurers	and	earned pricing	increases,	partially	offset	by	a	decrease	in	renewal	retention	and	new	business	growth.	Earned	pricing	increases	in	professional	liability	were	due	entirely	to	written pricing	increases	in	2003	as	prices	have	declined	in	2004.

Within	the	"other"	category,	written	and	earned	premiums	increased	$31	and	$41,	respectively,	for	the	year	ended	December	31,	2004	due	to	increased	premiums	on internal	reinsurance	arrangements.

Underwriting	results	decreased	$63	for	the	year	ended	December	31,	2004,	primarily	due	to	prior	accident	year	loss	development	and	catastrophe	losses	incurred	from	the hurricanes	in	the	third	quarter	of	2004	and	the	decrease	in	earned	premiums	under	retrospectively-rated	policies,	partially	offset	by	a	$116	release	of	September	11	reserves and	a	decrease	in	the	expense	ratio.	Before	the	release	of	the	September	11	reserves,	prior	accident	year	loss	development	was	$185,	or	10.7	points,	in	2004,	up	from	$52, or	3.3	points,	in	2003.	Prior	accident	year	loss	development	for	the	year	ended	December	31,	2004	included	$167	of	reserve	strengthening	for	construction	defect	claims	as well	as	strengthening	in	large	deductible	workers'	compensation	reserves	and	a	release	in	other	liability	reserves,	each	approximately	$150.	Before	the	release	of	the September	11	reserves,	catastrophe	losses	were	$110,	or	6.3	points,	in	2004,	up	from	$26,	or	1.7	points,	in	2003,	principally	due	to	losses	incurred	for	hurricanes	Charley, Frances,	Ivan	and	Jeanne	in	the	third	quarter	of	2004.

Before	catastrophes,	all	prior	accident	year	development,	and	the	earned	premium	adjustment	on	retrospectively-rated	policies,	underwriting	results	improved	$126	with	a corresponding	6.1	point	decrease	in	the	combined	ratio	for	the	year	ended	December	31,	2004,	primarily	due	to	underwriting	improvement	in	all	lines	of	business.	The improvement	in	casualty,	bond	and	professional	liability	was	due	to	earned	pricing	increases	exceeding	loss	costs.	The	improvement	in	property	was	due	to	low	non- catastrophe	property	losses,	despite	the	decline	in	earned	pricing.	The	expense	ratio	for	the	year	ended	December	31,	2004	decreased	over	the	prior	year	expense	ratio	due primarily	to	earned	premium	growth.

2003	Compared	to	2002	—	Earned	premiums	increased	$336,	or	27%,	for	the	year	ended	December	31,	2003,	primarily	due	to	earned	premium	growth	in	the	property, casualty	and	professional	liability	lines	of	business	as	a	result	of	strong	earned	pricing	increases.	Written	premiums	increased	$250,	or	18%,	in	2003,	primarily	due	to double-digit	growth	in	casualty	and	professional	liability.	Casualty	and	professional	liability	written	premiums	grew	$114,	or	21%,	and	$85,	or	36%,	respectively,	due	to strong	written	pricing	increases.	Bond	growth	for	the	year	was	negatively	impacted	by	ceded	reinstatement	premium.	While	property	pricing	began	to	turn	negative	in	the latter	half	of	2003,	written	premiums	in	property	increased	$35	for	the	year	ended	December	31,	2003.	Premium	renewal	retention	for	casualty,	professional	liability	and bond	was	flat	to	slightly	higher	from	year	to	year,	except	for	a	decrease	in	renewal	retention	in	property	due	to	the	decline	in	pricing.

Underwriting	results	improved	$4	for	the	year	ended	December	31,	2003,	despite	higher	catastrophe	losses	compared	to	unusually	low	catastrophe	losses	in	the	prior	period and	an	increase	in	loss	reserve	development	that	was	driven	by	prior	accident	year	loss	reserve	strengthening	of	$20	in	the	bond	and	$25	in	the	professional	liability	lines	of business.	The	bond	reserve	strengthening	is

isolated	to	a	few	severe	contract	surety	claims	related	to	accident	year	2002.	The	professional	liability	reserve	strengthening	involved	a	provision	for	anticipated	settlements of	reinsurance	obligations	for	contracts	outstanding	at	the	time	of	the	original	acquisition	of	Reliance	Group	Holdings'	auto	residual	value	portfolio	in	the	third	quarter	of 2000.	Excluding	catastrophes,	property	underwriting	results	continued	to	be	favorable	due	to	earned	pricing	increases.	Casualty	continued	to	show	underwriting improvement	over	the	prior	year	due	to	a	lower	loss	ratio.	The	Specialty	Commercial	combined	ratio	improved	0.1	points	for	the	year	ended	December	31,	2003	as	a	result of	strong	earned	pricing,	higher	ceding	commissions	in	the	professional	liability	line	of	business	and	prudent	expense	management,	partially	offset	by	the	prior	accident year	reserve	strengthening	and	increased	catastrophe	losses.

Specialty	Commercial	is	made	up	of	a	diverse	group	of	businesses,	each	of	which	operates	independently	with	its	own	set	of	business	objectives	and	focuses	on	the operational	dynamics	of	its	specific	industry.	These	businesses,	while	somewhat	interrelated,	each	have	a	unique	business	model	and	operating	cycle.	Given	pricing declines	in	some	markets,	we	anticipate	negative	written	premium	growth	for	2005.	Although	written	price	decreases	for	property	and	professional	liability	are	expected	to continue	in	2005,	management	expects	written	pricing	increases	in	both	casualty	and	bond.	We	will	continue	to	write	and	renew	business	where	pricing	and	terms	and conditions	are	reasonable.	Management	will	continue	to	take	actions	to	maintain	profitability,	including	exercising	underwriting	discipline,	maximizing	growth	in	the segment's	most	profitable	lines,	providing	innovative	new	products	and	expanding	non-traditional	distribution	alternatives.	In	2005,	both	the	loss	and	loss	adjustment expense	ratio	and	the	expense	ratio	will	be	impacted	from	exiting	the	MPCI	crop	insurance	business.	The	MPCI	business	made	up	27.5%	of	the	earned	premium	in	property for	2004	and	had	a	higher	loss	ratio	than	the	balance	of	the	property	business.	The	MPCI	business	also	had	one	of	the	lowest	expense	ratios	in	Specialty	Commercial because	of	the	reimbursement	of	expenses	from	the	Federal	government	under	the	MPCI	program.	As	a	result	of	exiting	the	business,	there	will	likely	be	an	unfavorable impact	to	earned	premium	growth	and	the	expense	ratio,	offset	by	a	favorable	impact	on	the	loss	and	loss	adjustment	expense	ratio.	In	addition,	the	non-renewal	of	an alternative	markets	insured	program,	representing	$225	of	earned	premium	in	2004,	will	negatively	impact	casualty	earned	premium	in	2005,	but	is	not	expected	to	have	a significant	impact	on	underwriting	results.

# OTHER	OPERATIONS	(INCLUDING	ASBESTOS	AND	ENVIRONMENTAL	CLAIMS)

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Written\tpremiums | $(10) | $224 | $760 |
| Change\tin\tunearned\tpremium\treserve | (34) | (146) | (22) |
| Earned\tpremiums | 24 | 370 | 782 |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 445 | 3,086 | 740 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts | 5 | 89 | 179 |
| Insurance\toperating\tcosts\tand\texpenses | 22 | 35 | 83 |
| Underwriting\tresults | $(448) | $(2,840) | $(220) |

The	Other	Operations	segment	includes	operations	that	are	under	a	single	management	structure,	Heritage	Holdings,	which	is	responsible	for	two	related	activities.	The	first activity	is	the	management	of	certain	subsidiaries	and	operations	of	The	Hartford	that	have	discontinued	writing	new	business.	The	second	is	the	management	of	claims (and	the	associated	reserves)	related	to	asbestos	and	environmental	exposures.	Effective	January	1,	2004,	the	financial	results	of	HartRe	assumed	reinsurance	are	fully reported	in	Other	Operations,	and	2003	and	2002	financial	results	have	been	restated	to	include	HartRe	assumed	reinsurance.

2004	Compared	to	2003	—	Earned	premiums	continue	to	decline	as	a	result	of	the	Company's	decision	to	exit	from	the	HartRe	assumed	domestic	reinsurance	business	in the	second	quarter	of	2003.	Underwriting	losses	decreased	$2.4	billion	for	the	year	ended	December	31,	2004,	primarily	due	to	the	impact	of	$2.6	billion	of	asbestos	reserve strengthening	in	the	first	quarter	2003,	and	a	reduction	in	September	11	reserves	of	$97	in	the	first	quarter	of	2004.	These	favorable	variances	were	partially	offset	by	the $170	strengthening	of	assumed	reinsurance	reserves,	the	$75	strengthening	of	environmental	reserves	in	the	third	quarter	of	2004,	and	the	$181	provision	associated	with the	evaluation	of	the	reinsurance	recoverable	asset	in	the	second	quarter	of	2004.

2003	Compared	to	2002	—	The	decline	in	earned	premiums	was	primarily	due	to	the	Company's	decision	to	exit	the	HartRe	assumed	domestic	reinsurance	business.	The underwriting	loss	was	driven	by	the	first	quarter	net	asbestos	reserve	strengthening	of	$2.6	billion	as	discussed	in	the	section	that	follows.

The	paragraphs	that	follow	are	background	information	and	a	discussion	of	asbestos	and	environmental	claims,	the	deteriorating	trends	with	respect	to	asbestos,	and	a summary	of	the	Company's	detailed	study	of	asbestos	reserves.

# Asbestos	and	Environmental	Claims

Given	the	factors	and	emerging	trends	described	above,	The	Hartford	believes	the	actuarial	tools	and	other	techniques	it	employs	to	estimate	the	ultimate	cost	of	claims	for more	traditional	kinds	of	insurance	exposure	are	less	precise	in	estimating	reserves	for	its	asbestos	and	environmental	exposures.	For	this	reason,	The	Hartford	relies	on exposure-based	analysis	to	estimate	the	ultimate	costs	of	these	claims	and	regularly	evaluates	new	information	in	assessing	its	potential	asbestos	and	environmental exposures.

The	process	of	estimating	asbestos	and	environmental	reserves	remains	subject	to	a	wide	variety	of	uncertainties,	which	are	detailed	in	Note	12	of	Notes	to	Consolidated Financial	Statements.	The	Company	believes	that	its	current	asbestos	and	environmental	reserves	are	reasonable	and	appropriate.	However,	analyses	of	future developments	could	cause	The	Hartford	to	change	its	estimates	and	ranges	of	its	asbestos	and	environmental	reserves,	and	the	effect	of	these	changes	could	be	material	to the	Company's	consolidated	operating	results,	financial	condition	and	liquidity.

# Reserve	Activity

Reserves	and	reserve	activity	in	the	Other	Operations	segment	are	categorized	and	reported	as	asbestos,	environmental	or	"all	other"	activity.	The	following	discussion relates	to	reserves	and	reserve	activity,	net	of	applicable	reinsurance.

There	are	a	wide	variety	of	claims	that	drive	the	reserves	within	each	category	of	Other	Operations.	Asbestos	claims	relate	primarily	to	bodily	injury	claims	asserted	by those	who	came	in	contact	with	asbestos	or	products	containing	asbestos.	Environmental	claims	relate	primarily	to	pollution	and	related	clean-up	costs.	The	"all	other" category	of	reserves	covers	a	wide	range	of	insurance	and	assumed	reinsurance	coverages,	including,	but	not	limited	to,	potential	liability	for	breast	implants,	construction defects,	lead	paint,	silica,	pharmaceutical	products,	molestation	and	other	long-tail	or	late	emerging	liabilities.

The	Other	Operations	book	of	business	contains	policies	written	from	1940s	to	2003.	With	the	transfer	of	HartRe	assumed	reinsurance	into	Other	Operations	in	both	2002 and	2004,	Other	Operations	has	exposure	related	to	more	recent	assumed	casualty	reinsurance	reserves,	particularly	for	the	underwriting	years	1997	through	2001.	The Hartford's	experience	has	been	that	this	book	of	runoff	business	has	over	time	produced	significantly	higher	claims	and	losses	than	were	contemplated	at	inception.	The areas	of	active	claim	activity	have	also	shifted	based	on	changes	in	plaintiff	focus	and	the	overall	litigation	environment.	A	significant	portion	of	the	claim	reserves	of	the Other	Operations	segment	relates	to	exposure	to	the	insurance	businesses	of	other	insurers	or	reinsurers	("whole	account"	exposure).	Many	of	these	whole	account exposures	arise	from	reinsurance	agreements	previously	written	by	The

Hartford.	The	Hartford's	net	exposure	in	these	arrangements	has	increased	for	a	variety	of	reasons,	including	The	Hartford's	commutation	of	previous	retrocessions	of	such business.	Due	to	the	reporting	practices	of	cedants	to	their	reinsurers,	determination	of	the	nature	of	the	individual	risks	involved	in	these	whole	account	exposures	(such	as asbestos,	environmental,	or	other	exposures)	requires	various	assumptions	and	estimates,	which	are	subject	to	uncertainty,	as	previously	discussed.

During	2002,	as	part	of	the	Company's	ongoing	monitoring	of	reserves,	the	Company	reclassified	$600	of	reserves	from	the	all	other	reserve	category,	of	which	$540	was reclassified	to	asbestos	and	$60	was	reclassified	to	environmental	claim	reserves.	The	increase	in	reserves	categorized	as	environmental	of	$60	occurred	because	the reviews,	in	each	of	the	two	categories	of	claims,	employed	actuarial	techniques	to	analyze	distinct	and	non-overlapping	blocks	of	reserves	and	associated	exposures.	Facts and	circumstances	associated	with	each	block	determined	the	resulting	changes	in	category.	A	portion	of	the	2002	reclassification	relates	to	re-estimates	of	the	appropriate allocation	among	the	asbestos,	environmental	and	all	other	categories	of	the	aggregate	reserves	(net	of	reinsurance)	carried	for	certain	assumed	reinsurance,	commuted cessions	and	commuted	retrocessions	of	whole	account	business.	As	part	of	the	2002	reclassification,	The	Hartford	also	revised	formulas	that	it	will	use	to	allocate	(among the	asbestos,	environmental	and	all	other	categories)	future	claim	payments	for	which	reinsurance	arrangements	were	commuted	and	to	allocate	claim	payments	made	to effect	commutations.	As	a	result	of	these	revisions,	payments	categorized	as	asbestos	and	environmental	exposures	will	be	higher	in	future	periods	than	in	prior	periods.

In	December	2002,	Halliburton	announced	its	intention	to	file	a	pre-packaged	bankruptcy	plan	through	one	or	more	subsidiaries	and	in	January	2003,	Honeywell announced	that	it	had	reached	an	agreement	with	the	plaintiffs'	bar	that	would	enable	it	to	file	a	pre-negotiated	plan	through	its	former	NARCO	subsidiary,	then	already	in bankruptcy.	In	January	2003,	Congoleum,	a	floor	tile	manufacturer,	which	previously	had	defended	claims	successfully	in	the	tort	system,	announced	its	intention	to	file	a pre-packaged	plan	of	reorganization	to	be	funded	almost	entirely	with	insurance	proceeds.	Moreover,	prominent	members	of	the	plaintiffs'	and	policyholders'	bars announced	publicly	their	intention	to	file	many	more	such	plans.	These	events	represented	a	worsening	of	conditions	the	Company	observed	in	2002.

In	the	first	quarter	of	2003,	several	events	occurred	that	in	the	Company's	view	confirmed	the	existence	of	a	substantial	long-term	deterioration	in	the	asbestos	litigation environment.	For	example,	in	February	2003,	Combustion	Engineering,	long	a	major	asbestos	defendant,	filed	a	pre-packaged	bankruptcy	plan	under	which	it	proposed	to emerge	from	bankruptcy	within	five	weeks,	before	opponents	of	the	plan	could	have	a	meaningful	opportunity	to	object,	and	included	many	novel	features	in	its	plan	that its	insurers	found	objectionable.

As	a	result	of	these	worsening	conditions,	the	Company	conducted	a	comprehensive,	ground-up	study	of	its	asbestos	exposures	in	the	first	quarter	of	2003	in	an	effort	to project,	beginning	at	the	individual	account	level,	the	effect	of	these	trends	on	the	Company's	estimated	total	exposure	to	asbestos	liability.	Based	on	the	Company's evaluation	of	the	deteriorating	conditions	described	above,	the	Company	strengthened	its	gross	and	net	asbestos	reserves	by	$3.9	billion	and	$2.6	billion,	respectively.	The reserve	strengthening	related	primarily	to	policies	effective	in	1985	or	prior	years.	The	Company	had	incorporated	an	absolute	asbestos	exclusion	in	most	of	its	general liability	policies	written	after	1985.

During	the	first	quarter	of	2004,	the	Company	completed	an	updated	gross	asbestos	reserve	evaluation.	As	part	of	this	evaluation,	the	Company	reviewed	all	of	its	open direct	domestic	insurance	accounts	exposed	to	asbestos	liability	as	well	as	assumed	reinsurance	accounts	and	certain	closed	accounts.	The	Company	also	examined	its London	Market	exposures	for	both	direct	insurance	and	assumed	reinsurance.	The	evaluation	indicated	no	change	in	the	overall	required	gross	asbestos	reserves.	During	the second	quarter	of	2004,	the	Company	completed	an	evaluation	of	the	reinsurance	recoverables	associated	with	older,	long-term	casualty	liabilities	reported	in	the	Other Operations	segment,	including	asbestos	liabilities.	In	conducting	its	Other	Operations	reinsurance	recoverable	review,	the	Company	used	its	most	recent	detailed	studies	of gross	asbestos,	environmental	and	all	other	liabilities	reported	in	the	segment,	including	its	estimate	of	the	type	and	potential	timing	of	future	claims,	and	analyzed	the	legal entities	through	which	each	exposed	coverage	was	written,	the	reinsurance	arrangements	in	place	at	each	of	these	legal	entities	and	the	years	of	potential	reinsurance available.	As	part	of	its	Other	Operations	reinsurance	recoverable	review,	the	Company	also	analyzed	recent	developments	in	commutation	activity	between	reinsurers	and cedants,	recent	trends	in	arbitration	and	litigation	outcomes	in	disputes	between	cedants	and	reinsurers	and	the	overall	credit	quality	of	the	Company's	reinsurers.	As	a	result of	this	evaluation,	the	Company	reduced	its	estimated	net	reinsurance	recoverable	by	$181,	which	was	comprised	of	a	$126	reduction	of	ceded	amounts	and	a	$55	increase in	the	allowance	for	uncollectible	reinsurance.	The	after-tax	effect	of	this	action	was	$118.	The	Company	also	consolidated	within	the	"all	other"	category	its	allowance	for insolvencies	and	disputes	that	might	affect	reinsurance	coverage	associated	with	Other	Operations	into	a	single	allowance.	As	of	December	31,	2004,	the	allowance	for uncollectible	reinsurance	totals	$314.

In	the	third	quarter	of	2004,	The	Hartford	completed	an	account-by-account	review	of	its	environmental	exposures.	During	the	course	of	this	review,	the	Company	found estimates	for	individual	cases	changed	based	upon	the	particular	circumstances	of	each	account,	although	the	review	found	no	apparent	overarching	cause	or	change	in	the claim	environment.	The	net	effect	of	these	changes	resulted	in	a	$75	before	tax	increase	in	gross	and	net	environmental	liabilities.

In	the	fourth	quarter	of	2004,	the	Company	completed	a	review	of	its	non-asbestos	and	environmental	exposures	in	Other	Operations.	As	a	result	of	this	review,	the Company	increased	its	assumed	casualty	reinsurance	reserves	by	$40.	For	the	year	ended	December	31,	2004,	assumed	casualty	reinsurance	reserves	were	strengthened	by a	total	of	$170,	including	$130	of	strengthening	in	the	first	quarter	and	$40	in	the	fourth	quarter.

Consistent	with	the	Company's	long-standing	reserving	practices,	The	Hartford	will	continue	to	review	and	monitor	these	reserves	regularly	and,	where	future developments	indicate,	make	appropriate	adjustments	to	the	reserves.	The	loss	reserving	assumptions,	drawn	from	both	industry	data	and	the	Company's	experience,	have been	applied	over	time	to	all	of	this	business	and	have	resulted	in	reserve	strengthening	or	reserve	releases	at	various	times	over	the	past	decade.	The	Company	believes	that its	current	asbestos	and	environmental	reserves	are	reasonable	and	appropriate.	However,	analyses	of	future	developments	could	cause	The	Hartford	to	change	its	estimates and	ranges	of	its	asbestos	and	environmental	reserves,	and	the	effect	of	these	changes	could	be	material	to	the	Company's	consolidated	operating	results,	financial	condition and	liquidity.	Currently,	the	Company	expects	to	perform	an	asbestos	study	in	the	second	quarter	of	2005	and	an	environmental	study	in	the	third	quarter	of	2005.	In addition,	the	Company	currently	expects	to	perform	a	comprehensive	review	of	Other	Operations	reinsurance	recoverables	at	least	annually.	At	any	time	there	are significant	developments	that	affect	particular	exposures,	reinsurance	arrangements	or	the	financial	condition	of	particular	reinsurers,	the	Company	will	respond	by	making adjustments	in	the	portion	of	liabilities	it	expects	to	cede	or	in	its	allowance	for	uncollectible	reinsurance.

The	following	table	presents	reserve	activity,	inclusive	of	estimates	for	both	reported	and	incurred	but	not	reported	claims,	net	of	reinsurance,	for	Other	Operations, categorized	by	asbestos,	environmental	and	all	other	claims,	for	the	years	ended	December	31,	2004,	2003	and	2002.	Also	included	are	the	remaining	asbestos	and environmental	exposures	of	Ongoing	Operations.

# Other	Operations	Claims	and	Claim	Adjustment	Expenses

|  | Asbestos | Environmental | All	Other[1]	[2] | Total |
| :--- | :--- | :--- | :--- | :--- |
| 2004 |  |  |  |  |
| Beginning\tliability\t—\tnet | $3,794 | $408 | $2,392 | $6,594 |
| Claims\tand\tclaim\tadjustment\texpenses\tincurred\t[5] | 222 | 86 | 150 | 458 |
| Claims\tand\tclaim\tadjustment\texpenses\tpaid\t[6] | (1,202) | (90) | (368) | (1,660) |
| Reclassification\tof\tallowance\tfor\tuncollectible\treinsurance | (330) | (10) | 340 | — |
| Ending\tliability\t—\tnet\t[3]\t[4] | $2,484[7] | $394 | $2,514 | $5,392 |
| 2003 |  |  |  |  |
| Beginning\tliability\t—\tnet | $1,118 | $591 | $2,436 | $4,145 |
| Claims\tand\tclaim\tadjustment\texpenses\tincurred | 2,612 | 2 | 484 | 3,098 |
| Claims\tand\tclaim\tadjustment\texpenses\tpaid | (161) | (185) | (525) | (871) |
| Other\t[8] | 225 | — | (3) | 222 |
| Ending\tliability\t—\tnet\t[3]\t[4] | $3,794 | $408 | $2,392 | $6,594 |
| 2002 |  |  |  |  |
| Beginning\tliability\t—\tnet | $616 | $654 | $3,060 | $4,330 |
| Claims\tand\tclaim\tadjustment\texpenses\tincurred | 88 | (11) | 654 | 731 |
| Claims\tand\tclaim\tadjustment\texpenses\tpaid | (126) | (112) | (678) | (916) |
| Other\t[9] | 540 | 60 | (600) | — |
| Ending\tliability\t—\tnet\t[3]\t[4] | $1,118 | $591 | $2,436 | $4,145 |

[1]Includes	unallocated	loss	adjustment	expense	reserves	and	allowance	for	uncollectible	reinsurance.

[3]Ending	liabilities	include	asbestos	and	environmental	reserves	reported	in	Ongoing	Operations	of	$13	and	$9,	respectively,	as	of	December	31,	2004,	$11	and	$8, respectively	as	of	December	31,	2003,	and	$11	and	$7	respectively	as	of	December	31,	2002.	The	total	net	claim	and	claim	adjustment	expenses	incurred	for	the	twelve months	ended	December	31,	2004,	2003,	and	2002,	respectively	includes	$13,	$13,	and	$18,	respectively,	related	to	asbestos	and	environmental	claims	reported	in Ongoing	Operations.

[5]Includes	2004	second	quarter	$181	provision	associated	with	the	evaluation	of	the	reinsurance	recoverable	asset.

[6]Asbestos	payments	include	payments	pursuant	to	the	MacArthur	settlement.

[7]The	one	year	and	average	three	year	net	paid	amounts	for	asbestos	claims	are	$1,202	and	$504,	respectively,	resulting	in	a	one	year	net	survival	ratio	of	2.1	(15.2 excluding	the	MacArthur	payments)	and	a	three	year	net	survival	ratio	of	5.0	(16.5	excluding	the	MacArthur	payments).	Net	survival	ratio	is	the	quotient	of	the	net carried	reserves	divided	by	the	average	annual	payment	amount	and	is	an	indication	of	the	number	of	years	that	the	net	carried	reserve	would	last	(i.e.	survive)	if	the future	annual	claim	payments	were	consistent	with	the	calculated	historical	average.

[9]The	nature	of	these	reallocations	is	described	in	the	preceding	discussion.

At	December	31,	2004,	asbestos	reserves	were	$2.5	billion,	a	decrease	of	$1.3	billion	compared	to	$3.8	billion	as	of	December	31,	2003.	The	decrease	in	asbestos	reserves was	due	primarily	to	the	MacArthur	settlement	payment	made	in	the	first	quarter	of	2004.	At	December	31,	2003,	asbestos	reserves	were	$3.8	billion,	an	increase	of $2.7	billion	compared	to	$1.1	billion	as	of	December	31,	2002.	Net	incurred	losses	and	loss	adjustment	expenses	were	$2.6	billion	for	the	year	ended	December	31,	2003. The	increase	in	reserves	for	2003	as	well	as	the	increase	in	paid	losses	reflect	asbestos	claim	and	litigation	trends.

The	Company	classifies	its	asbestos	and	environmental	reserves	into	three	categories:	direct	insurance;	assumed	reinsurance	and	London	Market.	Direct	insurance	includes primary	and	excess	coverage.	Assumed	reinsurance	includes	both	"treaty"	reinsurance	(covering	broad	categories	of	claims	or	blocks	of	business)	and	"facultative" reinsurance	(covering	specific	risks	or	individual	policies	of	primary	or	excess	insurance	companies).	London	Market	business	includes	the	business	written	by	one	or	more of	The	Hartford's	subsidiaries	in	the	United	Kingdom,	which	are	no	longer	active	in	the	insurance	or	reinsurance	business.	Such	business	includes	both	direct	insurance	and assumed	reinsurance.

Of	these	three	categories,	direct	policies	tend	to	have	the	greatest	factual	developments	from	which	to	estimate	the	Company's	exposures.	Over	the	last	three	years, including	the	current	reporting	period,	the	Company	experienced	a	reduction	in	newly	reported	environmental	claims	on	direct	business,	and	actual	claim	payments	have been	made	at	levels	within	the	Company's	previously	established	provisions	for	loss.	However,	with	respect	to	asbestos	claims,	the	Company	experienced	a	variety	of negative	trends,	including	increasing	numbers	of	policyholders	making	claims,	an	apparent	increase	in	the	number	of	claimants	under	such	policies,	and	an	accelerated	rate of	policyholder	bankruptcies.

Assumed	reinsurance	exposures	are	inherently	less	predictable	than	direct	insurance	exposures	because	the	Company	may	not	receive	notice	of	a	reinsurance	claim	until	the underlying	direct	insurance	claim	is	mature.	This	causes	a	delay	in	the	receipt	of	information	at	the	reinsurer	level	reflecting	changes	in	the	asbestos	tort	litigation	and	direct insurance	coverage	environments.

Estimating	liabilities	for	London	Market	business	is	the	most	uncertain	of	the	three	categories	of	claims	(direct,	assumed	reinsurance	and	London	Market).	As	a	participant in	the	London	Market	(comprised	of	both	Lloyd's	of	London	and	London	Company	Markets),	the	Company	wrote	business	on	a	subscription	basis,	with	the	Company's involvement	being	limited	to	a	relatively	small	percentage	of	a	total	contract	placement.	Claims	are	reported,	via	a	broker,	to	the	"lead"	underwriter	and,	once	agreed	to,	are presented	to	the	following	markets	for	concurrence.	This	reporting	and	claim	agreement	process	makes	estimating	liabilities	for	this	business	the	most	uncertain	of	the	three categories	of	claims.

On	December	19,	2003,	Hartford	Accident	and	Indemnity	Co.	("Hartford	A&I")	entered	into	a	settlement	agreement	with	MacArthur	Co.	and	its	subsidiary,	Western MacArthur	Co.	Under	the	settlement	agreement,	during	the	first	quarter	of	2004,	Hartford	A&I	paid	$1.15	billion	into	an	escrow	account	owned	by	Hartford	A&I.	The funds	were	held	in	the	escrow	account	until	conditions	precedent	to	the	settlement	occurred	in	April.	On	April	22,	2004,	the	funds	were	disbursed	from	the	escrow	account into	a	trust	established	for	the	benefit	of	present	and	future	asbestos	claimants	pursuant	to	the	bankruptcy	plan.	The	settlement	payments	were	accounted	for	as	a	reduction in	unpaid	claim	and	claim	adjustment	expenses	during	the	first	quarter	of	2004.

For	the	past	three	years,	direct	paid	loss	and	expense	for	environmental	claims	have	declined.	The	vast	majority	of	these	payments	have	been	made	under	settlement agreements	that	fully	resolve	The	Hartford's	exposure	to	these	insureds	for	environmental	liabilities.

The	following	table	sets	forth,	for	the	three	years	ended	December	31,	2004,	paid	and	incurred	loss	activity	by	the	three	categories	of	claims	for	asbestos	and environmental.

# Paid	and	Incurred	Loss	and	Loss	Adjustment	Expense	("LAE")	Development	—	Asbestos	and	Environmental

|  | Asbestos | Asbestos | Environmental | Environmental |
| :--- | :--- | :--- | :--- | :--- |
|  | Paid\nLoss\t&amp;\tLAE\t[1] | Incurred\nLoss\t&amp;\tLAE | Paid\nLoss\t&amp;\tLAE | Incurred\nLoss\t&amp;\tLAE |
| 2004 |  |  |  |  |
| Gross |  |  |  |  |
| Direct | $1,491 | $(13) | $87 | $83 |
| Assumed\t—\tDomestic | 66 | 30 | 18 | — |
| London\tMarket | 22 | — | 19 | — |
| Total | 1,579 | 17 | 124 | 83 |
| Ceded | (377) | 205 | (34) | 3 |
| Net | $1,202 | $222 | $90 | $86 |
| 2003 |  |  |  |  |
| Gross |  |  |  |  |
| Direct | $226 | $3,113 | $109 | $12 |
| Assumed\t—\tDomestic | 53 | 585 | 15 | (3) |
| London\tMarket | 40 | 286 | 17 | (8) |
| Total | 319 | 3,984 | 141 | 1 |
| Ceded | (158) | (1,372) | 44 | 1 |
| Net | $161 | $2,612 | $185 | $2 |
| 2002 |  |  |  |  |
| Gross |  |  |  |  |
| Direct | $212 | $559 | $124 | $(9) |
| Assumed\t—\tDomestic | 66 | 89 | 15 | (39) |
| London\tMarket | 35 | 26 | 24 | (26) |
| Total | 313 | 674 | 163 | (74) |
| Ceded | (187) | (46) | (51) | 123 |
| Net | $126 | $628 | $112 | $49 |

# [1]	Reflects	payments	pursuant	to	the	MacArthur	settlement.

The	Other	Operations	segment	will	continue	to	manage	the	discontinued	operations	of	The	Hartford	as	well	as	claims	(and	associated	reserves)	related	to	asbestos	and environmental	exposure.	The	Hartford	will	continue	to	review	various	components	of	all	of	its	reserves	on	a	regular	basis.

# INVESTMENTS

The	Hartford's	investment	portfolios	are	primarily	divided	between	Life	and	Property	&	Casualty.	The	investment	portfolios	of	Life	and	Property	&	Casualty	are	managed by	Hartford	Investment	Management	Company	("HIM"),	a	wholly-owned	subsidiary	of	The	Hartford.	HIM	manages	the	portfolios	to	maximize	economic	value,	while attempting	to	generate	the	income	necessary	to	support	the	Company's	various	product	obligations,	within	internally	established	objectives,	guidelines	and	risk	tolerances. The	portfolio	objectives	and	guidelines	are	developed	based	upon	the	asset/liability	profile,	including	duration,	convexity	and	other	characteristics	within	specified	risk tolerances.	The	risk	tolerances	considered	include,	for	example,	asset	and	credit	issuer	allocation	limits,	maximum	portfolio	below	investment	grade	("BIG")	holdings	and foreign	currency	exposure.	The	Company	attempts	to	minimize	adverse	impacts	to	the	portfolio	and	the	results	of	operations	due	to	changes	in	economic	conditions	through asset	allocation	limits,	asset/liability	duration	matching	and	through	the	use	of	derivatives.	(For	a	further	discussion	of	how	the	investment	portfolio's	credit	and	market risks	are	assessed	and	managed,	see	the	Investment	Credit	Risk	and	Capital	Markets	Risk	Management	sections	of	the	MD&A.)

HIM's	security	selection	process	is	a	multi-dimensional	approach	that	combines	independent	internal	credit	research	along	with	a	macro	economic	outlook	of	technical trends	(e.g.	interest	rates,	slope	of	the	yield	curve	and	credit	spreads)	and	market	pricing	to	identify	valuation	inefficiencies	and	relative	value	buying	and	selling opportunities.	Security	selection	and	monitoring	is	performed	by	asset	class	specialists	working	within	dedicated	portfolio	management	teams.

HIM	portfolio	managers	may	sell	securities,	except	those	securities	in	an	unrealized	loss	position	for	which	the	Company	has	indicated	its	intent	and	ability	to	hold	until	the price	recovers,	due	to	portfolio	guidelines	or	market	technicals	or	trends.	For	example,	the	Company	may	sell	securities	to	capture	market	valuation	inefficiencies	or	relative value	opportunities	through	security	or	sector	rotation,	to	remain	compliant	with	internal	asset/liability	duration	matching	guidelines	often	times	a	result	of	changes	in interest	rates,	or	to	modify	a	portfolio's	duration	to	capitalize	on	interest	rate	levels	or	yield	curve	slope.

HIM	believes	that	advantageously	buying	and	selling	securities	within	a	structured	purchasing,	monitoring	and	selling	framework,	provides	the	greatest	economic	value	for the	Company	over	the	long-term.

Pursuant	to	the	adoption	of	SOP	03-1,	as	discussed	in	Note	1	of	Notes	to	Consolidated	Financial	Statements,	on	January	1,	2004,	the	Company	reclassified	$18.1	billion	of separate	account	assets	to	the	general	account.	Of	this	amount,	$11.7	billion	was	associated	with	guaranteed	separate	accounts	and	was	primarily	comprised	of	fixed maturities.	These	assets	are	classified	as	available-for-sale	securities	with	changes	in	fair	value	reported	in	other	comprehensive	income.	In	addition,	$6.2	billion	is	primarily comprised	of	equity	securities	related	to	variable	annuity	products	offered	in	Japan.	These	assets	are	classified	as	trading	securities	with	changes	in	fair	value	reported	in	net investment	income.	The	remaining	amount	of	$200	related	to	policy	loans	on	private	placement	life	insurance	products.

Return	on	general	account	invested	assets	is	an	important	element	of	The	Hartford's	financial	results.	Significant	fluctuations	in	the	fixed	income	or	equity	markets	could weaken	the	Company's	financial	condition	or	its	results	of	operations.	Additionally,	changes	in	market	interest	rates	may	impact	the	period	of	time	over	which	certain investments,	such	as	mortgage-backed	securities,	are	repaid	and	whether	certain	investments	are	called	by	the	issuers.	Such	changes	may,	in	turn,	impact	the	yield	on	these investments	and	also	may	result	in	reinvestment	of	funds	received	from	calls	and	prepayments	at	rates	below	the	average	portfolio	yield.	Net	investment	income	and	net realized	capital	gains	and	losses	accounted	for	approximately	24%,	19%	and	16%	of	the	Company's	consolidated	revenues	for	the	years	ended	December	31,	2004,	2003 and	2002,	respectively.	The	increase	in	the	percentage	of	consolidated	revenues	for	2004,	as	compared	to	the	prior	years,	is	primarily	due	to	income	earned	on	separate account	assets	reclassified	to	the	general	account	as	a	result	of	the	adoption	of	SOP	03-1.

Fluctuations	in	interest	rates	affect	the	Company's	return	on,	and	the	fair	value	of,	general	account	fixed	maturity	investments,	which	comprised	approximately	80%	and 93%	of	the	fair	value	of	its	invested	assets	as	of	December	31,	2004	and	2003,	respectively.	Other	events	beyond	the	Company's	control	could	also	adversely	impact	the fair	value	of	these	investments.	Specifically,	a	downgrade	of	an	issuer's	credit	rating	or	default	of	payment	by	an	issuer	could	reduce	the	Company's	investment	return.

The	Company	invests	in	private	placement	securities,	mortgage	loans	and	limited	partnership	arrangements	in	order	to	further	diversify	its	investment	portfolio.	These investment	types	comprised	approximately	16%	and	17%	of	the	fair	value	of	its	invested	assets	as	of	December	31,	2004	and	2003,	respectively.	These	security	types	are typically	less	liquid	than	direct	investments	in	publicly	traded	fixed	income	or	equity	investments.	However,	generally	these	securities	have	higher	yields	to	compensate	for the	liquidity	risk.

A	decrease	in	the	fair	value	of	any	investment	that	is	deemed	other-than-temporary	would	result	in	the	Company's	recognition	of	a	net	realized	capital	loss	in	its	financial results	prior	to	the	actual	sale	of	the	investment.	(For	a	further	discussion	of	the	evaluation	of	other-than-temporary	impairments,	see	the	Critical	Accounting	Estimates section	of	the	MD&A	under	"Valuation	of	Investments	and	Derivative	Instruments	and	Evaluation	of	Other-Than-Temporary	Impairments".)

The	primary	investment	objective	of	Life's	general	account	is	to	maximize	after-tax	returns	consistent	with	acceptable	risk	parameters,	including	the	management	of	the interest	rate	sensitivity	of	invested	assets	and	the	generation	of	sufficient	liquidity	relative	to	that	of	policyholder	and	corporate	obligations,	as	discussed	in	the	Capital Markets	Risk	Management	section	of	the	MD&A	under	"Market	Risk	—	Life".

The	following	table	identifies	the	invested	assets	by	type	held	in	the	general	account	as	of	December	31,	2004	and	2003.

|  | Amount | Percent | Amount | Percent |
| :--- | :--- | :--- | :--- | :--- |
| Fixed\tmaturities,\tavailable-for-sale,\tat\tfair\tvalue | $50,531 | 73.5% | $37,462 | 91.0% |
| Equity\tsecurities,\tavailable-for-sale,\tat\tfair\tvalue | 525 | 0.8% | 357 | 0.9% |
| Equity\tsecurities,\theld\tfor\ttrading,\tat\tfair\tvalue | 13,634 | 19.8% | — | — |
| Policy\tloans,\tat\toutstanding\tbalance | 2,662 | 3.9% | 2,512 | 6.1% |
| Mortgage\tloans,\tat\tcost | 923 | 1.3% | 466 | 1.1% |
| Limited\tpartnerships,\tat\tfair\tvalue | 256 | 0.4% | 177 | 0.4% |
| Other\tinvestments | 185 | 0.3% | 180 | 0.5% |
| Total\tinvestments | $68,716 | 100.0% | $41,154 | 100.0% |

Fixed	maturity	investments	and	equity	securities	held	for	trading	increased	35%	and	100%,	respectively,	since	December	31,	2003,	primarily	the	result	of	fixed	maturities and	equity	securities	that	were	reclassified	from	separate	accounts	to	the	general	account	as	a	result	of	the	adoption	of	SOP	03-1	coupled	with	positive	operating	cash	flow.

Mortgage	loans	increased	$457,	or	98%,	since	December	31,	2003,	as	a	result	of	a	decision	to	increase	Life's	investment	in	this	asset	class	primarily	due	to	its	attractive yields	and	diversification	opportunities.

# Investment	Results

The	following	table	summarizes	Life's	investment	results.

| (before-tax) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tinvestment\tincome\t—\texcluding\tincome\ton\tpolicy\tloan\tand\ttrading\tsecurities | $2,690 | $1,831 | $1,595 |
| Policy\tloan\tincome | 186 | 210 | 254 |
| Trading\tsecurities\tincome\t[1] | 1,018 | — | — |
| Net\tinvestment\tincome\t—\ttotal | $3,894 | $2,041 | $1,849 |
| Yield\ton\taverage\tinvested\tassets\t[2] | 5.8% | 6.0% | 6.1% |
| Gross\tgains\ton\tsale | 359 | 267 | 175 |
| Gross\tlosses\ton\tsale | (147) | (95) | (112) |
| Impairments | (25) | (162) | (380) |
| Periodic\tnet\tcoupon\tsettlements\ton\tnon-qualifying\tderivatives | 6 | 26 | 9 |
| GMWB\tderivatives,\tnet | 8 | 6 | — |
| Other,\tnet\t[3] | (52) | (2) | — |
| Net\trealized\tcapital\tgains\t(losses),\tbefore-tax | $149 | $40 | $(308) |

[1]	Represents	the	change	in	value	of	securities	classified	as	trading.

[2]	Represents	annualized	net	investment	income	(excluding	the	change	in	fair	value	of	trading	securities)	divided	by	the	monthly	weighted	average	invested	assets	at	cost or	amortized	cost,	as	applicable,	excluding	trading	securities	and	the	collateral	received	associated	with	the	securities	lending	program.	Also,	for	2003,	the	fixed maturities	associated	with	the	acquisition	of	CNA's	group	life	and	accident,	long-term	and	short-term	disability	and	certain	specialty	businesses	are	excluded	from	the weighted	average	invested	assets.

[3]	Primarily	consists	of	changes	in	fair	value	on	non-qualifying	derivatives	and	hedge	ineffectiveness	on	qualifying	derivative	instruments,	as	well	as,	the	amortization	of deferred	acquisition	costs.

2004	Compared	to	2003	—	Net	investment	income,	excluding	income	on	policy	loans	and	trading	securities,	increased	$859,	or	47%,	compared	to	the	prior	year.	The increase	in	net	investment	income	was	primarily	due	to	income	earned	on	a	higher	average	invested	assets	base,	as	compared	to	the	prior	year,	and	an	increase	in	income from	prepayment	penalties	primarily	associated	with	commercial	mortgage-backed	securities	("CMBS")	and	yield	adjustments	related	to	changes	in	prepayment	speeds associated	with	mortgage-backed	securities	("MBS")	held	at	a	premium	or	discount.	These	increases	were	partially	offset	by	a	decrease	in	the	average	new	invested	asset yield	and	the	repositioning	of	the	portfolio	into	higher	quality	assets	as	described	below.

The	increase	in	the	average	invested	assets	base,	as	compared	to	the	prior	year,	was	primarily	the	result	of	separate	account	assets	reclassified	to	the	general	account pursuant	to	the	adoption	of	SOP	03-1	and,	to	a	lesser	extent,	assets	acquired	in	the	CNA	acquisition	and	operating	cash	flows.	Income	earned	on	separate	account	assets reclassified	to	the	general	account,	excluding	trading	securities,	was	$619	for	2004.	Income	earned	on	assets	acquired	in	the	CNA	transaction	was	$116	for	2004.

During	2004,	the	yield	on	average	invested	assets	decreased	from	the	prior	year	as	a	result	of	new	investment	purchases	at	rates	below	the	average	portfolio	yield	due	to	the continued	low	interest	rate	environment	and	decreased	policy	loan	income.	Since	the	Company	invests	primarily	in	long-term	fixed	rate	debt	securities,	current	period changes	in	long-term	interest	rates	impact	the	yield	on	new	asset	purchases	and,	therefore,	have	a	gradual	impact	on	the	overall	portfolio	yield.	The	weighted	average	yield on	new	invested	asset	purchases	in	2004	of	approximately	4.9%,	before-tax,	continues	to	be	below	the	average	portfolio	yield.	Life	expects	the	average	before-tax	new investment	yields	in	2005	to	range	from	4.8%	to	5.0%.	If	future	interest	rates	differ	from	the	forward	rates	as	of	December	31,	2004,	the	actual	average	new	investment yields	may	be	significantly	different	than	yields	currently	expected.

Net	realized	capital	gains	during	2004	increased	by	$109	compared	to	the	prior	year,	primarily	the	result	of	lower	other-than-temporary	impairments.	(For	further	discussion of	other-than-temporary	impairments,	see	the	Other-Than-Temporary	Impairments	commentary	in	this	section	of	the	MD&A.)

In	2004,	gross	gains	were	realized	as	fixed	maturity	credit	spreads	tightened	and	portions	of	the	Life	portfolios	were	repositioned	into	higher	quality	assets	where	HIM believed	greater	relative	value	existed.	Credit	spreads	tightened	primarily	due	to	improved	credit	quality,	market	liquidity	and	demand	for	higher	yielding	assets,	as	well	as the	relatively	low	interest	rate	environment.	It	is	expected	that	the	higher	quality	assets	will	provide	greater	liquidity	if	the	credit	environment	and	issuer	default	rates	return to	historical	norms.	In	addition,	foreign	government	securities	were	sold,	primarily	in	the	first	and	fourth	quarters	of	2004,	to	reduce	the	portfolios'	exposure	to	foreign holdings	and	realize	gains	associated	with	the	decline	in	value	of	the	U.S.	dollar	against	foreign	currencies.

In	2004,	securities	sold	at	a	loss	were	predominantly	corporate	securities,	U.S.	government	securities,	certain	asset-backed	securities	("ABS")	and	CMBS	with	no	single security	sold	at	a	loss	in	excess	of	$5	and	an	average	loss	as	a	percentage	of	the	fixed	maturity's	amortized	cost	of	less	than	5%,	which	under	the	Company's	current impairment	policy,	were	deemed	to	be	depressed	only	to	a	minor	extent.	In	2003,	no	single	security	was	sold	at	a	loss	in	excess	of	$8.

2003	Compared	to	2002	—	Net	investment	income,	excluding	policy	loan	income,	increased	$236,	or	15%,	compared	to	the	prior	year.	The	increase	was	primarily	due	to income	earned	on	a	higher	invested	asset	base	partially	offset	by	lower	investment	yields.	Policy	loan	income	decreased	primarily	due	to	the	decline	in	leveraged	COLI policies,	as	a	result	of	surrender	activity	and	lower	sales.	Yield	on	average	invested	assets	decreased	as	a	result	of	lower	rates	on	new	investment	purchases	and	decreased policy	loan	income.

Net	realized	capital	gains	(losses)	for	2003	increased	by	$348	compared	to	the	prior	year,	primarily	as	a	result	of	net	gains	on	sales	of	fixed	maturities	and	a	decrease	in other-than-temporary	impairments	on	fixed	maturities.	Sales	were	the	result	of	normal	trading	activity	and	were	primarily	attributable	to	the	improvement	in	the	corporate credit	environment,	general	economic	conditions	and	operating	fundamentals,	the	decrease	in	interest	rates	and	improved	pricing	levels	for	ABS.	(For	a	further	discussion of	other-than-temporary	impairments,	see	the	Other-Than-Temporary	Impairments	commentary	in	this	section	of	the	MD&A.)

# Separate	Account	Products

Separate	account	products	are	those	for	which	a	separate	investment	and	liability	account	is	maintained	on	behalf	of	the	policyholder.	Prior	to	January	1,	2004,	the Company's	separate	accounts	reflected	two	categories	of	risk	assumption:	non-guaranteed	separate	accounts	wherein	the	policyholder	assumes	substantially	all	the	risk	and reward;	and	guaranteed	separate	accounts	wherein	the	Company	contractually	guarantees	either	a	minimum	return	or	the	account	value	to	the	policyholder.	Effective January	1,	2004,	the	guaranteed	separate	accounts	are	included	with	general	account	assets	pursuant	to	SOP	03-1.	As	of	December	31,	2004,	the	Company's	separate accounts	totaled	$140.0	billion.	As	of	December	31,	2003,	the	Company's	total	separate	accounts	totaled	$136.6	billion,	of	which	$12.1	billion	was	guaranteed	separate accounts.

Investment	objectives	for	non-guaranteed	separate	accounts,	which	consist	of	the	participants'	account	balances,	vary	by	fund	account	type,	as	outlined	in	the	applicable fund	prospectus	or	separate	account	plan	of	operations.	Separate	account	products	include	variable	annuities,	variable	universal	life	insurance	contracts	and	variable	COLI. The	assets	and	liabilities	associated	with	variable	annuity	products	sold	in	Japan	do	not	meet	the	criteria	to	be	recognized	as	a	separate	account	because	the	assets	are	not legally	insulated	from	the	Company.	Therefore,	these	assets	are	also	included	with	general	account	assets	effective	January	1,	2004.

Products,	previously	recorded	as	guaranteed	separate	accounts	but	now	recorded	in	the	general	account	upon	adoption	of	SOP	03-1,	primarily	consist	of	modified guaranteed	individual	annuities	and	modified	guaranteed	life	insurance	and	generally	include	market	value	adjustment	features	and	surrender	charges	to	mitigate	the	risk	of disintermediation.	The	primary	investment	objective	of	these	assets	is	to	maximize	after-tax	returns	consistent	with	acceptable	risk	parameters,	including	the	management	of the	interest	rate	sensitivity	of	invested	assets	relative	to	that	of	policyholder	obligations,	as	discussed	in	the	Capital	Markets	Risk	Management	section	of	the	MD&A	under "Market	Risk	—	Life".

The	investment	objective	for	Property	&	Casualty's	ongoing	operations	is	to	maximize	economic	value	while	generating	after-tax	income	and	sufficient	liquidity	to	meet policyholder	and	corporate	obligations.	For	Property	&	Casualty's	Other	Operations	segment,	the	investment	objective	is	to	ensure	the	full	and	timely	payment	of	all liabilities.	Property	&	Casualty's	investment	strategies	are	developed	based	on	a	variety	of	factors	including	business	needs,	regulatory	requirements	and	tax	considerations.

The	following	table	identifies	the	invested	assets	by	type	held	as	of	December	31,	2004	and	2003.

|  | Amount | Percent | Amount | Percent |
| :--- | :--- | :--- | :--- | :--- |
| Fixed\tmaturities,\tavailable-for-sale,\tat\tfair\tvalue | $24,410 | 95.6% | $23,715 | 96.4% |
| Equity\tsecurities,\tavailable-for-sale,\tat\tfair\tvalue | 307 | 1.2% | 208 | 0.8% |
| Real\testate/Mortgage\tloans,\tat\tcost | 253 | 1.0% | 328 | 1.3% |
| Limited\tpartnerships,\tat\tfair\tvalue | 177 | 0.7% | 168 | 0.7% |
| Other\tinvestments | 379 | 1.5% | 186 | 0.8% |
| Total\tinvestments | $25,526 | 100.0% | $24,605 | 100.0% |

During	2004,	fixed	maturities	increased	$695,	or	3%,	primarily	due	to	positive	operating	cash	flow,	partially	offset	by	$1.15	billion	of	payments	made	pursuant	to	the MacArthur	settlement.

The	following	table	below	summarizes	Property	&	Casualty's	investment	results.

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tinvestment\tincome,\tbefore-tax | $1,248 | $1,172 | $1,060 |
| Net\tinvestment\tincome,\tafter-tax\t[1] | $932 | $889 | $820 |
| Yield\ton\taverage\tinvested\tassets,\tbefore-tax\t[2] | 5.4% | 5.5% | 5.8% |
| Yield\ton\taverage\tinvested\tassets,\tafter-tax\t[1]\t[2] | 4.1% | 4.2% | 4.5% |
| Gross\tgains\ton\tsale | $210 | $397 | $282 |
| Gross\tlosses\ton\tsale | (83) | (125) | (181) |
| Impairments | (13) | (38) | (199) |
| Periodic\tnet\tcoupon\tsettlements\ton\tnon-qualifying\tderivatives | 9 | 18 | 15 |
| Other,\tnet\t[3] | 10 | 1 | 15 |
| Net\trealized\tcapital\tgains\t(losses),\tbefore-tax | $133 | $253 | $(68) |

[1] Due	to	significant	holdings	in	tax-exempt	investments,	after-tax	net	investment	income	and	yield	are	also	included.

[2] Represents	annualized	net	investment	income	divided	by	the	monthly	weighted	average	invested	assets	at	cost	or	amortized	cost,	as	applicable,	excluding	the collateral	received	associated	with	the	securities	lending	program.

[3] Primarily	consists	of	changes	in	fair	value	on	non-qualifying	derivatives	and	hedge	ineffectiveness	on	qualifying	derivative	instruments.

2004	Compared	to	2003	—	Before-tax	net	investment	income	increased	$76,	or	6%,	and	after-tax	net	investment	income	increased	$43,	or	5%,	compared	to	the	prior	year. The	increases	in	net	investment	income	were	primarily	due	to	income	earned	on	a	higher	average	invested	assets	base	in	2004,	as	compared	to	prior	year,	partially	offset	by a	decrease	in	the	average	new	invested	asset	yield	and	the	repositioning	of	the	portfolio	into	higher	quality	assets	as	described	below.

In	2004,	the	yield	on	average	invested	assets	decreased	slightly	from	prior	year	as	a	result	of	new	investment	purchases	at	rates	below	the	average	portfolio	yield	due	to	the continued	low	interest	rate	environment.	Since	the	Company	invests	primarily	in	long-term	fixed	rate	debt	securities,	current	period	changes	in	long-term	interest	rates impact	the	yield	on	new	asset	purchases	and,	therefore,	have	a	gradual	impact	on	the	overall	portfolio	yield.	The	weighted	average	yield	on	new	asset	purchases	in	2004	of approximately	4.9%,	before-tax,	continues	to	be	below	the	average	portfolio	yield.	Property	&	Casualty	expects	the	average	before-tax	new	investment	yields	in	2005	to range	from	4.8%	to	5.0%.	If	future	interest	rates	differ	from	the	forward	rates	as	of	December	31,	2004,	the	actual	average	new	investment	yields	may	be	significantly different	from	the	yields	currently	expected.

Net	realized	capital	gains	for	2004	decreased	$120	as	compared	to	the	prior	year	as	a	result	of	lower	net	realized	gains	on	sales	of	fixed	maturity	securities,	partially	offset by	lower	other-than-temporary	impairments.	(For	further	discussion	of	other-than-temporary	impairments,	see	the	Other-Than-Temporary	Impairments	commentary	in	this section	of	the	MD&A.)

In	2004,	gross	gains	were	realized	as	fixed	maturity	credit	spreads	tightened	and	portions	of	the	Property	&	Casualty	portfolios	were	repositioned	into	higher	quality	assets where	HIM	believed	greater	relative	value	existed.	Credit	spreads	tightened	primarily	due	to	improved	credit	quality,	market	liquidity	and	demand	for	higher	yielding assets,	as	well	as	the	relatively	low	interest	rate	environment.	It	is	expected	that	the	higher	quality	assets	will	provide	greater	liquidity	if	the	credit	environment	and	issuer default	rates	return	to	historical	norms.	In	addition,	foreign	government	securities	were	sold,	primarily	in	the	first	and	fourth	quarters	of	2004,	to	reduce	the

portfolios'	exposure	to	foreign	holdings	and	realize	gains	associated	with	the	decline	in	value	of	the	U.S.	dollar	against	foreign	currencies.

In	2004,	securities	sold	at	a	loss	were	predominantly	corporate	securities,	U.S.	government	securities,	certain	ABS	and	CMBS	with	no	single	security	sold	at	a	loss	in excess	of	$5	and	an	average	loss	as	a	percentage	of	the	fixed	maturity's	amortized	cost	of	less	than	5%,	which	under	the	Company's	current	impairment	policy	were deemed	to	be	depressed	only	to	a	minor	extent.	In	2003,	no	Property	&	Casualty	security	was	sold	at	a	loss	in	excess	of	$10.

2003	Compared	to	2002	—	Before-tax	net	investment	income	increased	$112,	or	11%,	and	after-tax	net	investment	income	increased	$69,	or	8%,	compared	to	the	prior year.	The	increases	in	net	investment	income	were	primarily	due	to	income	earned	on	a	higher	invested	asset	base	partially	offset	by	lower	investment	yields.	Yields	on average	invested	assets	decreased	from	the	prior	year	as	a	result	of	lower	rates	on	new	investment	purchases.

Net	realized	capital	gains	(losses)	for	2003	improved	by	$321	compared	to	the	prior	year.	The	improvement	was	primarily	the	result	of	net	gains	on	sales	of	fixed	maturity investments,	Trumbull	Associates,	LLC	and	a	decrease	in	other-than-temporary	impairments.	In	the	first	half	of	2003,	interest	rates	fell	to	historical	lows,	the	yield	curve steepened	and	credit	spreads	rallied	significantly.	The	portfolio	was	repositioned	to	realize	the	available	gains,	modestly	move	out	the	yield	curve	and	improve	statutory surplus.	This	strategy	resulted	in	approximately	$175	of	before-tax	gains	but	adversely	impacted	Property	&	Casualty's	before-tax	net	investment	income	in	2004	by approximately	8	basis	points.	(For	a	further	discussion	of	other-than-temporary	impairments,	see	the	Other-Than-Temporary	Impairments	commentary	in	this	section	of	the MD&A.)

# Corporate

The	investment	objective	of	Corporate	is	to	raise	capital	through	financing	activities	to	support	the	Life	and	Property	&	Casualty	operations	of	the	Company	and	to	maintain sufficient	funds	to	support	the	cost	of	those	financing	activities	including	the	payment	of	interest	for	Hartford	Financial	Services	Group,	Inc.	("HFSG")	issued	debt	and dividends	to	shareholders	of	The	Hartford	common	stock.	As	of	December	31,	2004	and	2003,	Corporate	held	$159	and	$86,	respectively,	of	short-term	fixed	maturity investments.	In	addition,	Corporate	held	$7	and	$2,	respectively,	of	other	investments	as	of	December	31,	2004	and	2003.

# Investment	Management	Activities

During	2004,	HIM	issued	one	and	began	serving	as	the	collateral	asset	manager	for	two	additional	synthetic	collateralized	loan	obligations	("CLOs"),	which	invest	in senior	secured	bank	loans	through	total	return	swaps	("referenced	bank	loan	portfolios").	The	notional	value	of	the	referenced	bank	loan	portfolios	from	the	three	synthetic CLOs	as	of	December	31,	2004	was	$1.1	billion.	The	synthetic	CLOs	issued	approximately	$185	of	notes	and	preferred	shares	("CLO	issuances"),	approximately	$170	of which	was	to	third	party	investors.	The	proceeds	from	the	CLO	issuances	were	invested	in	collateral	accounts	consisting	of	high	credit	quality	securities	that	were	pledged to	the	referenced	bank	loan	portfolios'	swap	counterparties.	Investors	in	the	CLO	issuances	receive	the	net	proceeds	from	the	referenced	bank	loan	portfolios.	Any	principal losses	incurred	by	the	swap	counterparties	associated	with	the	referenced	bank	loan	portfolios	are	borne	by	the	CLO	issuances	investors	through	the	total	return	swaps.

Pursuant	to	the	requirements	of	FIN	46R,	the	Company	has	concluded	that	the	three	synthetic	CLOs	are	variable	interest	entities	("VIEs")	and	for	the	CLO	issued	in	2004, the	Company	is	the	primary	beneficiary	and	must	consolidate	this	CLO.	Accordingly,	the	Company	has	recorded	in	the	consolidated	balance	sheets	$65	of	cash	and invested	assets,	total	return	swaps	with	a	fair	value	of	$3	in	other	assets,	which	reference	a	bank	loan	portfolio	with	a	maximum	notional	of	$400,	and	$52	in	other	liabilities related	to	the	CLO	issuances.	The	total	return	from	the	referenced	bank	loan	portfolio	of	$3	was	received	via	the	total	return	swap	and	recorded	in	realized	capital	gains	and losses.	Income	from	the	fixed	maturity	collateral	account	and	CLO	issuance	investor	payments	were	recorded	in	net	investment	income	in	the	consolidated	statements	of operations.	The	Company's	investment	in	the	consolidated	synthetic	CLO	issuance	is	$14,	which	is	its	maximum	exposure	to	loss.	Of	the	two	non-consolidated	synthetic CLOs,	the	Company	has	a	$2	preferred	share	investment	in	one	of	the	CLO	issuances,	which	is	its	maximum	exposure	to	loss.	The	investors	in	the	three	synthetic	CLO issuances	have	recourse	only	to	the	VIE	assets	and	not	to	the	general	credit	of	the	Company.	The	collateral	management	fees	earned	by	HIM	for	the	two	non-consolidated synthetic	CLOs	totaled	$3	for	the	year	ended	December	31,	2004	and	are	reported	in	other	income	in	the	consolidated	statements	of	operations.

The	Company	has	a	security	monitoring	process	overseen	by	a	committee	of	investment	and	accounting	professionals	that,	on	a	quarterly	basis,	identifies	securities	that could	potentially	be	other-than-temporarily	impaired.	When	a	security	is	deemed	to	be	other-than-temporarily	impaired	its	carrying	amount	is	written-down	to	current market	value	and	a	realized	loss	is	recorded	in	the	Company's	consolidated	statements	of	operations.	(For	further	discussion	regarding	the	Company's	other-than-temporary impairment	policy,	see	"Valuation	of	Investments	and	Derivative	Instruments	and	Evaluation	of	Other-Than-Temporary	Impairments"	included	in	the	Critical	Accounting Estimates	section	of	the	MD&A	and	Note	1	of	Notes	to	Consolidated	Financial	Statements.)

The	following	table	identifies	the	Company's	other-than-temporary	impairments	by	type.

The	decrease	in	other-than-temporary	impairments	during	2003	and	2004	in	comparison	to	2002	levels	is	due	to	an	improvement	in	the	corporate	credit	environment, general	economic	conditions	and	operating	fundamentals,	and	improved	pricing	levels	for	ABS.	In	general,	security	issuers'	operating	fundamentals	have	improved	due	to reduced	company	leverage,	improved	liquidity	and	the	successful	implementation	of	various	cost	cutting	measures.	Improvement	in	pricing	levels	for	ABS	has	been	driven by	a	general	stabilization	in	the	performance	of	the	underlying	collateral	and	an	increase	in	demand	for	these	asset	types	due	to	improved	economic	and	operating fundamentals	of	the	underlying	security	issuers,	better	market	liquidity	and	attractive	yields.	The	following	discussion	provides	an	analysis	of	significant	other-than- temporary	impairments	recognized	during	2004,	2003	and	2002,	the	related	circumstances	giving	rise	to	the	other-than-temporary	impairments	and	the	potential	impact such	circumstances	may	have	on	other	material	investments	held.

During	2004	there	were	no	significant	other-than-temporary	impairments	(e.g.	$15	or	greater)	recorded	on	any	single	security	or	issuer.	In	aggregate,	other-than-temporary impairments	recorded	on	ABS	primarily	relate	to	the	decline	in	market	values	of	certain	previously	impaired	securities.	Other-than-temporary	impairments	recorded	on equity	securities	primarily	related	to	variable	rate	perpetual	preferred	securities	issued	by	two	highly	rated	financial	services	companies.	These	securities	are	variable	rate securities	with	unique	structural	interest	rate	reset	characteristics	that	have	sustained	a	decline	in	market	value	for	an	extended	period	of	time	primarily	as	a	result	of	the increase	in	short-term	interest	rates	after	the	security's	interest	rate	reset	period.	As	of	December	31,	2004,	the	Company	did	not	hold	other	perpetual	preferred	securities	in an	unrealized	loss	position	with	similar	interest	rate	reset	characteristics.

During	2003,	other-than-temporary	impairments	were	primarily	recorded	on	ABS,	corporate	fixed	maturities	and	equity	securities.	The	ABS	other-than-temporary impairments	were	primarily	due	to	the	continued	deterioration	of	the	underlying	collateral	supporting	the	various	transactions.	A	significant	portion	of	corporate	fixed maturity	other-than-temporary	impairments	during	2003	resulted	from	various	issuers	who	experienced	fraud	or	accounting	irregularities.	In	addition,	during	the	first	half	of the	year,	corporate	debt	issuers	in	the	transportation	sector,	specifically	issuers	in	the	airline	sector,	deteriorated	as	a	result	of	the	continued	decline	in	airline	travel.	During 2003,	there	was	one	security	for	which	a	significant	(e.g.	$15	or	greater)	other-than-temporary	impairment	was	recorded,	the	circumstances	of	which	are	discussed	in	more detail	below.

•		The	$25	of	impairments	on	corporate	fixed	maturities	within	the	food	and	beverage	sector	related	to	securities	issued	by	the	Italian	dairy	concern,	Parmalat	SpA.	Parmalat filed	for	bankruptcy	in	December	2003	due	to	liquidity	problems	when	it	was	discovered	that	4	billion	euros	of	liquid	investments	previously	reported	on	its	balance	sheet were	non-existent.

The	following	list	identifies	ABS	and	equity	impairment	losses	recognized	in	2003	that	by	issuer	did	not	exceed	$15	but	did	when	combined	with	securities	supported	with similar	collateral	or	equity	security	types.	The	circumstances	giving	rise	to	those	losses	are	as	follows:

•		The	$31	of	CDO	other-than-temporary	impairments	consisted	of	approximately	ten	securities,	the	majority	of	which	were	interests	in	the	lower	tranches	of	securities backed	by	high	yield	corporate	debt.	These	impairments	were	primarily	the	result	of	continued	high	default	rates	in	2003	and	lower	recovery	rates	on	the	CDO's underlying	collateral.

•		The	$29	of	other-than-temporary	impairments	recognized	on	ABS	supported	by	aircraft	lease	receivables	primarily	consisted	of	investments	in	lower	tranches	of	five transactions.	These	securities	are	supported	by	aircraft	leases	and	enhanced	equipment	trust	certificates	(together,	"aircraft	lease	receivables")	issued	by	multiple	airlines that	had	sustained	a	steep	decline	in	market	value	and	adverse	change	in	expected	cash	flows	due	to	continued	lower	aircraft	lease	rates,	airline	bankruptcies	and	the prolonged	decline	in	airline	travel.

•		The	$30	of	the	other-than-temporary	impairments	recorded	on	equity	securities	primarily	related	to	various	diversified	mutual	funds.	The	market	values	of	these	funds had	fallen	since	the	date	of	purchase	due	to	declines	in	primarily	the	equity	markets	and	were	not	expected	to	recover	within	a	reasonable	period	of	time.	Due	to	the severity	of	the	price	depression	and	length	of	time	the	holdings	were	in	an	unrealized	loss	position,	these	securities	were	deemed	to	be	other-than-temporarily	impaired.

In	addition	to	the	impairments	described	above,	fixed	maturity	and	equity	securities	were	sold	at	losses	during	2003,	with	no	single	security	sold	at	a	loss	in	excess	of	$10.

During	2002,	other-than-temporary	impairments	on	ABS	were	primarily	driven	by	collateral	deterioration	associated	with	securities	backed	by	aircraft	lease	receivables	and high	yield	debt.	Impairments	recognized	on	corporate	fixed	maturities	were	concentrated	in	the	technology	and	communications	sector	and	were	primarily	driven	by weakening	economic	conditions	and	operating	fundamentals	in	the	sector.	Other-than-temporary	impairments	were	also	recorded	on	equity	securities,	the	majority	of	which related	to	various	diversified	mutual	funds.	The	market	values	of	these	funds	had	fallen	since	the	date	of	purchase	due	to	declines	in	the	bond	and	equity	markets	and	were not	expected	to	recover	within	a	reasonable	period	of	time.	Due	to	severity	of	the	price	depression	and	length	of	time	the	holdings	were	in	an	unrealized	loss	position,	these securities	were	deemed	to	be	other-than-temporarily	impaired.	During	2002,	there	were	8	securities	for	which	a	significant	(e.g.	$15	or	greater)	other-than-temporary impairment	was	recorded	which	are	discussed	in	more	detail	below.

•		Of	the	technology	and	communications	sector	impairments,	$110	related	to	securities	issued	by	WorldCom	and	its	subsidiary	MCI,	which	filed	for	Chapter	11 bankruptcy	protection	in	July	2002	as	a	result	of	liquidity	problems	driven	by	economic	and	operating	weakness	in	this	sector,	and	specific	issues	related	to	accounting fraud.

•		Of	the	$84	of	impairments	relating	to	ABS	backed	by	aircraft	lease	receivables,	$41	related	to	investments	in	the	lower	tranches	of	one	transaction	that	experienced	a steep	decline	in	fair	value	as	a	result	of	a	significant	decrease	in	aircraft	lease	payments	and	lower	appraised	values	on	the	underlying	collateral.	This	transaction	was primarily	supported	by	lower	quality	aircraft	and	was	significantly	impacted	by	the	decline	in	airline	travel	and	numerous	airline	bankruptcies	resulting	from	the catastrophic	events	of	September	11,	2001.	The	remaining	$43	of	impairments	on	aircraft	lease	receivables	were	primarily	related	to	two	other	transactions	that	were	also adversely	impacted	by	similar	circumstances	surrounding	the	airline	industry	in	2002.

•		In	the	technology	and	telecommunications	sector,	$32	of	impairments	were	recognized	on	fixed	maturity	securities	issued	by	a	major	U.S.	telecom	equipment manufacturer.	This	issuer	had	amassed	high	levels	of	debt	to	acquire	assets	and	subsequently	experienced	liquidity	difficulties	due	to	the	downturn	in	demand	and economic	conditions	within	the	technology	and	telecommunications	sector.	As	a	result,	this	issuer	initiated	a	debt	restructuring	in	2002.

•		Of	the	impairments	recognized	on	ABS	securities	backed	by	MH	receivables,	$21	related	to	three	securities	issued	by	the	same	transaction.	These	securities	were	backed by	the	transaction	sponsor	who	ultimately	filed	for	Chapter	11	bankruptcy	protection	as	a	result	of	numerous	defaults	on	the	underlying	loans.	The	manufactured	housing sector	experienced	above	average	default	rates	in	2002	primarily	due	to	weak	underwriting	practices	and	loan	originators	extending	credit	to	sub-prime	borrowers.

•		Another	$15	of	impairments	in	the	technology	and	communications	sector	related	to	a	Canada	based	local	and	long-distance	communications	carrier.	As	a	result	of excess	capacity	and	margin	erosion	within	the	long-distance	sector,	this	issuer	began	to	experience	liquidity	problems	and	eventually	filed	for	bankruptcy	in	2002.

•		Also	within	the	technology	and	communications	sector,	$15	of	the	impairments	recognized	related	to	a	major	U.S.	local	and	long-distance	service	provider.	This	issuer had	amassed	high	levels	of	debt	to	increase	capacity	and	was	significantly	impacted	by	reduced	demand	and	margin	erosion,	particularly	within	the	long-distance	sector. As	a	result,	this	issuer	initiated	a	debt	restructuring	in	2002.

The	following	identifies	ABS	impairment	losses	recognized	in	2002	that	by	issuer	did	not	exceed	$15	but	did	when	combined	with	securities	supported	with	similar collateral.	The	circumstances	giving	rise	to	those	losses	are	as	follows:

•		The	$47	of	CDO	impairments	consisted	of	approximately	ten	securities,	the	majority	of	which	were	interests	in	the	lower	tranches	of	transactions	backed	by	high	yield corporate	debt.	These	impairments	were	primarily	driven	by	deterioration	in	the	underlying	collateral	resulting	from	corporate	bankruptcies	and	above	average	defaults on	high	yield	bonds.

In	addition	to	the	impairments	described	above,	fixed	maturity	and	equity	securities	were	sold	at	losses	during	2002,	with	no	single	security	sold	at	a	loss	in	excess	of	$13.

The	favorable	other-than-temporary	impairments	trend	will	depend	on	continued	strong	economic	fundamentals,	political	stability	and	collateral	performance.	In	addition, as	discussed	in	Note	1	of	Notes	to	Consolidated	Financial	Statements,	the	future	adoption	of	EITF	Issue	No.	03-1	could	result	in	the	recognition	of	additional	other-than- temporary	impairments.	While	the	ultimate	impact	of	the	adoption	of	this	standard	is	still	unknown,	depending	on	the	nature	of	the	ultimate	guidance,	adoption	of	this standard	could	potentially	result	in	the	recognition	of	unrealized	losses,	including	those	declines	in	value	that	are	attributable	to	interest	rate	movements,	as	other-than- temporary	impairments,	except	those	deemed	to	be	minor	in	nature.	As	of	December	31,	2004,	the	Company	had	$265	of	total	gross	unrealized	losses.	The	amount	of impairments	to	be	recognized,	if	any,	will	depend	on	the	final	standard,	market	conditions	and	management's	intent	and	ability	to	hold	securities	with	unrealized	losses	at the	time	of	the	impairment	evaluation.	(For	further	discussion	of	risk	factors	associated	with	sectors	with	significant	unrealized	loss	positions,	see	the	sector	risk	factor commentary	under	the	Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	than	Six	Months	by	Type	schedule	in	the	Investment	Credit	Risk section	of	the	MD&A.)

# INVESTMENT	CREDIT	RISK

The	Company	has	established	investment	credit	policies	that	focus	on	the	credit	quality	of	obligors	and	counterparties,	limit	credit	concentrations,	encourage	diversification and	require	frequent	creditworthiness	reviews.	Investment	activity,	including	setting	of	policy	and	defining	acceptable	risk	levels,	is	subject	to	regular	review	and	approval by	senior	management	and	by	the	Finance	Committee	of	the	Company's	Board	of	Directors.

The	Company	invests	primarily	in	securities	which	are	rated	investment	grade	and	has	established	exposure	limits,	diversification	standards	and	review	procedures	for	all credit	risks	including	borrower,	issuer	and	counterparty.	Creditworthiness	of	specific	obligors	is	determined	by	an	internal	credit	evaluation	supplemented	by	consideration of	external	determinants	of	creditworthiness,	typically	ratings	assigned	by	nationally	recognized	ratings	agencies.	Obligor,	asset	sector	and	industry	concentrations	are subject	to	established	Company	limits	and	monitored	on	a	regular	basis.

The	Company	is	not	exposed	to	any	credit	concentration	risk	of	a	single	issuer	greater	than	10%	of	the	Company's	stockholders'	equity	other	than	certain	U.S.	government and	government	agencies.

# Derivative	Instruments

The	Company's	derivative	counterparty	exposure	policy	establishes	market-based	credit	limits,	favors	long-term	financial	stability	and	creditworthiness	and	typically requires	credit	enhancement/credit	risk	reducing	agreements.	Credit	risk	is	measured	as	the	amount	owed	to	the	Company	based	on	current	market	conditions	and	potential payment	obligations	between	the	Company	and	its	counterparties.	Credit	exposures	are	generally	quantified	daily,	netted	by	counterparty	for	each	legal	entity	of	the Company,	and	collateral	is	pledged	to	and	held	by,	or	on	behalf	of,	the	Company	to	the	extent	the	current	value	of	derivatives	exceeds	the	exposure	policy	thresholds	which do	not	exceed	$10.	The	Company	also	minimizes	the	credit	risk	in	derivative	instruments	by	entering	into	transactions	with	high	quality	counterparties	rated	Aa/A	or	better, which	are	monitored	by	the	Company's	internal	compliance	unit	and	reviewed	frequently	by	senior	management.	In	addition,	the	compliance	unit	monitors	counterparty credit	exposure	on	a	monthly	basis	to	ensure	compliance	with	Company	policies	and	statutory	limitations.	The	Company	also	maintains	a	policy	of	requiring	that	all derivative	contracts	be	governed	by	an	International	Swaps	and	Dealers	Association	Master	Agreement	which	is	structured	by	legal	entity	and	by	counterparty	and	permits right	of	offset.	To	date,	the	Company	has	not	incurred	any	losses	on	derivative	instruments	due	to	counterparty	nonperformance.

In	addition	to	counterparty	credit	risk,	the	Company	periodically	enters	into	swap	agreements	in	which	the	Company	assumes	credit	exposure	from	a	single	entity, referenced	index	or	asset	pool.	Total	return	swaps	involve	the	periodic	exchange	of	payments	with	other	parties,	at	specified	intervals,	calculated	using	the	agreed	upon index	and	notional	principal	amounts.	Generally,	no	cash	or	principal	payments	are	exchanged	at	the	inception	of	the	contract.	Typically,	at	the	time	a	swap	is	entered	into, the	cash	flow	streams	exchanged	by	the	counterparties	are	equal	in	value.

Credit	default	swaps	involve	a	transfer	of	credit	risk	from	one	party	to	another	in	exchange	for	periodic	payments.	One	party	to	the	contract	will	make	a	payment	based	on an	agreed	upon	rate	and	a	notional	amount.	The	second	party,	who	assumes	credit	exposure	will	only	make	a	payment	when	there	is	a	credit	event,	and	such	payment	will be	equal	to	the	notional	value	of	the	swap	contract	less	the	value	of	the	referenced	security	issuer	debt	obligation.	A	credit	event	is	generally	defined	as	default	on contractually	obligated	interest	or	principal	payments	or	bankruptcy.	The	average	S&P	rating	for	these	referenced	security	issuer	debt	obligations	is	A.

The	Company	also	uses	credit	defaults	swaps	to	reduce	its	credit	exposure	by	entering	into	agreements	in	which	the	Company	pays	a	derivative	counterparty	a	periodic	fee in	exchange	for	compensation	from	the	counterparty	should	a	credit	event	occur	on	the	part	of	the	referenced	security	issuer.	The	Company	entered	into	these	agreements	as an	efficient	means	to	reduce	credit	exposure	to	the	specified	issuers.	The	average	S&P	rating	for	all	of	these	referenced	securities	issuers	is	A-.

As	of	December	31,	2004	and	2003,	the	notional	value	of	total	return	and	credit	default	swaps	totaled	$2.2	billion	and	$1.0	billion,	respectively,	and	the	swap	fair	value totaled	$8	and	$(33),	respectively.

# Fixed	Maturities

The	following	table	identifies	fixed	maturity	securities	by	type	on	a	consolidated	basis	as	of	December	31,	2004	and	2003.

|  | 2004 | 2004 | 2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Unrealized\nGains | Unrealized\nLosses | Fair\nValue | Percent\nof\tTotal\nFair\nValue | Amortized\nCost | Unrealized\nGains | Unrealized\nLosses | Fair\nValue | Percent\nof\tTotal\nFair\nValue |
| ABS | $7,446 | $95 | $(72) | $7,469 | 9.9% | $6,483 | $154 | $(113) | $6,524 | 8.9% |
| CMBS | 11,306 | 475 | (33) | 11,748 | 15.6% | 10,230 | 545 | (44) | 10,731 | 14.7% |
| Collateralized\tmortgage |  |  |  |  |  |  |  |  |  |  |
| obligations\t("CMOs") | 1,218 | 12 | (3) | 1,227 | 1.6% | 1,059 | 17 | (3) | 1,073 | 1.5% |
| Corporate |  |  |  |  |  |  |  |  |  |  |
| Basic\tindustry | 3,131 | 234 | (9) | 3,356 | 4.5% | 3,343 | 223 | (15) | 3,551 | 4.8% |
| Capital\tgoods | 2,033 | 159 | (10) | 2,182 | 2.9% | 2,037 | 143 | (10) | 2,170 | 3.0% |
| Consumer\tcyclical | 3,229 | 207 | (13) | 3,423 | 4.6% | 3,305 | 217 | (11) | 3,511 | 4.8% |
| Consumer\tnon-cyclical | 3,394 | 245 | (12) | 3,627 | 4.8% | 3,525 | 234 | (17) | 3,742 | 5.1% |
| Energy | 1,770 | 147 | (5) | 1,912 | 2.5% | 2,026 | 142 | (11) | 2,157 | 3.0% |
| Financial\tservices | 8,201 | 589 | (33) | 8,757 | 11.7% | 7,848 | 560 | (44) | 8,364 | 11.5% |
| Technology\tand |  |  |  |  |  |  |  |  |  |  |
| communications | 4,940 | 440 | (15) | 5,365 | 7.2% | 5,051 | 496 | (19) | 5,528 | 7.6% |
| Transportation | 766 | 52 | (2) | 816 | 1.1% | 778 | 52 | (7) | 823 | 1.1% |
| Utilities | 3,361 | 302 | (13) | 3,650 | 4.9% | 3,101 | 224 | (20) | 3,305 | 4.5% |
| Other | 1,001 | 69 | (5) | 1,065 | 1.4% | 806 | 46 | (6) | 846 | 1.2% |
| Government/Government |  |  |  |  |  |  |  |  |  |  |
| agencies |  |  |  |  |  |  |  |  |  |  |
| Foreign | 1,648 | 153 | (5) | 1,796 | 2.4% | 1,605 | 171 | (3) | 1,773 | 2.4% |
| United\tStates | 1,116 | 22 | (6) | 1,132 | 1.5% | 1,401 | 33 | (4) | 1,430 | 1.9% |
| MBS\t—\tagency | 2,774 | 29 | (4) | 2,799 | 3.7% | 2,794 | 43 | (3) | 2,834 | 3.9% |
| Municipal |  |  |  |  |  |  |  |  |  |  |
| Taxable | 919 | 34 | (9) | 944 | 1.3% | 625 | 19 | (15) | 629 | 0.9% |
| Tax-exempt | 9,670 | 726 | (3) | 10,393 | 13.8% | 9,445 | 775 | (4) | 10,216 | 14.0% |
| Redeemable\tpreferred\tstock | 36 | 3 | ¾ | 39 | 0.1% | 77 | 3 | ¾ | 80 | 0.1% |
| Short-term | 3,400 | ¾ | ¾ | 3,400 | 4.5% | 3,708 | 3 | ¾ | 3,711 | 5.1% |
| Total\tfixed\tmaturities | $71,359 | $3,993 | $(252) | $75,100 | 100.0% | $69,247 | $4,100 | $(349) | $72,998 | 100.0% |
| Total\tgeneral\taccount\tfixed |  |  |  |  |  |  |  |  |  |  |
| maturities |  |  |  |  |  | $58,127 | $3,413 | $(277) | $61,263 | 83.9% |
| Total\tguaranteed\tseparate |  |  |  |  |  |  |  |  |  |  |
| account\tfixed\tmaturities\t[1] |  |  |  |  |  | $11,120 | $687 | $(72) | $11,735 | 16.1% |

The	Company's	fixed	maturity	portfolio	gross	unrealized	gains	and	losses	as	of	December	31,	2004	in	comparison	to	December	31,	2003	were	primarily	impacted	by changes	in	interest	rates,	foreign	currency	exchange	rates,	credit	spreads	and	security	sales.	The	Company's	fixed	maturity	gross	unrealized	gains	decreased	$107	from December	31,	2003	to	December	31,	2004	primarily	due	to	sales	of	securities	in	a	gain	position	and	the	increase	in	interest	rates	(e.g.	short-term	through	five-year	rates) offset	by	credit	spread	tightening	and	changes	in	foreign	currency	exchange	rates.	The	gross	unrealized	loss	amount	decreased	by	$97	from	December	31,	2003	to December	31,	2004	primarily	due	to	credit	spread	tightening,	improved	pricing	levels	for	certain	CDOs	and	ABS,	security	sales	and,	to	a	lesser	extent,	other-than-temporary impairments,	offset	by	interest	rate	increases.

(For	further	discussion	of	risk	factors	associated	with	sectors	with	significant	unrealized	loss	positions,	see	the	sector	risk	factor	commentary	under	the	Consolidated	Total Available-for-Sale	Securities	with	Unrealized	Loss	Greater	than	Six	Months	by	Type	schedule	in	this	section	of	the	MD&A.)

Investment	sector	allocations	as	a	percentage	of	total	fixed	maturities	have	remained	materially	consistent	since	December	31,	2003,	except	for	ABS	and	CMBS.	In	2004, HIM	continued	to	overweight,	in	comparison	to	the	Lehman	Aggregate	Index,	ABS	supported	by	diversified	pools	of	consumer	loans	(e.g.	home	equity	and	auto	loans	and credit	card	receivables)	and	CMBS	due	to	the	securities	attractive	spread	levels	and	underlying	asset	diversification	and	quality.	In	general,	CMBS	securities	have	lower prepayment	risk	than	MBS	due	to	contractual	penalties.

As	of	December	31,	2004	and	2003,	18%	of	the	fixed	maturities	were	invested	in	private	placement	securities,	including	11%	of	Rule	144A	offerings	to	qualified institutional	buyers.	Private	placement	securities	are	generally	less	liquid	than	public	securities.	Most	of	the	private	placement	securities	are	rated	by	nationally	recognized rating	agencies.

At	the	December	14th,	2004	Federal	Open	Market	Committee	policy	meeting,	the	overnight	funds	rate	was	raised	a	quarter-point	for	the	fifth	time	in	2004	to	2.25%.	The Fed	members	indicated	that	the	economy	is	growing	at	a	moderate	pace	and	the	job	market	continues	to	show	gradual	improvement	despite	higher	energy	and	commodity prices.	The	Company	continues	to	expect	the	Fed	to	raise	short-term	interest	rates	at	a	measured	pace	for	the	foreseeable	future	unless	inflationary	pressures	accelerate.	The risk	of	inflation	could	increase	if	energy	and	commodity	prices	continue	to	rise,	productivity	growth	slows	or	the	U.S.	dollar	continues	to	devalue	in	comparison	to	foreign currencies.	Increases	in	future	interest	rates	may	result	in	lower	fixed	maturity	valuations.

The	following	table	identifies	fixed	maturities	by	credit	quality	on	a	consolidated	basis	as	of	December	31,	2004	and	2003.	The	ratings	referenced	below	are	based	on	the ratings	of	a	nationally	recognized	rating	organization	or,	if	not	rated,	assigned	based	on	the	Company's	internal	analysis	of	such	securities.

|  | 2004 | 2004 | 2004 | 2003 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Fair\tValue | Percent\tof\nTotal\tFair\nValue | Amortized\nCost | Fair\tValue | Percent\tof\nTotal\tFair\nValue |
| United\tStates\tGovernment/Government\tagencies | $5,109 | $5,160 | 6.9% | $5,274 | $5,357 | 7.3% |
| AAA | 17,984 | 18,787 | 25.0% | 15,672 | 16,552 | 22.7% |
| AA | 8,090 | 8,546 | 11.4% | 7,377 | 7,855 | 10.8% |
| A | 16,905 | 18,131 | 24.2% | 17,646 | 18,750 | 25.7% |
| BBB | 16,853 | 17,904 | 23.8% | 16,143 | 17,114 | 23.4% |
| BB\t&amp;\tbelow | 3,018 | 3,172 | 4.2% | 3,427 | 3,659 | 5.0% |
| Short-term | 3,400 | 3,400 | 4.5% | 3,708 | 3,711 | 5.1% |
| Total\tfixed\tmaturities | $71,359 | $75,100 | 100.0% | $69,247 | $72,998 | 100.0% |
| Total\tgeneral\taccount\tfixed\tmaturities |  |  |  | $58,127 | $61,263 | 83.9% |
| Total\tguaranteed\tseparate\taccount\tfixed\tmaturities\t[1] |  |  |  | $11,120 | $11,735 | 16.1% |

As	of	December	31,	2004	and	2003,	95%	or	greater	of	the	fixed	maturity	portfolio	was	invested	in	short-term	securities	or	securities	rated	investment	grade	(BBB	and above).

The	following	table	presents	the	BIG	fixed	maturities	by	type	as	of	December	31,	2004	and	2003.

|  | Consolidated	BIG	Fixed	Maturities	by	Type | Consolidated	BIG	Fixed	Maturities	by	Type |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2004 | 2004 | 2003 | 2003 | 2003 |
|  | Amortized\nCost | Fair\tValue | Percent\tof\nTotal\tFair\nValue | Amortized\nCost | Fair\tValue | Percent\tof\nTotal\tFair\nValue |
| ABS | $257 | $228 | 7.2% | $293 | $275 | 7.5% |
| CMBS | 154 | 166 | 5.3% | 185 | 190 | 5.2% |
| Corporate |  |  |  |  |  |  |
| Basic\tindustry | 327 | 347 | 11.0% | 395 | 413 | 11.3% |
| Capital\tgoods | 180 | 181 | 5.7% | 177 | 187 | 5.1% |
| Consumer\tcyclical | 227 | 242 | 7.6% | 392 | 424 | 11.6% |
| Consumer\tnon-cyclical | 250 | 263 | 8.3% | 413 | 430 | 11.7% |
| Energy | 91 | 96 | 3.0% | 96 | 105 | 2.9% |
| Financial\tservices | 23 | 24 | 0.8% | 22 | 23 | 0.6% |
| Technology\tand\tcommunications | 470 | 508 | 16.0% | 418 | 505 | 13.8% |
| Transportation | 12 | 13 | 0.4% | 59 | 61 | 1.7% |
| Utilities | 456 | 486 | 15.3% | 509 | 530 | 14.5% |
| Foreign\tgovernment | 484 | 531 | 16.7% | 416 | 463 | 12.7% |
| Other | 87 | 87 | 2.7% | 52 | 53 | 1.4% |
| Total\tfixed\tmaturities | $3,018 | $3,172 | 100.0% | $3,427 | $3,659 | 100.0% |
| Total\tgeneral\taccount\tfixed\tmaturities |  |  |  | $2,681 | $2,877 | 78.6% |
| Total\tguaranteed\tseparate\taccount\tfixed\tmaturities\t[1] |  |  |  | $746 | $782 | 21.4% |

As	of	December	31,	2004	and	2003,	the	Company	held	no	issuer	of	a	BIG	security	with	a	fair	value	in	excess	of	4%	and	3%,	respectively,	of	the	total	fair	value	for	BIG securities.	Total	BIG	securities	decreased	since	December	31,	2003	as	a	result	of	decisions	to	reduce	exposure	to	lower	credit	quality	assets	resulting	from	the	securities' significant	credit	spread	tightening	and	re-invest	in	higher	quality	securities.

The	following	table	presents	the	Company's	unrealized	loss	aging	for	total	fixed	maturity	and	equity	securities	classified	as	available-for-sale	on	a	consolidated	basis,	as	of December	31,	2004	and	2003,	by	length	of	time	the	security	was	in	an	unrealized	loss	position.

# Consolidated	Unrealized	Loss	Aging	of	Total	Available-for-Sale	Securities

|  | 2004 | 2004 | 2004 | 2003 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Fair\nValue | Unrealized\nLoss | Amortized\nCost | Fair\nValue | Unrealized\nLoss |
| Three\tmonths\tor\tless | $7,572 | $7,525 | $(47) | $4,867 | $4,826 | $(41) |
| Greater\tthan\tthree\tmonths\tto\tsix\tmonths | 573 | 567 | (6) | 3,991 | 3,854 | (137) |
| Greater\tthan\tsix\tmonths\tto\tnine\tmonths | 3,405 | 3,342 | (63) | 404 | 382 | (22) |
| Greater\tthan\tnine\tmonths\tto\ttwelve\tmonths | 462 | 445 | (17) | 151 | 142 | (9) |
| Greater\tthan\ttwelve\tmonths | 2,417 | 2,285 | (132) | 1,844 | 1,688 | (156) |
| Total | $14,429 | $14,164 | $(265) | $11,257 | $10,892 | $(365) |
| Total\tgeneral\taccount |  |  |  | $9,234 | $8,941 | $(293) |
| Total\tguaranteed\tseparate\taccounts\t[1] |  |  |  | $2,023 | $1,951 | $(72) |

The	decrease	in	the	unrealized	loss	amount	since	December	31,	2003	is	primarily	the	result	of	credit	spread	tightening,	improved	pricing	levels	for	certain	CDOs	and	ABS, asset	sales,	and,	to	a	lesser	extent,	other-than-temporary	impairments,	offset	in	part	by	an	increase	in	the	short-term	through	five-year	interest	rates.	(For	further	discussion, see	the	economic	commentary	under	the	Consolidated	Fixed	Maturities	by	Type	table	in	this	section	of	the	MD&A.)

As	a	percentage	of	amortized	cost,	the	average	security	or	fixed	maturity	unrealized	loss	at	December	31,	2004	and	2003	was	less	than	2%	and	4%,	respectively.	As	of December	31,	2004	and	2003,	fixed	maturities	represented	$252,	or	95%,	and	$349,	or	96%,	respectively,	of	the	Company's	total	unrealized	loss	associated	with	securities classified	as	available-for-sale.	There	were	no	fixed	maturities	as	of	December	31,	2004	and	2003	with	a	fair	value	less	than	80%	of	the	security's	amortized	cost	basis	for six	continuous	months	other	than	certain	ABS	and	CMBS	subject	to	EITF	Issue	No.	99-20.	Other-than-temporary	impairments	for	certain	ABS	and	CMBS	are	recognized if	the	fair	value	of	the	security,	as	determined	by	external	pricing	sources,	is	less	than	its	carrying	amount	and	there	has	been	a	decrease	in	the	present	value	of	the	expected cash	flows	since	the	last	reporting	period.	There	were	no	ABS	or	CMBS	included	in	the	table	above,	as	of	December	31,	2004	and	2003,	for	which	management's	best estimate	of	future	cash	flows	adversely	changed	during	the	reporting	period.	(For	further	discussion	of	the	other-than-temporary	impairments	criteria,	see	"Valuation	of Investments	and	Derivative	Instruments	and	Evaluation	of	Other-Than-Temporary	Impairments"	included	in	the	Critical	Accounting	Estimates	section	of	the	MD&A	and Note	1	of	Notes	to	Consolidated	Financial	Statements.)

The	Company	held	no	securities	of	a	single	issuer	that	were	at	an	unrealized	loss	position	in	excess	of	5%	of	the	total	unrealized	loss	amount	as	of	December	31,	2004	and 2003.

The	total	securities	classified	as	available-for-sale	in	an	unrealized	loss	position	for	longer	than	six	months	by	type	as	of	December	31,	2004	and	2003	are	presented	in	the following	table.

|  | Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	Than	Six	Months	by	Type | Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	Than	Six	Months	by	Type | Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	Than	Six	Months	by	Type | Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	Than	Six	Months	by	Type | Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	Than	Six	Months	by	Type |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2003 |
|  | Amortized\nCost | Fair\nValue | Unrealized\nLoss | Percent\tof\nTotal\nUnrealized\nLoss | Amortized\nCost | Fair\nValue | Unrealized\nLoss | Percent\tof\nTotal\nUnrealized\nLoss |
| ABS |  |  |  |  |  |  |  |  |
| Aircraft\tlease\treceivables | $227 | $172 | $(55) | 25.9% | $174 | $116 | $(58) | 31.0% |
| CDOs | 76 | 72 | (4) | 1.9% | 176 | 153 | (23) | 12.3% |
| Credit\tcard\treceivables | 88 | 86 | (2) | 0.9% | 123 | 111 | (12) | 6.4% |
| Other\tABS | 502 | 496 | (6) | 2.8% | 490 | 479 | (11) | 5.9% |
| CMBS | 896 | 878 | (18) | 8.5% | 203 | 194 | (9) | 4.8% |
| Corporate |  |  |  |  |  |  |  |  |
| Basic\tindustry | 355 | 347 | (8) | 3.8% | 74 | 70 | (4) | 2.1% |
| Consumer\tcyclical | 277 | 269 | (8) | 3.8% | 48 | 45 | (3) | 1.6% |
| Consumer\tnon-cyclical | 436 | 425 | (11) | 5.2% | 52 | 49 | (3) | 1.6% |
| Financial\tservices | 1,271 | 1,234 | (37) | 17.5% | 747 | 710 | (37) | 19.8% |
| Technology\tand\tcommunications | 435 | 421 | (14) | 6.6% | 55 | 52 | (3) | 1.6% |
| Utilities | 324 | 313 | (11) | 5.2% | 103 | 95 | (8) | 4.3% |
| Other | 484 | 468 | (16) | 7.5% | 136 | 122 | (14) | 7.5% |
| Other\tsecurities | 913 | 891 | (22) | 10.4% | 18 | 16 | (2) | 1.1% |
| Total | $6,284 | $6,072 | $(212) | 100.0% | $2,399 | $2,212 | $(187) | 100.0% |
| Total\tgeneral\taccounts |  |  |  |  | $1,760 | $1,619 | $(141) | 75.4% |
| Total\tguaranteed\tseparate\taccounts\t[1] |  |  |  |  | $639 | $593 | $(46) | 24.6% |

The	increase	in	2004	consolidated	available-for-sale	securities	with	an	unrealized	loss	greater	than	six	months	amounts	was	primarily	driven	by	the	aging	of	securities depressed	due	to	interest	rate	changes	from	the	date	of	purchase.	This	increase	was	partially	offset	by	improved	pricing	levels	for	certain	CDOs	and	ABS,	credit	spread tightening,	security	sales	and	other-than-temporary	impairments.

With	the	exception	of	ABS	security	types,	the	majority	of	the	securities	in	an	unrealized	loss	position	for	six	months	or	more	as	of	December	31,	2004	were	depressed primarily	due	to	interest	rate	changes	from	the	date	of	purchase.	The	sectors	with	the	most	significant	concentration	of	unrealized	losses	were	ABS	supported	by	aircraft lease	receivables	and	corporate	fixed	maturities	primarily	within	the	financial	services	sector.	The	Company's	current	view	of	risk	factors	relative	to	these	fixed	maturity types	is	as	follows:

Aircraft	lease	receivables	—	The	decrease	in	the	unrealized	loss	position	during	2004	was	primarily	the	result	of	improving	pricing	levels	for	certain	issuers	in	this	sector, as	well	as	by	other-than-temporary	impairments	taken	during	the	year.	In	prior	years,	these	securities	had	suffered	a	decrease	in	value	as	a	result	of	a	prolonged	decline	in airline	travel,	the	uncertainty	of	a	potential	industry	recovery	and	lack	of	market	liquidity	in	this	sector.	Although	uncertainty	surrounding	the	stability	of	domestic	airlines continues	to	weigh	heavily	on	this	sector,	worldwide	travel	and	aircraft	demand	appears	to	be	improving.	While	the	Company	has	seen	modest	price	increases	and	greater liquidity	in	this	sector	during	2004,	any	additional	price	recovery	will	depend	on	continued	improvement	in	economic	fundamentals,	political	stability	and	airline	operating performance.

Financial	services	—	As	of	December	31,	2004,	the	Company	held	approximately	110	different	securities	in	the	financial	services	sector	that	had	been	in	an	unrealized loss	position	for	greater	than	six	months.	Substantially	all	of	these	securities	are	investment	grade	securities	priced	at	or	greater	than	90%	of	amortized	cost	as	of December	31,	2004.	These	positions	are	a	mixture	of	fixed	and	variable	rate	securities	with	extended	maturity	dates,	which	have	been	adversely	impacted	by	changes	in interest	rates	after	the	purchase	date.	Additional	changes	in	fair	value	of	these	securities	are	primarily	dependent	on	future	changes	in	interest	rates.

As	part	of	the	Company's	ongoing	security	monitoring	process	by	a	committee	of	investment	and	accounting	professionals,	the	Company	has	reviewed	its	investment portfolio	and	concluded	that	there	were	no	additional	other-than-temporary	impairments	as	of	December	31,	2004	and	2003.	Due	to	the	issuers'	continued	satisfaction	of	the securities'	obligations	in	accordance	with	their	contractual	terms	and	the	expectation	that	they	will	continue	to	do	so,	management's	intent	and	ability	to	hold	these securities,	as	well	as	the	evaluation	of	the	fundamentals	of	the	issuers'	financial	condition	and	other	objective	evidence,	the	Company	believes	that	the	prices	of	the securities	in	the	sectors	identified	above	were	temporarily	depressed.

The	evaluation	for	other-than-temporary	impairments	is	a	quantitative	and	qualitative	process,	which	is	subject	to	risks	and	uncertainties	in	the	determination	of	whether declines	in	the	fair	value	of	investments	are	other-than-temporary.	The	risks	and	uncertainties	include	changes	in	general	economic	conditions,	the	issuer's	financial condition	or	near	term	recovery	prospects	and	the	effects	of	changes	in	interest	rates.	In	addition,	for	securitized	financial	assets	with	contractual	cash	flows	(e.g.	ABS	and CMBS),	projections	of	expected	future	cash	flows	may	change	based	upon	new	information	regarding	the	performance	of	the	underlying	collateral.	As	of	December	31, 2004	and	2003,	management's	expectation	of	the	discounted	future	cash	flows	on	these	securities	was	in	excess	of	the	associated	securities'	amortized	cost.	(For	a	further discussion,	see	"Valuation	of	Investments	and	Derivative	Instruments	and	Evaluation	of	Other-Than-Temporary	Impairments"	included	in	the	Critical	Accounting Estimates	section	of	the	MD&A	and	Note	1	of	Notes	to	Consolidated	Financial	Statements.)

The	following	table	presents	the	Company's	unrealized	loss	aging	for	BIG	and	equity	securities	on	a	consolidated	basis	as	of	December	31,	2004	and	2003.

|  |  | 2004 |  |  | 2003 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Fair\nValue | Unrealized\nLoss | Amortized\nCost | Fair\nValue | Unrealized\nLoss |
| Three\tmonths\tor\tless | $326 | $322 | $(4) | $133 | $129 | $(4) |
| Greater\tthan\tthree\tmonths\tto\tsix\tmonths | 33 | 32 | (1) | 134 | 129 | (5) |
| Greater\tthan\tsix\tmonths\tto\tnine\tmonths | 174 | 165 | (9) | 81 | 73 | (8) |
| Greater\tthan\tnine\tmonths\tto\ttwelve\tmonths | 81 | 75 | (6) | 18 | 17 | (1) |
| Greater\tthan\ttwelve\tmonths | 285 | 240 | (45) | 417 | 349 | (68) |
| Total | $899 | $834 | $(65) | $783 | $697 | $(86) |
| Total\tgeneral\taccounts |  |  |  | $663 | $593 | $(70) |
| Total\tguaranteed\tseparate\taccounts\t[1] |  |  |  | $120 | $104 | $(16) |

The	decrease	in	the	BIG	and	equity	security	unrealized	loss	amount	for	securities	classified	as	available-for-sale	during	2004	was	primarily	the	result	of	credit	spread tightening,	improved	pricing	levels	for	certain	CDOs	and	ABS	and	other-than-temporary	impairments,	partially	offset	by	rating	agency	downgrades	for	certain	issuers	in the	aircraft	lease	receivables	sector.	(For	a	further	discussion,	see	the	economic	commentary	under	the	Consolidated	Fixed	Maturities	by	Type	table	in	this	section	of	the MD&A.)

The	BIG	and	equity	securities	classified	as	available-for-sale	in	an	unrealized	loss	position	for	longer	than	six	months	by	type	as	of	December	31,	2004	and	2003	are presented	in	the	following	table.

# Consolidated	Available-for-Sale	BIG	and	Equity	Securities	with	Unrealized	Loss	Greater	Than	Six	Months	by	Type

|  | 2004 | 2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Fair\nValue | Unrealized\nLoss | Percent\tof\nTotal\nUnrealized\nLoss | Amortized\nCost | Fair\nValue | Unrealized\nLoss | Percent\tof\nTotal\nUnrealized\nLoss |
| ABS |  |  |  |  |  |  |  |  |
| Aircraft\tlease\treceivables | $129 | $96 | $(33) | 55.0% | $55 | $36 | $(19) | 24.6% |
| CDOs | 27 | 25 | (2) | 3.3% | 44 | 34 | (10) | 13.0% |
| Credit\tcard\treceivables | 8 | 8 | — | — | 45 | 34 | (11) | 14.3% |
| Other\tABS | 11 | 10 | (1) | 1.7% | 12 | 9 | (3) | 3.9% |
| CMBS | — | — | — | — | 47 | 40 | (7) | 9.1% |
| Corporate |  |  |  |  |  |  |  |  |
| Financial\tservices | 169 | 158 | (11) | 18.3% | 142 | 128 | (14) | 18.2% |
| Technology\t&amp;\tcommunication | 61 | 57 | (4) | 6.7% | 6 | 6 | — | — |
| Utilities | 37 | 34 | (3) | 5.0% | 76 | 70 | (6) | 7.8% |
| Other | 82 | 76 | (6) | 10.0% | 84 | 77 | (7) | 9.1% |
| Other\tsecurities | 16 | 16 | — | — | 5 | 5 | — | — |
| Total | $540 | $480 | $(60) | 100.0% | $516 | $439 | $(77) | 100.0% |
| Total\tgeneral\taccounts |  |  |  |  | $417 | $355 | $(62) | 80.5% |
| Total\tguaranteed\tseparate\taccounts\t[1] |  |  |  |  | $99 | $84 | $(15) | 19.5% |

The	decrease	in	the	consolidated	available-for-sale	BIG	and	equity	securities	greater	than	six	months	unrealized	loss	amount	since	December	31,	2003	was	primarily	the result	of	credit	spread	tightening,	improved	pricing	levels	for	certain	CDOs	and	ABS,	other-than-temporary	impairments	taken	during	the	year	and,	to	a	lesser	extent,	asset sales.	This	decrease	was	partially	offset	by	rating	agency	downgrades	for	certain	issuers	in	the	aircraft	lease	receivables	sector.	(For	a	further	discussion	of	the	Company's current	view	of	risk	factors	relative	to	certain	security	types	listed	above,	see	the	Consolidated	Total	Available-for-Sale	Securities	with	Unrealized	Loss	Greater	Than	Six Months	by	Type	table	in	this	section	of	the	MD&A.)

# CAPITAL	MARKETS	RISK	MANAGEMENT

The	Hartford	has	a	disciplined	approach	to	managing	risks	associated	with	its	capital	markets	and	asset/liability	management	activities.	Investment	portfolio	management	is organized	to	focus	investment	management	expertise	on	the	specific	classes	of	investments,	while	asset/liability	management	is	the	responsibility	of	a	dedicated	risk management	unit	supporting	Life	and	Property	&	Casualty	operations.	Derivative	instruments	are	utilized	in	compliance	with	established	Company	policy	and	regulatory requirements	and	are	monitored	internally	and	reviewed	by	senior	management.

# Market	Risk

The	Hartford	is	exposed	to	market	risk,	primarily	relating	to	the	market	price	and/or	cash	flow	variability	associated	with	changes	in	interest	rates,	market	indices	or	foreign currency	exchange	rates.	The	Company	analyzes	interest	rate	risk	using	various	models	including	parametric	models	that	forecast	cash	flows	of	the	liabilities	and	the supporting	investments,	including	derivative	instruments	under	various	market	scenarios.

# Interest	Rate	Risk

The	Company's	exposure	to	interest	rate	risk	relates	to	the	market	price	and/or	cash	flow	variability	associated	with	the	changes	in	market	interest	rates.	The	Company manages	its	exposure	to	interest	rate	risk	through	asset	allocation	limits,	asset/liability	duration	matching	and	through	the	use	of	derivatives.	The	Company	analyzes	interest rate	risk	using	various	models	including	parametric	models	that	forecast	cash	flows	of	the	liabilities	and	the	supporting	investments,	including	derivative	instruments	under various	market	scenarios.	Measures	the	Company	uses	to	quantify	its	exposure	to	interest	rate	risk	inherent	in	its	invested	assets	and	interest	rate	sensitive	liabilities	are duration	and	key	rate	duration.	Duration	is	the	weighted	average	term-to-maturity	of	a	security's	cash	flows,	and	is	used	to	approximate	the	percentage	change	in	the	price of	a	security	for	a	100-basis-point	change	in	market	interest	rates.	For	example,	a	duration	of	5	means	the	price	of	the	security	will	change	by	approximately	5%	for	a	1% change	in	interest	rates.	The	key	rate	duration	analysis	considers	the	expected	future	cash	flows	of	assets	and	liabilities	assuming	non-parallel	interest	rate	movements.

To	calculate	duration,	projections	of	asset	and	liability	cash	flows	are	discounted	to	a	present	value	using	interest	rate	assumptions.	These	cash	flows	are	then	revalued	at alternative	interest	rate	levels	to	determine	the	percentage	change	in	fair	value	due	to	an	incremental	change	in	rates.	Cash	flows	from	corporate	obligations	are	assumed	to be	consistent	with	the	contractual	payment	streams	on	a	yield	to	worst	basis.	The	primary	assumptions	used	in	calculating	cash	flow	projections	include	expected	asset payment	streams	taking	into	account	prepayment	speeds,	issuer	call	options	and	contract	holder	behavior.	Asset-backed	securities,	collateralized	mortgage	obligations	and mortgage-backed	securities	are	modeled	based	on	estimates	of	the	rate	of	future	prepayments	of	principal	over	the	remaining	life	of	the	securities.	These	estimates	are developed	using	prepayment	speeds	provided	in	broker	consensus	data.

Such	estimates	are	derived	from	prepayment	speeds	previously	experienced	at	the	interest	rate	levels	projected	for	the	underlying	collateral.	Actual	prepayment	experience may	vary	from	these	estimates.

The	Company	is	also	exposed	to	interest	rate	risk	based	upon	the	discount	rate	assumption	associated	with	the	Company's	pension	and	other	postretirement	benefit obligation.	The	discount	rate	assumption	is	based	upon	an	interest	rate	yield	curve	comprised	of	AAA/AA	bonds	with	maturities	between	zero	and	thirty	years.	Declines	in long-term	interest	rates	have	had	a	negative	impact	on	the	funded	status	of	the	plans.	(For	a	further	discussion	of	interest	rate	risk	associated	with	the	plans,	see	the	Capital Resource	and	Liquidity	section	of	the	MD&A	under	"Pension	Plans	and	Other	Postretirement	Benefits"	and	Note	17	of	Notes	to	Consolidated	Financial	Statements.)

The	Company	believes	that	an	increase	in	interest	rates	from	the	current	levels	is	generally	a	favorable	development	for	the	Company.	Rate	increases	are	expected	to provide	additional	net	investment	income,	increase	sales	of	fixed	rate	Life	investment	products,	reduce	the	cost	of	the	GMWB	hedging	program,	limit	the	potential	risk	of margin	erosion	due	to	minimum	guaranteed	crediting	rates	in	certain	Life	products	and,	if	sustained,	could	reduce	the	Company's	prospective	pension	expense.	Conversely, a	rise	in	interest	rates	will	reduce	the	net	unrealized	gain	position	of	the	investment	portfolio,	increase	interest	expense	on	the	Company's	variable	rate	debt	obligations	and, if	long-term	interest	rates	rise	dramatically	within	a	six	to	twelve	month	time	period,	certain	Life	businesses	may	be	exposed	to	disintermediation	risk.	Disintermediation risk	refers	to	the	risk	that	policyholders	will	surrender	their	contracts	in	a	rising	interest	rate	environment	requiring	the	Company	to	liquidate	assets	in	an	unrealized	loss position.	In	conjunction	with	the	interest	rate	risk	measurement	and	management	techniques,	significant	portions	of	Life's	fixed	income	product	offerings	have	market value	adjustment	provisions	at	contract	surrender.

# Equity	Risk

The	Company's	primary	exposure	to	equity	risk	relates	to	the	potential	for	lower	earnings	associated	with	certain	of	the	Life's	businesses	such	as	variable	annuities	where fee	income	is	earned	based	upon	the	fair	value	of	the	assets	under	management.	In	addition,	Life	offers	certain	guaranteed	benefits,	primarily	associated	with	variable annuity	products,	which	increases	the	Company's	potential	benefit	exposure	as	the	equity	markets	decline.	(For	a	further	discussion,	see	Life	"Equity	Risk"	in	this	section of	the	MD&A.)

The	Company	does	not	have	significant	equity	risk	exposure	from	invested	assets.	In	March	2003,	the	Company	decided	to	liquidate	certain	equity	securities	and	reinvest the	proceeds	into	fixed	maturity	investments,	thereby	reducing	its	exposure	to	equity	price	risk.	The	Company	has	not	materially	changed	other	aspects	of	its	overall	asset allocation	position	or	market	risk	since	December	31,	2003.

The	Company	is	also	subject	to	equity	risk	based	upon	the	expected	long-term	rate	of	return	assumption	associated	with	the	Company's	pension	and	other	postretirement benefit	obligation.	The	Company	determines	the	long-term	rate	of	return	assumption	for	the	plans'	portfolio	based	upon	an	analysis	of	historical	returns.	Declines	in	equity returns	have	had	a	negative	impact	on	the	funded	status	of	the	plans.	(For	a	further	discussion	of	equity	risk	associated	with	the	plans,	see	the	Capital	Resource	and Liquidity	section	of	the	MD&A	under	"Pension	Plans	and	Other	Postretirement	Benefits"	and	Note	17	of	Notes	to	Consolidated	Financial	Statements.)

# Foreign	Currency	Exchange	Risk

The	Company's	currency	exchange	risk	is	related	to	non-U.S.	dollar	denominated	investments,	which	primarily	consist	of	fixed	maturity	investments,	the	investment	in	the Japanese	Life	operation	and	a	yen	denominated	individual	fixed	annuity	product,	and	to	a	lesser	extent,	its	GMDB	and	GMIB	benefit	associated	with	its	Japanese	variable annuities.	A	significant	portion	of	the	Company's	foreign	currency	exposure	is	mitigated	through	the	use	of	derivatives.

The	Hartford	utilizes	a	variety	of	derivative	instruments,	including	swaps,	caps,	floors,	forwards,	futures	and	options,	in	compliance	with	Company	policy	and	regulatory requirements	to	mitigate	interest	rate,	equity	market	or	currency	exchange	rate	risk	or	volatility.

Interest	rate	swaps	involve	the	periodic	exchange	of	payments	with	other	parties,	at	specified	intervals,	calculated	using	the	agreed	upon	rates	and	notional	principal amounts.	Generally,	no	cash	or	principal	payments	are	exchanged	at	the	inception	of	the	contract.	Typically,	at	the	time	a	swap	is	entered	into,	the	cash	flow	streams exchanged	by	the	counterparties	are	equal	in	value.

Interest	rate	cap	and	floor	contracts	entitle	the	purchaser	to	receive	from	the	issuer	at	specified	dates,	the	amount,	if	any,	by	which	a	specified	market	rate	exceeds	the	cap strike	rate	or	falls	below	the	floor	strike	rate,	applied	to	a	notional	principal	amount.	A	premium	payment	is	made	by	the	purchaser	of	the	contract	at	its	inception	and	no principal	payments	are	exchanged.

Forward	contracts	are	customized	commitments	to	either	purchase	or	sell	designated	financial	instruments,	at	a	future	date,	for	a	specified	price	and	may	be	settled	in	cash or	through	delivery	of	the	underlying	instrument.

Financial	futures	are	standardized	commitments	to	either	purchase	or	sell	designated	financial	instruments,	at	a	future	date,	for	a	specified	price	and	may	be	settled	in	cash or	through	delivery	of	the	underlying	instrument.	Futures	contracts	trade	on	organized	exchanges.	Margin	requirements	for	futures	are	met	by	pledging	securities,	and changes	in	the	futures'	contract	values	are	settled	daily	in	cash.

Option	contracts	grant	the	purchaser,	for	a	premium	payment,	the	right	to	either	purchase	from	or	sell	to	the	issuer	a	financial	instrument	at	a	specified	price,	within	a specified	period	or	on	a	stated	date.

Foreign	currency	swaps	exchange	an	initial	principal	amount	in	two	currencies,	agreeing	to	re-exchange	the	currencies	at	a	future	date,	at	an	agreed	upon	exchange	rate. There	may	also	be	a	periodic	exchange	of	payments	at	specified	intervals	calculated	using	the	agreed	upon	rates	and	exchanged	principal	amounts.

Derivative	activities	are	monitored	by	an	internal	compliance	unit	and	reviewed	frequently	by	senior	management.	The	notional	amounts	of	derivative	contracts	represent the	basis	upon	which	pay	or	receive	amounts	are	calculated	and	are	not	reflective	of	credit	risk.	Notional	amounts	pertaining	to	derivative	instruments	used	in	the management	of	market	risk	for	both	the	general	and	guaranteed	separate	accounts	at	December	31,	2004	and	2003	were	$54.1	billion	and	$37.3	billion,	respectively.	The increase	in	the	derivative	notional	amount	during	2004	was	primarily	due	to	the	embedded	derivatives	associated	with	the	GMWB	product	feature.

The	following	discussions	focus	on	the	key	market	risk	exposures	within	Life	and	Property	&	Casualty	portfolios.

Life	is	responsible	for	maximizing	after-tax	returns	within	acceptable	risk	parameters,	including	the	management	of	the	interest	rate	sensitivity	of	invested	assets	and	the generation	of	sufficient	liquidity	to	support	policyholder	and	corporate	obligations.	Life's	fixed	maturity	portfolios	and	certain	investment	contract	and	insurance	product liabilities	have	material	market	exposure	to	interest	rate	risk.	In	addition,	Life's	operations	are	significantly	influenced	by	changes	in	the	equity	markets.	Life's	profitability depends	largely	on	the	amount	of	assets	under	management,	which	is	primarily	driven	by	the	level	of	sales,	equity	market	appreciation	and	depreciation	and	the	persistency of	the	in-force	block	of	business.	Life's	foreign	currency	exposure	is	primarily	related	to	non-U.S.	dollar	denominated	fixed	income	securities,	the	investment	in	the Japanese	Life	operation	and	certain	foreign	currency	based	individual	fixed	annuity	contracts,	and	to	a	lesser	extent,	its	GMDB	and	GMIB	benefits	associated	with	its Japanese	variable	annuities.

Life's	exposure	to	interest	rate	risk	relates	to	the	market	price	and/or	cash	flow	variability	associated	with	changes	in	market	interest	rates.	Changes	in	interest	rates	can potentially	impact	Life's	profitability.	In	certain	scenarios	where	interest	rates	are	volatile,	Life	could	be	exposed	to	disintermediation	risk	and	a	reduction	in	net	interest rate	spread	or	profit	margins.	The	investments	and	liabilities	primarily	associated	with	interest	rate	risk	are	included	in	the	following	discussion.	Certain	product	liabilities, including	those	containing	guaranteed	minimum	withdrawal	or	death	benefits,	expose	the	Company	to	interest	rate	risk	but	also	have	significant	equity	risk.	These liabilities	are	discussed	as	part	of	the	Equity	Risk	section	below.

# Fixed	Maturity	Investments

Life's	general	account	investment	portfolios,	including	guaranteed	separate	accounts	as	of	December	31,	2003,	primarily	consist	of	investment	grade	fixed	maturity securities,	including	corporate	bonds,	asset-backed	securities,	commercial	mortgage-backed	securities,	tax-exempt	municipal	securities	and	collateralized	mortgage obligations.	The	fair	value	of	these	investments	was	$50.5	billion	and	$49.2	billion	at	December	31,	2004	and	2003,	respectively.	The	fair	value	of	these	investments	and Life's	other	invested	assets	fluctuates	depending	on	the	interest	rate	environment	and	other	general	economic	conditions.	During	periods	of	declining	interest	rates, paydowns	on	mortgage-backed	securities	and	collateralized	mortgage	obligations	increase	as	the	underlying	mortgages	are	prepaid.	During	such	periods,	the	Company generally	will	not	be	able	to	reinvest	the	proceeds	of	any	such	prepayments	at	comparable	yields.	Conversely,	during	periods	of	rising	interest	rates,	the	rate	of	prepayments generally	declines,	exposing	the	Company	to	the	possibility	of	asset/liability	cash	flow	and	yield	mismatch.	The	weighted	average	duration	of	the	fixed	maturity	portfolio was	approximately	5.0	and	4.8	as	of	December	31,	2004	and	2003,	respectively.	In	2004,	the	duration	of	certain	Life	portfolios	were	modestly	lengthened,	which	generated additional	interest	income.

# Liabilities

Life's	investment	contracts	and	certain	insurance	product	liabilities,	other	than	non-guaranteed	separate	accounts,	include	asset	accumulation	vehicles	such	as	fixed annuities,	guaranteed	investment	contracts,	other	investment	and	universal	life-type	contracts	and	other	insurance	products	such	as	long-term	disability.

Asset	accumulation	vehicles	primarily	require	a	fixed	rate	payment,	often	for	a	specified	period	of	time.	Product	examples	include	fixed	rate	annuities	with	a	market	value adjustment	feature	and	fixed	rate	guaranteed	investment	contracts.	The	duration	of	these	contracts	generally	range	from	less	than	one	year	to	ten	years.	In	addition,	certain products	such	as	universal	life	contracts	and	the	general	account	portion	of	Life's	variable	annuity	products,	credit	interest	to	policyholders	subject	to	market	conditions	and minimum	interest	rate	guarantees.	The	duration	of	these	products	is	short-to-intermediate	term.

While	interest	rate	risk	associated	with	many	of	these	products	has	been	reduced	through	the	use	of	market	value	adjustment	features	and	surrender	charges,	the	primary risk	associated	with	these	products	is	that	the	spread	between	investment	return	and	credited	rate	may	not	be	sufficient	to	earn	targeted	returns.

The	Company	also	manages	the	risk	of	other	insurance	liabilities	similarly	to	investment	type	products	due	to	the	relative	predictability	of	the	aggregate	cash	flow	payment streams.	Products	in	this	category	may	contain	significant	actuarial	(including

mortality	and	morbidity)	pricing	and	cash	flow	risks.	Product	examples	include	structured	settlement	contracts,	on-benefit	annuities	(i.e.,	the	annuitant	is	currently receiving	benefits	thereon)	and	short	and	long-term	disability	contracts.	The	cash	out	flows	associated	with	these	policy	liabilities	are	not	interest	rate	sensitive	but	do	vary based	on	the	timing	and	amount	of	benefit	payments.	The	primary	risks	associated	with	these	products	are	that	the	benefits	will	exceed	expected	actuarial	pricing	and/or	that the	actual	timing	of	the	cash	flows	will	differ	from	those	anticipated,	resulting	in	an	investment	return	lower	than	that	assumed	in	pricing.	Contract	duration	can	range	from less	than	one	year	to	typically	up	to	ten	years.

# Derivatives

Life	utilizes	a	variety	of	derivative	instruments	to	mitigate	interest	rate	risk.	Interest	rate	swaps	are	primarily	used	to	convert	interest	receipts	to	a	fixed	or	variable	rate.	In addition,	interest	rate	swaps	are	used	to	convert	the	contract	rate	on	certain	liability	products	offered	by	the	Company	into	a	rate	that	trades	in	a	more	liquid	and	efficient market.	The	use	of	such	swaps	enables	the	Company	to	customize	contract	terms	and	conditions	to	customer	objectives	and	satisfies	the	operation's	asset/liability	duration matching	policy.	Occasionally,	swaps	are	also	used	to	hedge	the	variability	in	the	cash	flow	of	a	forecasted	purchase	or	sale	due	to	changes	in	interest	rates.

Interest	rate	caps	and	floors,	swaptions	and	option	contracts	are	primarily	used	to	hedge	against	the	risk	of	liability	contract	holder	disintermediation	in	a	rising	interest	rate environment,	and	to	offset	the	changes	in	fair	value	of	corresponding	derivatives	embedded	in	certain	of	the	Company's	fixed	maturity	investments.

At	December	31,	2004	and	2003,	notional	amounts	pertaining	to	derivatives	utilized	to	manage	interest	rate	risk	totaled	$9.9	billion	and	$9.5	billion,	respectively ($7.7	billion	and	$7.8	billion,	respectively	related	to	insurance	investments	and	$2.2	billion	and	$1.7	billion,	respectively	related	to	life	insurance	liabilities).	The	fair	value of	these	derivatives	as	reflected	on	the	consolidated	balance	sheets	was	$41	and	$142	as	of	December	31,	2004	and	2003,	respectively.

# Calculated	Interest	Rate	Sensitivity

The	after-tax	change	in	the	net	economic	value	of	investment	contracts	(e.g.	guaranteed	investment	contracts)	and	certain	other	insurance	product	liabilities	(e.g.	short	and long-term	disability	contracts),	for	which	the	payment	rates	are	fixed	at	contract	issuance	and	the	investment	experience	is	substantially	absorbed	by	Life,	are	included	in the	following	table	along	with	the	corresponding	general	and	guaranteed	separate	account	assets.	Also	included	in	this	analysis	are	the	interest	rate	sensitive	derivatives used	by	Life	to	hedge	its	exposure	to	interest	rate	risk.	Certain	financial	instruments,	such	as	limited	partnerships,	have	been	omitted	from	the	analysis	because	the investments	lack	sensitivity	to	interest	rate	changes.	Non-guaranteed	separate	account	assets	and	liabilities	and	equity	securities	held	for	trading	and	the	corresponding liabilities	associated	with	the	variable	annuity	products	sold	in	Japan	are	excluded	from	the	analysis	because	gains	and	losses	in	separate	accounts	accrue	to	policyholders. The	estimated	change	in	net	economic	value	below	assumes	a	100	basis	point	upward	and	downward	parallel	shift	in	the	yield	curve.

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
| Basis\tpoint\tshift | -\t100 | +\t100 | -\t100 | +\t100 |
| Amount | $(73) | $15 | $(27) | $(19) |

The	fixed	liabilities	included	above	represented	approximately	50%	and	60%	of	Life's	general	account	liabilities	as	of	December	31,	2004	and	Life's	general	and guaranteed	separate	account	liabilities	as	of	December	31,	2003.	The	assets	supporting	the	fixed	liabilities	are	monitored	and	managed	within	rigorous	duration	guidelines using	scenario	simulation	techniques,	and	are	evaluated	on	an	annual	basis,	in	compliance	with	regulatory	requirements.

The	after-tax	change	in	fair	value	of	the	general	account	invested	asset	portfolios	that	support	certain	universal	life-type	contracts	and	other	insurance	contracts	that	possess significant	mortality	risk	are	shown	in	the	following	table.	The	cash	flows	associated	with	these	liabilities	are	less	predictable	than	fixed	liabilities.	The	Company	identifies the	most	appropriate	investment	strategy	based	upon	the	expected	policyholder	behavior	and	liability	crediting	needs.	The	hypothetical	calculation	of	the	estimated	change in	fair	value	below	assumes	a	100	basis	point	upward	and	downward	parallel	shift	in	the	yield	curve.

|  |  | Change	in	Fair	Value	As	of	December	31, | Change	in	Fair	Value	As	of	December	31, |  |
| :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2004 | 2003 | 2003 |
| Basis\tpoint\tshift | -\t100 | +\t100 | -\t100 | +\t100 |
| Amount | $501 | $(491) | $481 | $(473) |

The	selection	of	the	100	basis	point	parallel	shift	in	the	yield	curve	was	made	only	as	a	hypothetical	illustration	of	the	potential	impact	of	such	an	event	and	should	not	be construed	as	a	prediction	of	future	market	events.	Actual	results	could	differ	materially	from	those	illustrated	above	due	to	the	nature	of	the	estimates	and	assumptions	used in	the	above	analysis.	The	Company's	sensitivity	analysis	calculation	assumes	that	the	composition	of	invested	assets	and	liabilities	remain	materially	consistent	throughout the	year	and	that	the	current	relationship	between	short-term	and	long-term	interest	rates	will	remain	constant	over	time.	As	a	result,	these	calculations	may	not	fully capture	the	impact	of	portfolio	re-allocations,	significant	product	sales	or	non-parallel	changes	in	interest	rates.

The	Company's	operations	are	significantly	influenced	by	changes	in	the	equity	markets.	The	Company's	profitability	depends	largely	on	the	amount	of	assets	under management,	which	is	primarily	driven	by	the	level	of	sales,	equity	market	appreciation	and	depreciation	and	the	persistency	of	the	in-force	block	of	business.	Prolonged and	precipitous	declines	in	the	equity	markets	can	have	a	significant	impact	on	the	Company's	operations,	as	sales	of	variable	products	may	decline	and	surrender	activity may	increase,	as	customer	sentiment	towards	the	equity	market	turns	negative.	Lower	assets	under	management	will	have	a	negative	impact	on	the	Company's	financial results,	primarily	due	to	lower	fee	income	related	to	the	Retail	Products	Group	and	Institutional	Solutions	Group	and,	to	a	lesser	extent,	the	Individual	Life	segments,	where a	heavy	concentration	of	equity	linked	products	are	administered	and	sold.	Furthermore,	the	Company	may	experience	a	reduction	in	profit	margins	if	a	significant	portion of	the	assets	held	in	the	variable	annuity	separate	accounts	move	to	the	general	account	and	the	Company	is	unable	to	earn	an	acceptable	investment	spread,	particularly	in light	of	the	low	interest	rate	environment	and	the	presence	of	contractually	guaranteed	minimum	interest	credited	rates,	which	for	the	most	part	are	at	a	3%	rate.

In	addition,	prolonged	declines	in	the	equity	market	may	also	decrease	the	Company's	expectations	of	future	gross	profits,	which	are	utilized	to	determine	the	amount	of DAC	to	be	amortized	in	a	given	financial	statement	period.	A	significant	decrease	in	the	Company's	estimated	gross	profits	would	require	the	Company	to	accelerate	the amount	of	DAC	amortization	in	a	given	period,	potentially	causing	a	material	adverse	deviation	in	that	period's	net	income.	Although	an	acceleration	of	DAC	amortization would	have	a	negative	impact	on	the	Company's	earnings,	it	would	not	affect	the	Company's	cash	flow	or	liquidity	position.

The	Company	sells	variable	annuity	contracts	that	offer	one	or	more	benefit	guarantees	that	generally	increase	with	declines	in	equity	markets.	As	is	described	in	more detail	below,	the	Company	manages	the	equity	market	risks	embedded	in	these	guarantees	through	reinsurance,	product	design	and	hedging	programs.	The	Company believes	its	ability	to	manage	these	equity	market	risks	by	these	means	gives	it	a	competitive	advantage;	and,	in	particular,	its	ability	to	create	innovative	product	designs that	allow	the	Company	to	meet	identified	customer	needs	while	generating	manageable	amounts	of	equity	market	risk.	The	Company's	relative	sales	and	variable	annuity market	share	have	generally	increased	during	periods	when	it	has	recently	introduced	new	products	to	the	market.	In	contrast,	the	Company's	relative	sales	and	market share	have	generally	decreased	when	competitors	introduce	products	that	cause	an	issuer	to	assume	larger	amounts	of	equity	and	other	market	risk	than	the	Company	is confident	it	can	prudently	manage.	The	Company	believes	its	long-term	success	in	the	variable	annuity	market	will	continue	to	be	aided	by	successful	innovation	in	both product	design	and	in	equity	market	risk	management	and	that,	in	the	absence	of	this	innovation,	its	market	share	could	decline.

The	Company	sells	variable	annuity	contracts	that	offer	various	guaranteed	death	and	income	benefits.	The	Company	maintains	a	liability	for	the	death	and	income	benefit costs,	net	of	reinsurance,	of	$138,	as	of	December	31,	2004.	Declines	in	the	equity	market	may	increase	the	Company's	net	exposure	to	death	benefits	under	these	contracts. The	majority	of	the	contracts	with	the	guaranteed	death	benefit	feature	are	sold	by	the	Retail	Products	Group	segment.	For	certain	guaranteed	death	benefits,	The	Hartford pays	the	greater	of	(1)	the	account	value	at	death;	(2)	the	sum	of	all	premium	payments	less	prior	withdrawals;	or	(3)	the	maximum	anniversary	value	of	the	contract,	plus any	premium	payments	since	the	contract	anniversary,	minus	any	withdrawals	following	the	contract	anniversary.	For	certain	guaranteed	death	benefits	sold	with	variable annuity	contracts	beginning	in	June	2003,	the	Retail	Products	Group	segment	pays	the	greater	of	(1)	the	account	value	at	death;	or	(2)	the	maximum	anniversary	value;	not to	exceed	the	account	value	plus	the	greater	of	(a)	25%	of	premium	payments,	or	(b)	25%	of	the	maximum	anniversary	value	of	the	contract.	The	Company	currently reinsures	a	significant	portion	of	these	death	benefit	guarantees	associated	with	its	in-force	block	of	business.

The	Company's	total	gross	exposure	(i.e.	before	reinsurance)	to	these	guaranteed	death	benefits	as	of	December	31,	2004	is	$8.3	billion.	Due	to	the	fact	that	80%	of	this amount	is	reinsured,	the	Company's	net	exposure	is	$1.6	billion.	This	amount	is	often	referred	to	as	the	retained	net	amount	at	risk.	However,	the	Company	will	incur	these guaranteed	death	benefit	payments	in	the	future	only	if	the	policyholder	has	an	in-the-money	guaranteed	death	benefit	at	their	time	of	death.

In	addition,	the	Company	offers	certain	variable	annuity	products	with	a	GMWB	rider.	Declines	in	the	equity	market	may	increase	the	Company's	exposure	to	benefits under	the	GMWB	contracts.	For	all	contracts	in	effect	through	July	6,	2003,	the	Company	entered	into	a	reinsurance	arrangement	to	offset	its	exposure	to	the	GMWB	for the	remaining	lives	of	those	contracts.	As	of	July	6,	2003,	the	Company	exhausted	all	but	a	small	portion	of	the	reinsurance	capacity	for	new	business	under	the	current arrangement	and	will	be	ceding	only	a	very	small	number	of	new	contracts	subsequent	to	July	6,	2003.	Substantially	all	new	contracts	with	the	GMWB	are	not	covered	by reinsurance.	These	unreinsured	contracts	are	expected	to	generate	volatility	in	net	income	as	the	underlying	embedded	derivative	liabilities	are	recorded	at	fair	value	each reporting	period,	resulting	in	the	recognition	of	net	realized	capital	gains	or	losses	in	response	to	changes	in	certain	critical	factors	including	capital	market	conditions	and policyholder	behavior.	In	order	to	minimize	the	volatility	associated	with	the	unreinsured	GMWB	liabilities,	the	Company	established	an	alternative	risk	management strategy.	During	the	third	quarter	of	2003,	the	Company	began	hedging	its	unreinsured	GMWB	exposure	using	interest	rate	futures,	Standard	and	Poor's	("S&P")	500	and NASDAQ	index	put	options	and	futures	contracts.	During	the	first	quarter	of	2004,	the	Company	entered	into	Europe,	Australasia	and	Far	East	("EAFE")	Index	swaps	to hedge	GMWB	exposure	to	international	equity	markets.	The	hedging	program	involves	a	detailed	monitoring	of	policyholder	behavior	and	capital	markets	conditions	on	a daily	basis	and	rebalancing	of	the	hedge	position	as	needed.	While	the	Company	actively	manages	this	hedge	position,	hedge	ineffectiveness	may	result	due	to	factors including,	but	not	limited	to,	policyholder	behavior,	capital	markets	dislocation	or	discontinuity	and	divergence	between	the	performance	of	the	underlying	funds	and	the hedging	indices.

The	net	impact	of	the	change	in	value	of	the	embedded	derivative	net	of	the	results	of	the	hedging	program	was	an	$8	gain	before	deferred	policy	acquisition	costs	and	tax effects	for	the	year	ended	December	31,	2004.	As	of	December	31,	2004,	the	notional	and	fair	value	related	to	the	embedded	derivatives,	the	hedging	strategy,	and reinsurance	was	$37.7	billion	and	$170,	respectively.

In	December	2004,	the	Company	purchased	one	and	two	year	S&P	500	put	option	contracts	to	economically	hedge	certain	liabilities	that	could	increase	if	the	equity markets	decline.	As	of	December	31,	2004,	the	notional	and	market	value	related	to	this	strategy	was	$1.9	billion	and	$32,	respectively.	Because	this	strategy	is	intended	to partially	hedge	certain	equity-market	sensitive	liabilities	calculated	under	statutory	accounting	(see	Capital	Resources	and	Liquidity),	changes	in	the	value	of	the	put options	may	not	be	closely	aligned	to	changes	in	liabilities	determined	in	accordance	with	Generally	Accepted	Accounting	Principles	("GAAP"),	causing	volatility	in GAAP	net	income.	The	Company	anticipates	employing	similar	strategies	in	the	future,	which	could	further	increase	volatility	in	GAAP	net	income.

# Currency	Exchange	Risk

Currency	exchange	risk	exists	with	respect	to	investments	in	non-U.S.	dollar	denominated	fixed	maturities,	primarily	denominated	in	Euro,	Sterling,	Yen	and	Canadian dollars,	as	well	as	Life's	investment	in	foreign	operations,	primarily	Japan,	and	the	yen	based	individual	fixed	annuity	product	and,	to	a	lesser	extent,	its	GMDB	and	GMIB benefits	associated	with	its	Japanese	variable	annuities.

The	risk	associated	with	the	non-U.S.	dollar	denominated	fixed	maturities	relates	to	potential	decreases	in	value	and	income	resulting	from	unfavorable	changes	in	foreign exchange	rates.	The	fair	value	of	the	non-U.S.	dollar	denominated	fixed	maturities	at	December	31,	2004	and	2003,	were	approximately	$2.5	billion	and	$2.0	billion, respectively.	In	order	to	manage	its	currency	exposures,	Life	enters	into	foreign	currency	swaps	and	forwards	to	hedge	the	variability	in	cash	flow	associated	with	certain foreign	denominated	fixed	maturities.	These	foreign	currency	swap	agreements	are	structured	to	match	the	foreign	currency	cash	flows	of	the	hedged	foreign	denominated securities.	At	December	31,	2004	and	2003,	the	derivatives	used	to	hedge	currency	exchange	risk	related	to	non-U.S.	dollar	denominated	fixed	maturities	had	a	total notional	value	of	$1.7	billion	and	$1.4	billion,	respectively,	and	total	fair	value	of	$(503)	and	$(299),	respectively.

The	functional	currency	of	the	Japanese	operation	is	the	Japanese	yen.	Accordingly,	the	premiums,	claims,	commissions	and	investment	income	are	paid	or	received	in	yen. In	addition,	most	of	the	Japanese	operation's	investments	are	yen	denominated.

The	net	investment	in	the	Japanese	operation	was	approximately	$673	and	$250,	as	of	December	31,	2004	and	2003,	respectively.	Life	has	entered	into	the	yen	denominated forwards	to	hedge	a	substantial	portion	of	the	net	investment	in	the	Japanese	operation.	At	December	31,	2004	and	2003,	the	derivatives	used	to	hedge	the	net	investment	in the	Japanese	operation	had	a	total	notional	value	of	$401	and	$200,	respectively,	and	total	fair	value	of	$(23)	and	$(4),	respectively.

The	yen	based	fixed	annuity	product	is	written	by	Hartford	Life	Insurance	KK,	a	wholly-owned	Japanese	subsidiary	of	HLA,	and	subsequently	reinsured	to	Hartford	Life Insurance	Company,	a	U.S.	dollar	based	wholly-owned	subsidiary	of	Hartford	Life,	Inc.	The	yen	denominated	fixed	annuity	product	is	recorded	in	the	consolidated	balance sheets	in	other	policyholder	funds	and	benefits	payable	in	U.S.	dollars	based	upon	the	December	31,	2004	yen	to	dollar	spot	rate.	To	mitigate	the	yen	exposure	associated with	the	product,	during	the	fourth	quarter	of	2004,	the	Company	entered	into	pay	fixed	U.S.	dollar	receive	fixed	yen,	zero	coupon	currency	swaps	and	forwards	(dollar	to yen	derivatives).	As	of	December	31,	2004	the	dollar	to	yen	derivatives	had	a	notional	and	fair	value	of	$611	and	$10,	respectively.

Based	on	the	fair	values	of	Life's	non-U.S.	dollar	denominated	investments	and	derivative	instruments	(including	its	yen	based	individual	fixed	annuity	product)	as	of December	31,	2004	and	2003,	management	estimates	that	a	10%	unfavorable	change	in	exchange	rates	would	decrease	the	fair	values	by	an	after-tax	total	of	$9	and	$20, respectively.	The	estimated	impact	was	based	upon	a	10%	change	in	December	31	spot	rates.	The	selection	of	the	10%	unfavorable	change	was	made	only	for	hypothetical illustration	of	the	potential	impact	of	such	an	event	and	should	not	be	construed	as	a	prediction	of	future	market	events.	Actual	results	could	differ	materially	from	those illustrated	above	due	to	the	nature	of	the	estimates	and	assumptions	used	in	the	above	analysis.

Property	&	Casualty	attempts	to	maximize	economic	value	while	generating	appropriate	after-tax	income	and	sufficient	liquidity	to	meet	policyholder	and	corporate obligations.	Property	&	Casualty's	investment	portfolio	has	material	exposure	to	interest	rates.	The	Company	continually	monitors	these	exposures	and	makes	portfolio adjustments	to	manage	these	risks	within	established	limits.

The	primary	exposure	to	interest	rate	risk	in	Property	&	Casualty	relates	to	its	fixed	maturity	investments,	including	corporate	bonds,	asset-backed	securities,	municipal bonds,	commercial	mortgage-backed	securities	and	collateralized	mortgage	obligations.	The	fair	value	of	these	investments	was	$24.4	billion	and	$23.7	billion	at December	31,	2004	and	2003,	respectively.	The	fair	value	of	these	and	Property	&	Casualty's	other	invested	assets	fluctuates	depending	on	the	interest	rate	environment and	other	general	economic	conditions.	During	periods	of	declining	interest	rates,	embedded	call	features	within	securities	are	exercised	with	greater	frequency	and paydowns	on	mortgage-backed	securities	and	collateralized	mortgage	obligations	increase	as	the	underlying	mortgages	are	prepaid.	During	such	periods,	the	Company generally	will	not	be	able	to	reinvest	the	proceeds	of	any	such	prepayments	at	comparable	yields.	Conversely	during	periods	of	rising	interest	rates,	the	rate	of	prepayments generally	decline.	Derivative	instruments	such	as

swaps,	caps	and	options	are	used	to	manage	interest	rate	risk	and	had	a	total	notional	amount	as	of	December	31,	2004	and	2003	of	$1.5	billion	and	$1.4	billion, respectively,	and	fair	value	of	$7	and	$19,	respectively.

One	of	the	measures	Property	&	Casualty	uses	to	quantify	its	exposure	to	interest	rate	risk	inherent	in	its	invested	assets	is	duration.	The	weighted	average	duration	of	the fixed	maturity	portfolio	was	4.6	and	4.7	as	of	December	31,	2004	and	2003,	respectively.	In	2004,	the	duration	of	the	Property	&	Casualty	portfolios	were	modestly shortened	in	anticipation	of	higher	future	interest	rates.

The	following	table	provides	an	analysis	showing	the	estimated	after-tax	change	in	the	fair	value	of	Property	&	Casualty's	fixed	income	investments	and	related derivatives,	assuming	100	basis	point	upward	and	downward	parallel	shifts	in	the	yield	curve	as	of	December	31,	2004	and	2003.	Certain	financial	instruments,	such	as limited	partnerships,	have	been	omitted	from	the	analysis	due	to	the	fact	the	investments	are	accounted	for	under	the	equity	method	and	lack	sensitivity	to	interest	rate changes.

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
| Basis\tpoint\tshift | -\t100 | +\t100 | -\t100 | +\t100 |
| Amount | $750 | $(725) | $738 | $(714) |

The	selection	of	the	100	basis	point	parallel	shift	in	the	yield	curve	was	made	only	for	hypothetical	illustration	of	the	potential	impact	of	such	an	event	and	should	not	be construed	as	a	prediction	of	future	market	events.	Actual	results	could	differ	materially	from	those	illustrated	above	due	to	the	nature	of	the	estimates	and	assumptions	used in	the	above	analysis.	The	Company's	sensitivity	analysis	calculation	assumes	that	the	composition	of	invested	assets	remains	materially	consistent	throughout	the	year	and that	the	current	relationship	between	short-term	and	long-term	interest	rates	will	remain	constant	over	time.	As	a	result,	these	calculations	may	not	fully	capture	the	impact of	portfolio	re-allocations	or	non-parallel	changes	in	interest	rates.

Currency	exchange	risk	exists	with	respect	to	investments	in	non-U.S.	dollar	denominated	fixed	maturities,	primarily	Euro,	Sterling	and	Canadian	dollar	denominated securities.	The	risk	associated	with	these	securities	relates	to	potential	decreases	in	value	resulting	from	unfavorable	changes	in	foreign	exchange	rates.	The	fair	value	of these	fixed	maturity	securities	at	December	31,	2004	and	2003	was	$1.4	billion	and	$1.2	billion,	respectively.

In	order	to	manage	its	currency	exposures,	Property	&	Casualty	enters	into	foreign	currency	swaps	and	forward	contracts	to	hedge	the	variability	in	cash	flow	associated with	certain	foreign	denominated	securities.	These	foreign	currency	swap	agreements	are	structured	to	match	the	foreign	currency	cash	flows	of	the	hedged	foreign denominated	securities.	At	December	31,	2004	and	2003,	the	derivatives	used	to	hedge	currency	exchange	risk	had	a	total	notional	value	of	$370	and	$325,	respectively, and	total	fair	value	of	$(70)	and	$(26),	respectively.

Based	on	the	fair	values	of	Property	&	Casualty's	non-U.S.	dollar	denominated	securities	and	derivative	instruments	as	of	December	31,	2004	and	2003,	management estimates	that	a	10%	unfavorable	change	in	exchange	rates	would	decrease	the	fair	values	by	an	after-tax	total	of	approximately	$63	and	$49,	respectively.	The	estimated impact	was	based	upon	a	10%	change	in	December	31	spot	rates.	The	selection	of	the	10%	unfavorable	change	was	made	only	for	hypothetical	illustration	of	the	potential impact	of	such	an	event	and	should	not	be	construed	as	a	prediction	of	future	market	events.	Actual	results	could	differ	materially	from	those	illustrated	above	due	to	the nature	of	the	estimates	and	assumptions	used	in	the	above	analysis.

The	primary	exposure	to	interest	rate	risk	in	Corporate	relates	to	the	Company's	debt.	The	table	below	provides	information	as	of	December	31,	2004	on	Corporate's	debt obligations	and	reflects	principal	cash	flows	and	related	weighted	average	interest	rates	by	maturity	year.	Comparative	totals	are	included	as	of	December	31,	2003.

|  | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | 2004<br>Total | 2003<br>Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Short-term\tDebt\t[1] |  |  |  |  |  |  |  |  |
| Amount | $623 | $—\t $—\t $—\t $—\t $— | $—\t $—\t $—\t $—\t $— | $—\t $—\t $—\t $—\t $— | $—\t $—\t $—\t $—\t $— | $—\t $—\t $—\t $—\t $— | $623 | $1,050 |
| Weighted\taverage\tinterest\trate | 4.6% | — | — | — | — | — | 4.6% | 2.4% |
| Fair\tvalue |  |  |  |  |  |  | $626 | $1,055 |
| Long-term\tDebt |  |  |  |  |  |  |  |  |
| Amount | $— | $250 | $500 | $1,220 | $— | $2,345 | $4,315 | $4,615 |
| Weighted\taverage\tinterest\trate | — | 2.3% | 5.7% | 3.6% | — | 6.1% | 5.1% | 5.8% |
| Fair\tvalue |  |  |  |  |  |  | $4,887 | $5,173 |

# CAPITAL	RESOURCES	AND	LIQUIDITY

Capital	resources	and	liquidity	represent	the	overall	financial	strength	of	The	Hartford	and	its	ability	to	generate	strong	cash	flows	from	each	of	the	business	segments, borrow	funds	at	competitive	rates	and	raise	new	capital	to	meet	operating	and	growth	needs.

# Liquidity	Requirements

The	liquidity	requirements	of	The	Hartford	have	been	and	will	continue	to	be	met	by	funds	from	operations	as	well	as	the	issuance	of	commercial	paper,	common	stock, debt	securities	and	borrowings	from	its	credit	facilities.	Current	and	expected	patterns	of	claim	frequency	and	severity	may	change	from	period	to	period	but	continue	to	be within	historical	norms	and,	therefore,	the	Company's	current	liquidity	position	is	considered	to	be	sufficient	to	meet	anticipated	demands.	However,	if	an	unanticipated demand	was	placed	on	the	Company	it	is	likely	that	the	Company	would	either	sell	certain	of	its	investments	to	fund	claims	which	could	result	in	larger	than	usual	realized capital	gains	and	losses	or	the	Company	would	enter	the	capital	markets	to	raise	further	funds	to	provide	the	requisite	liquidity.	For	a	discussion	and	tabular	presentation	of the	Company's	current	contractual	obligations	by	period	including	those	related	to	its	Life	and	Property	&	Casualty	insurance	refer	to	the	Off-Balance	Sheet	and	Aggregate Contractual	Obligations	section	below.

The	principal	sources	of	operating	funds	are	premiums	and	investment	income,	while	investing	cash	flows	originate	from	maturities	and	sales	of	invested	assets.

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	strong	shareholder	returns.	As	a	result,	the	Company	may	from time	to	time	raise	capital	from	the	issuance	of	stock,	debt	or	other	capital	securities.	The	issuance	of	common	stock,	debt	or	other	capital	securities	could	result	in	the dilution	of	shareholder	interests	or	reduced	net	income	due	to	additional	interest	expense.

The	Company's	Japanese	life	insurance	operations	are	conducted	through	Hartford	Life	Insurance	K.K.	a	wholly	owned	subsidiary	of	Hartford	Life	and	Accident	("HLA"), one	of	the	Company's	principal	statutorily	regulated	operating	subsidiaries.	To	date,	the	Company	has	funded	the	capital	needs	of	its	Japanese	operations	through investments	in	the	common	stock	of	Hartford	Life	Insurance	K.K.	by	HLA,	an	investment	that	stood	at	$673	at	the	end	of	2004.	This	arrangement	has	generally	allowed some	portion	of	the	Company's	investment	in	its	Japanese	operations	to	be	included	as	part	of	the	aggregate	statutory	capital	(for	the	purposes	of	regulatory	and	rating agency	capital	adequacy	measures)	of	HLA.

The	Company	is	currently	in	the	process	of	evaluating	capital	structures	that	it	believes	in	the	long-term	could	result	in	improved	financial	flexibility.	Certain	of	these structures	would	no	longer	allow	a	portion	of	the	capital	invested	in	our	Japanese	operations	to	be	included	in	the	aggregate	capital	of	HLA.	This	could	potentially	reduce certain	of	the	capital	adequacy	measures	employed	by	regulators	and	rating	agencies	to	assess	the	capital	strength	of	The	Hartford's	domestic	life	insurance	companies.	At the	current	time,	the	Company	believes	it	has	sufficient	financial	resources	to	maintain	capital	adequacy	levels	consistent	with	all	of	its	rating	objectives.

The	Company	may	also	repurchase	outstanding	shares	of	its	common	stock	and	equity	units	from	time	to	time,	in	an	aggregate	amount	not	to	exceed	$1	billion.	For additional	information	regarding	the	Company's	authorization	to	repurchase	its	securities,	please	see	the	"Stockholders'	Equity"	section	below.

HFSG	and	HLI	are	holding	companies	which	rely	upon	operating	cash	flow	in	the	form	of	dividends	from	their	subsidiaries,	which	enable	them	to	service	debt,	pay dividends,	and	pay	certain	business	expenses.

Dividends	to	HFSG	from	its	subsidiaries	are	restricted.	The	payment	of	dividends	by	Connecticut-domiciled	insurers	is	limited	under	the	insurance	holding	company	laws of	Connecticut.	Under	these	laws,	the	insurance	subsidiaries	may	only	make	their	dividend	payments	out	of	unassigned	surplus.	These	laws	require	notice	to	and	approval by	the	state	insurance	commissioner	for	the	declaration	or	payment	of	any	dividend,	which,	together	with	other	dividends	or	distributions	made	within	the	preceding	twelve months,	exceeds	the	greater	of	(i)	10%	of	the	insurer's	policyholder	surplus	as	of	December	31	of	the	preceding	year	or	(ii)	net	income	(or	net	gain	from	operations,	if	such company	is	a	life	insurance	company)	for	the	twelve-month	period	ending	on	the	thirty-first	day	of	December	last	preceding,	in	each	case	determined	under	statutory insurance	accounting	policies.	In	addition,	if	any	dividend	of	a	Connecticut-domiciled	insurer	exceeds	the	insurer's	earned	surplus,	it	requires	the	prior	approval	of	the Connecticut	Insurance	Commissioner.	The	insurance	holding	company	laws	of	the	other	jurisdictions	in	which	The	Hartford's	insurance	subsidiaries	are	incorporated	(or deemed	commercially	domiciled)	generally	contain	similar	(although	in	certain	instances	somewhat	more	restrictive)	limitations	on	the	payment	of	dividends.	For	the	year ended	December	31,	2004,	the	Company's	insurance	subsidiaries	paid	$861	to	HFSG	and	HLI	and	are	permitted	to	pay	up	to	a	maximum	of	approximately	$1.9	billion	in dividends	to	HFSG	and	HLI	in	2005	without	prior	approval	from	the	applicable	insurance	commissioner.

The	primary	uses	of	funds	are	to	pay	claims,	policy	benefits,	operating	expenses	and	commissions	and	to	purchase	new	investments.	In	addition,	The	Hartford	has	a	policy of	carrying	a	significant	short-term	investment	position	and	accordingly	does	not	anticipate	selling	intermediate-	and	long-term	fixed	maturity	investments	to	meet	any liquidity	needs.	(For	a	discussion	of	the	Company's	investment	objectives	and	strategies,	see	the	Investments	and	Capital	Markets	Risk	Management	sections.)

# Sources	of	Liquidity

# Shelf	Registrations

On	December	3,	2003,	The	Hartford's	shelf	registration	statement	(Registration	No.	333-108067)	for	the	potential	offering	and	sale	of	debt	and	equity	securities	in	an aggregate	amount	of	up	to	$3.0	billion	was	declared	effective	by	the	Securities	and	Exchange	Commission.	The	Registration	Statement	allows	for	the	following	types	of securities	to	be	offered:	(i)	debt	securities,	preferred	stock,	common	stock,	depositary	shares,	warrants,	stock	purchase	contracts,	stock	purchase	units	and	junior subordinated	deferrable	interest	debentures	of	the	Company,	and	(ii)	preferred	securities	of	any	of	one	or	more	capital	trusts	organized	by	The	Hartford	("The	Hartford Trusts").	The	Company	may	enter	into	guarantees	with	respect	to	the	preferred	securities	of	any	of	The	Hartford	Trusts.	In	January	2004,	the	Company	issued approximately	6.7	million	shares	of	common	stock	pursuant	to	an	underwritten	offering	at	a	price	to	the	public	of	$63.25	per	share	and	received	net	proceeds	of	$411.	On March	9,	2004,	the	Company	issued	$200	of	4.75%	senior	notes	due	March	1,	2014.	As	of	December	31,	2004,	the	Company	had	$2.4	billion	remaining	on	its	shelf.

On	May	15,	2001,	HLI	filed	with	the	SEC	a	shelf	registration	statement	(Registration	No.	333-60944)	for	the	potential	offering	and	sale	of	up	to	$1.0	billion	in	debt	and preferred	securities.	The	registration	statement	was	declared	effective	on	May	29,	2001.	As	of	December	31,	2004,	HLI	had	$1.0	billion	remaining	on	its	shelf.

# Commercial	Paper	and	Revolving	Credit	Facilities

The	table	below	details	the	Company's	short-term	debt	programs	and	the	applicable	balances	outstanding.

| Description | Effective	Date | Expiration	Date | Maximum	Available | 2004 | 2003 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Commercial\tPaper |  |  |  |  |  |
| The\tHartford | \t11/10/86 | N/A | $2,000 | $372 | $850 |
| HLI | \t2/7/97 | N/A | 250 | — | — |
| Total\tcommercial\tpaper |  |  | $2,250 | $372 | $850 |
| Revolving\tCredit\tFacility |  |  |  |  |  |
| 5-year\trevolving\tcredit\tfacility | \t6/20/01 | \t6/20/06 | $1,000 | $—\t $— | $—\t $— |
| 3-year\trevolving\tcredit\tfacility | \t12/31/02 | \t12/31/05 | 490 | — | — |
| Total\tRevolving\tCredit\tFacilities |  |  | $1,490 | $— | $— |
| Total\tOutstanding\tCommercial\tPaper\tand\tRevolving\tCredit\tFacilities |  |  | $3,740 | $372 | $850 |

Under	the	two	revolving	credit	agreements,	the	Company	must	maintain	a	minimum	level	of	consolidated	statutory	surplus	and	risk	based	capital	ratios.	In	addition,	the Company	must	not	exceed	a	maximum	ratio	of	debt	to	capitalization.	Quarterly,	the	Company	certifies	compliance	with	each	financial	covenant	for	its	banks.	At December	31,	2004	and	2003,	the	Company	was	in	compliance	with	all	such	covenants.

# Off-Balance	Sheet	Arrangements	and	Aggregate	Contractual	Obligations

The	Company	does	not	have	any	off-balance	sheet	arrangements	that	are	reasonably	likely	to	have	a	material	effect	on	the	financial	condition,	results	of	operations, liquidity,	or	capital	resources	of	the	Company,	except	for	unfunded	commitments	to	purchase	investments	in	limited	partnerships	and	mortgage	loans	totaling	$629	and	a guarantee	of	the	residual	value	of	leased	furniture	and	fixtures	for	$20,	both	as	disclosed	in	Note	12	of	Notes	to	Consolidated	Financial	Statements.

The	following	table	identifies	the	Company's	aggregate	contractual	obligations	due	by	payment	period:

|  | Total | Less	than	1	year | 1-3	years | 3-5	years | More	than	5	years |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Property\tand\tcasualty\tobligations\t[1] | $21,885 | $5,777 | $6,150 | $3,016 | $6,942 |
| Life,\tannuity\tand\tdisability\tobligations\t[2] | 281,998 | 18,037 | 37,318 | 40,255 | 186,388 |
| Long-term\tdebt\tobligations\t[3] | 9,093 | 536 | 1,288 | 1,613 | 5,656 |
| Operating\tlease\tobligations | 723 | 175 | 285 | 162 | 101 |
| Purchase\tobligations\t[4]\t[5] | 1,764 | 1,614 | 120 | 14 | 16 |
| Other\tlong-term\tliabilities\treflected\ton\tthe\tbalance\tsheet\t[6]\t[7] | 1,642 | 1,590 | — | 52 | — |
| Total | $ 317,105 | $27,729 | $45,161 | $45,112 | $199,103 |

[1]	 The	following	points	are	significant	to	understanding	the	cash	flows	estimated	for	obligations	under	property	and	casualty	contracts:

•		Reserves	for	Property	&	Casualty	unpaid	claim	and	claim	adjustment	expenses	include	case	reserves	for	reported	claims	and	reserves	for	claims	incurred	but	not reported	(IBNR).	While	payments	due	on	claim	reserves	are	considered	contractual	obligations	because	they	relate	to	insurance	policies	issued	by	the	Company, 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 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.

•		In	estimating	the	timing	of	future	payments	by	year,	the	Company	has	assumed	that	its	historical	payment	patterns	will	continue.	However,	the	actual	timing	of future	payments	will	likely	vary	materially	from	these	estimates	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.	Also,	estimated payments	in	2005	do	not	include	payments	that	will	be	made	on	claims	incurred	in	2005	on	policies	that	were	in	force	as	of	December	31,	2004.	In	addition,	the table	does	not	include	future	cash	flows	related	to	the	receipt	of	premiums	that	will	be	used,	in	part,	to	fund	loss	payments.

•		Under	generally	accepted	accounting	principles,	the	Company	is	only	permitted	to	discount	reserves	for	claim	and	claim	adjustment	expenses	in	cases	where	the payment	pattern	and	ultimate	loss	costs	are	fixed	and	reliably	determinable	on	an	individual	claim	basis.	For	the	Company,	these	include	claim	settlements	with permanently	disabled	claimants	and	certain	structured	settlement	contracts	that	fund	loss	runoffs	for	unrelated	parties.	As	of	December	31,	2004,	the	total property	and	casualty	reserves	in	the	above	table	of	$21,885	are	gross	of	the	reserve	discount	of	$556.

[2]	 Estimated	life,	annuity	and	disability	obligations	include	death	and	disability	claims,	policy	surrenders,	policyholder	dividends	and	trail	commissions	offset	by expected	future	deposits	and	premiums	on	in-force	contracts.	Estimated	contractual	policyholder	obligations	are	based	on	mortality,	morbidity	and	lapse	assumptions comparable	with	Life's	historical	experience,	modified	for	recent	observed	trends.	Life	has	also	assumed	market	growth	and	interest	crediting	consistent	with assumptions	used	in	amortizing	deferred	acquisition	costs.	In	contrast	to	this	table,	the	majority	of	Life's	obligations	are	recorded	on	the	balance	sheet	at	the	current account	value,	as	described	in	Critical	Accounting	Estimates,	and	do	not	incorporate	an	expectation	of	future	market	growth,	interest	crediting,	or	future	deposits. Therefore,	the	estimated	contractual	policyholder	obligations	presented	in	this	table	significantly	exceed	the	liabilities	recorded	in	reserve	for	future	policy	benefits and	unpaid	claims	and	claim	adjustment	expenses,	other	policyholder	funds	and	benefits	payable	and	separate	account	liabilities.	Due	to	the	significance	of	the assumptions	used,	the	amounts	presented	could	materially	differ	from	actual	results.	As	separate	account	obligations	are	legally	insulated	from	general	account obligations,	the	separate	account	obligations	will	be	fully	funded	by	cash	flows	from	separate	account	assets.	Life	expects	to	fully	fund	the	general	account	obligations from	cash	flows	from	general	account	investments	and	future	deposits	and	premiums.

[3] Includes	contractual	principal	and	interest	payments.	Payments	exclude	amounts	associated	with	fair-value	hedges	of	certain	of	the	Company's	long-term	debt.	All long-term	debt	obligations	have	fixed	rates	of	interest.	Long-term	debt	obligations	also	includes	principal	and	interest	payments	of	$700	and	$2.4	billion, respectively,	related	to	junior	subordinated	debentures	which	are	callable	beginning	in	2006.	See	Note	14	of	Notes	to	Consolidated	Financial	Statements	for additional	discussion	of	long-term	debt	obligations.

[4] Includes	$1.4	billion	in	commitments	to	purchase	investments	including	$330	of	limited	partnerships	and	$299	of	mortgage	loans.	Outstanding	commitments	under these	limited	partnerships	and	mortgage	loans	are	included	in	payments	due	in	less	than	1	year	since	the	timing	of	funding	these	commitments	cannot	be	estimated. The	remaining	$759	relates	to	payables	for	securities	purchased	which	are	reflected	on	the	Company's	consolidated	balance	sheet.

[5] Includes	estimated	contribution	of	$200	to	the	Company's	pension	plan	in	2005.

[6]	 As	of	December	31,	2004,	the	Company	has	accepted	cash	collateral	of	$1.6	billion	in	connection	with	the	Company's	securities	lending	program	and	derivative instruments.	Since	the	timing	of	the	return	of	the	collateral	is	uncertain,	the	return	of	the	collateral	has	been	included	in	the	payments	due	in	less	than	1	year.

[7] Includes	$52	in	collateralized	loan	obligations	("CLOs")	issued	to	third-party	investors	by	a	consolidated	investment	management	entity	sponsored	by	the	Company in	connection	with	synthetic	CLO	transactions.	The	CLO	investors	have	no	recourse	to	the	Company's	assets	other	than	the	dedicated	assets	collateralizing	the	CLOs. Refer	to	Note	4	of	Notes	to	Consolidated	Financial	Statements	for	additional	discussion	of	CLOs.

# Pension	Plans	and	Other	Postretirement	Benefits

The	Company	maintains	a	U.S.	qualified	defined	benefit	pension	plan	(the	"Plan")	that	covers	substantially	all	employees,	as	well	as	unfunded	excess	plans	to	provide benefits	in	excess	of	amounts	permitted	to	be	paid	to	participants	of	the	Plan	under	the	provisions	of	the	Internal	Revenue	Code.	Additionally,	the	Company	has	entered	into individual	retirement	agreements	with	certain	current	and	retired	directors	providing	for	unfunded	supplemental	pension	benefits.	The	Company	maintains	international plans	which	represent	an	immaterial	percentage	of	total	pension	assets,	liabilities	and	expense	and,	for	reporting	purposes,	are	combined	with	domestic	plans.

In	September	2003,	the	Company	announced	its	approval	to	amend	the	Plan	to	implement,	effective	January	1,	2009,	the	cash	balance	formula	for	purposes	of	calculating future	pension	benefits	for	services	rendered	on	or	after	January	1,	2009	for	employees	hired	before	January	1,	2001.	These	amounts	are	in	addition	to	amounts	earned through	December	31,	2008	under	the	traditional	final	average	pay	formula.	Employees	hired	on	or	after	January	1,	2001	are	currently	covered	under	the	same	cash	balance formula.

The	Company	made	voluntary	contributions	of	$317,	$306	and	$0	in	2004,	2003	and	2002,	respectively,	to	its	defined	benefit	pension	plans.	Pension	expense	reflected	in the	Company's	net	income	was	$104,	$120	and	$67	in	2004,	2003	and	2002,	respectively.	The	Company	estimates	its	2005	pension	expense	will	be	approximately	$133, based	on	current	assumptions	provided	below.	The	assumptions	that	primarily	impact	the	amount	of	the	Company's	pension	obligations	and	periodic	pension	expense	are the	weighted-average	discount	rate	and	the	Plan	asset	portfolio's	expected	long-term	rate	of	return.

In	determining	the	discount	rate	assumption,	the	Company	utilizes	current	market	information	provided	by	its	plan	actuaries,	including	a	discounted	cash	flow	analysis	of the	Company's	pension	obligation	and	general	movements	in	the	current	market	environment.	In	particular,	the	Company	uses	an	interest	rate	yield	curve	developed	by	its plan	actuaries	to	make	judgments	pursuant	to	EITF	Topic	No.	D-36,	"Selection	of	Discount	Rates	Used	for	Measuring	Defined	Benefit	Pension	Obligations	and	Obligations of	Postretirement	Benefit	Plans	Other	Than	Pensions".	The	yield	curve	is	comprised	of	bonds	rated	AA	or	higher	with	maturities	primarily	between	zero	and	thirty	years. Based	upon	all	available	information,	it	was	determined	that	5.75%	was	the	appropriate	discount	rate	as	of	December	31,	2004	to	calculate	the	Company's	accrued	benefit liability.	Accordingly,	as	prescribed	by	SFAS	No.	87,	"Employers'	Accounting	for	Pensions",	the	5.75%	discount	rate	will	also	be	used	to	determine	the	Company's	2005 pension	expense.	At	December	31,	2003,	the	discount	rate	was	6.25%.

The	Company	determines	the	long-term	rate	of	return	assumption	for	the	Plan's	asset	portfolio	based	on	analysis	of	the	portfolio's	historical	compound	rates	of	return	since 1979	(the	earliest	date	for	which	comparable	portfolio	data	is	available)	and	over	rolling	5	year,	10	year	and	20	year	periods,	balanced	along	with	future	long-term	return expectations.	The	Company	selected	these	periods,	as	well	as	shorter	durations,	to	assess	the	portfolio's	volatility,	duration	and	total	returns	as	they	relate	to	pension obligation	characteristics,	which	are	influenced	by	the	Company's	workforce	demographics.	While	the	historical	return	of	the	Plan's	portfolio	has	been	11.16%	since	1979, management	maintained	its	long-term	rate	of	return	assumption	at	8.50%	as	of	December	31,	2004	based	on	its	long-term	outlook	with	respect	to	the	markets.

The	Plan's	asset	portfolio	is	generally	structured	over	time	to	include	approximately	60%	equity	securities	(substantially	securities	issued	by	United	States-based companies)	and	40%	fixed	income	securities	(substantially	investment	grade	and	above).	At	December	31,	2004,	the	portfolio	composition	varied	slightly	from	the	targeted mix	and	was	approximately	67%	equity	securities	and	33%	fixed	income	securities	due	in	part	to	a	rebound	in	the	equity	markets	and	declining	interest	rates.

As	provided	for	under	SFAS	No.	87,	the	Company	uses	a	five-year	averaging	method	to	determine	the	market-related	value	of	Plan	assets,	which	is	used	to	determine	the expected	return	component	of	pension	expense.	Under	this	methodology,	asset	gains/losses	that	result	from	returns	that	differ	from	the	Company's	long-term	rate	of	return assumption	are	recognized	in	the	market-related	value	of	assets	on	a	level	basis	over	a	five	year	period.	The	actual	asset	returns	for	the	Plan	of	$289	and	$334	for	the	years ended	December	31,	2004	and	2003,	respectively,	reflect	improved	equity	market	performance,	as	compared	to	expected	returns	of	$201	and	$184	for	the	years	ended December	31,	2004	and	2003,	respectively.	These	differentials	will	be	fully	reflected	in	the	market-related	value	of	Plan	assets	over	the	next	five	years	using	the methodology	described	above.	Despite	the	favorable	2004	actual	asset	return,	the	level	of	unrecognized	net	losses	continues	to	exceed	the	allowable	amortization	corridor as	defined	under	SFAS	No.	87.	Based	on	the	selected	2005	discount	rate	of	5.75%	and	taking	into	account	estimated	future	minimum	funding,	the	differential	between actual	and	expected	performance	in	2004	will	decrease	annual	pension	expense	in	future	years	by	approximately	$4	in	2005	and	by	approximately	$22	in	2009.

At	December	31,	2004,	the	change	in	the	discount	rate	from	6.25%	(as	of	December	31,	2003)	to	5.75%	(as	of	December	31,	2004)	increased	the	projected	benefit obligation	("PBO")	by	$219.	The	effect	of	this	increase	in	PBO	will	serve	to	increase	annual	pension	expense	by	approximately	$16,	assuming	no	future	changes	in discount	rates	going	forward.	In	addition,	the	decrease	in	discount	rate	will	also	increase	the	service	cost	component	of	pension	expense	by	approximately	$9.

Changes	in	the	economic	assumptions	used	to	determine	pension	expense	will	impact	the	Company's	pension	expense.	As	mentioned	earlier,	the	two	economic assumptions	that	have	the	most	impact	on	pension	expense	are	the	discount	rate	and	the	expected	long-term	rate	of	return	on	plan	assets.	To	illustrate	the	impact	of	these assumptions	on	annual	pension	expense	for	2005	and	going	forward,	a	25	basis	point	change	in	the	discount	rate	will	increase/decrease	pension	expense	by	approximately $13,	and	a	25	basis	point	change	in	the	long-term	asset	return	assumption	will	increase/decrease	pension	expense	by	approximately	$6.

The	Company	presently	anticipates	contributing	approximately	$200	to	its	pension	plans	in	2005,	based	upon	certain	economic	and	business	assumptions.	These assumptions	include,	but	are	not	limited	to,	equity	market	performance,	changes	in	interest	rates	and	the	Company's	other	capital	requirements.	The	Company's	2005 required	minimum	funding	contributions	are	estimated	to	be	approximately	$1.

# Capitalization

The	capital	structure	of	The	Hartford	as	of	December	31,	2004	and	2003	consisted	of	debt	and	equity,	summarized	as	follows:

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Short-term\tdebt\t(includes\tcurrent\tmaturities\tof\tlong-term\tdebt) | $621 | $1,050 |
| Long-term\tdebt\t[1] | 4,308 | 4,610 |
| Total\tdebt | $4,929 | $5,660 |
| Equity\texcluding\taccumulated\tother\tcomprehensive\tincome,\tnet\tof\ttax\t("AOCI") | $12,813 | $10,393 |
| AOCI | 1,425 | 1,246 |
| Total\tstockholders'\tequity | $14,238 | $11,639 |
| Total\tcapitalization\tincluding\tAOCI | $19,167 | $17,299 |
| Debt\tto\tequity | 35% | 49% |
| Debt\tto\tcapitalization | 26% | 33% |

The	Hartford's	total	capitalization	increased	$1.9	billion	as	of	December	31,	2004	as	compared	with	December	31,	2003.	This	increase	was	due	to	a	$2.6	billion	increase	in equity	partially	offset	by	a	$731	decrease	in	debt.	The	increase	in	total	stockholders'	equity	is	primarily	due	to	net	income	of	$2.1	billion,	the	issuance	of	common	stock	of $411	and	a	$179	increase	in	AOCI.	The	increase	in	AOCI	is	primarily	the	result	of	Life's	adoption	of	SOP	03-1,	which	resulted	in	a	$292	cumulative	effect	for	unrealized gains	on	securities	in	the	first	quarter	of	2004	related	to	the	reclassification	of	investments	from	separate	account	assets	to	general	account	assets,	partially	offset	by	net unrealized	losses	on	cash-flow	hedging	instruments.	The	decrease	in	total	debt	reflects	repayments	of	commercial	paper	of	$477	and	senior	notes	of	$200	and	the redemption	of	$250	of	junior	subordinated	debentures,	offset	by	the	issuance	of	$200	in	4.75%	senior	notes.

The	following	discussion	describes	the	Company's	debt	financing	activities	for	2004.

For	the	year	ended	December	31,	2004,	the	Company	repaid	$477	of	commercial	paper	utilizing	the	proceeds	from	the	equity	offering	and	internal	sources.

On	March	15,	2004,	HLI	redeemed	its	7.2%	junior	subordinated	debentures	underlying	the	trust	preferred	securities	issued	by	Hartford	Life	Capital	I.

On	March	9,	2004,	the	Company	issued	4.75%	senior	notes	due	March	1,	2014	and	received	net	proceeds	of	$197.	Interest	on	the	notes	is	payable	semi-annually	on	March 1	and	September	1.

For	additional	information	regarding	debt,	see	Note	14	of	Notes	to	Consolidated	Financial	Statements.

# Stockholders'	Equity

Issuance	of	Common	Stock	—	On	January	22,	2004,	The	Hartford	issued	approximately	6.3	million	shares	of	common	stock	pursuant	to	an	underwritten	offering	at	a	price to	the	public	of	$63.25	per	share	and	received	net	proceeds	of	$388.	Subsequently,	on	January	30,	2004,	The	Hartford	issued	approximately	377	thousand	shares	of common	stock	pursuant	to	an	underwritten	offering	at	a	price	to	the	public	of	$63.25	per	share	and	received	net	proceeds	of	$23.	The	Company	used	the	proceeds	from these	issuances	to	repay	$411	of	commercial	paper	issued	in	connection	with	the	CNA	Acquisition.

In	September	2004,	the	Company's	Board	of	Directors	authorized	the	Company	to	repurchase	up	to	$1	billion	of	its	securities.	The	Company's	repurchase	authorization permits	purchases	of	common	stock	and	equity	units,	which	may	be	in	the	open	market	or	through	privately	negotiated	transactions.	The	Company	also	may	enter	into derivative	transactions	to	facilitate	future	repurchases	of	common	stock	and	equity	units.	The	timing	of	repurchases	will	be	dependent	upon	several	factors,	including	the market	price	of	the	Company's	securities,	the	Company's	capital	position,	consideration	of	the	effect	of	any	repurchases	on	the	Company's	financial	strength	or	credit ratings,	and	other	corporate	considerations.	The	repurchase	program	may	be	modified,	extended	or	terminated	by	the	Board	of	Directors	at	any	time.	The	Company	has made	no	repurchases	under	this	program.

Dividends	—	On	February	17,	2005,	The	Hartford's	Board	of	Directors	declared	a	quarterly	dividend	of	$0.29	per	share	payable	on	April	1,	2005	to	shareholders	of	record as	of	March	1,	2005.

On	October	21,	2004,	The	Hartford	declared	a	dividend	on	its	common	stock	of	$0.29	per	share	payable	on	January	3,	2005	to	shareholders	of	record	as	of	December	1, 2004.

AOCI	-	AOCI	increased	by	$179	as	of	December	31,	2004	compared	with	December	31,	2003.	The	increase	in	AOCI	is	primarily	the	result	of	Life's	adoption	of	SOP	03-1, which	resulted	in	a	$292	cumulative	effect	for	unrealized	gains	on	securities	in	the	first	quarter	of	2004	related	to	the	reclassification	of	investments	from	separate	account assets	to	general	account	assets,	partially	offset	by	net	unrealized	losses	on	cash-flow	hedging	instruments.

The	funded	status	of	the	Company's	pension	and	postretirement	plans	is	dependent	upon	many	factors,	including	returns	on	invested	assets	and	the	level	of	market	interest rates.	Declines	in	the	value	of	securities	traded	in	equity	markets	coupled	with	declines	in	long-term	interest	rates	have	had	a	negative	impact	on	the	funded	status	of	the plans.	As	a	result,	the	Company	recorded	a	minimum	pension	liability	as	of	December	31,	2004,	and	2003,	which	resulted	in	an	after-tax	reduction	of	stockholders'	equity of	$480	and	$375	respectively.	This	minimum	pension	liability	did	not	affect	the	Company's	results	of	operations.

For	additional	information	on	stockholders'	equity	and	AOCI	see	Notes	15	and	16,	respectively,	of	Notes	to	Consolidated	Financial	Statements.

| Cash	Flow | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tcash\tprovided\tby\toperating\tactivities | $2,634 | $3,896 | $2,577 |
| Net\tcash\tused\tfor\tinvesting\tactivities | $(2,401) | $(8,387) | $(6,600) |
| Net\tcash\tprovided\tby\tfinancing\tactivities | $477 | $4,608 | $4,037 |
| Cash\t—\tend\tof\tyear | $1,148 | $462 | $377 |

2004	Compared	to	2003	—	Cash	from	operating	activities	primarily	reflects	premium	cash	flows	in	excess	of	claim	payments.	The	decrease	in	cash	provided	by	operating activities	was	due	primarily	to	the	$1.15	billion	settlement	of	the	MacArthur	litigation	in	2004.	Cash	provided	by	financing	activities	decreased	primarily	due	to	lower proceeds	from	investment	and	universal	life-type	contracts	as	a	result	of	the	adoption	of	SOP	03-1,	decreased	capital	raising	activities,	repayment	of	commercial	paper	and early	retirement	of	junior	subordinated	debentures	in	2004.	The	decrease	in	cash	from	financing	activities	and	operating	cash	flows	invested	long-term	accounted	for	the majority	of	the	change	in	cash	used	for	investing	activities.

2003	Compared	to	2002—	The	increase	in	cash	provided	by	operating	activities	was	primarily	the	result	of	strong	premium	cash	flows.	Financing	activities	increased primarily	due	to	capital	raising	activities	related	to	the	2003	asbestos	reserve	addition	and	decreased	due	to	repayments	on	long-term	debt	and	lower	proceeds	from investment	and	universal	life-type	contracts.	The	increase	in	cash	from	financing	activities	accounted	for	the	majority	of	the	change	in	cash	used	for	investing	activities.

Operating	cash	flows	in	each	of	the	last	three	years	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	Capital	Markets	Risk	Management	section	under	"Market	Risk".

# Ratings

Ratings	are	an	important	factor	in	establishing	the	competitive	position	in	the	insurance	and	financial	services	marketplace.	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	level	of	revenues	or	the persistency	of	the	Company's	business	may	be	adversely	impacted.

On	August	4,	2004,	Moody's	affirmed	the	Company's	and	Hartford	Life,	Inc.'s	A3	senior	debt	ratings	as	well	as	the	Aa3	insurance	financial	strength	ratings	of	both	its property-casualty	and	life	insurance	operating	subsidiaries.	In	addition,	Moody's	changed	the	outlook	for	all	of	these	ratings	from	negative	to	stable.

Since	the	announcement	of	the	suit	filed	by	the	New	York	Attorney	General's	Office	against	Marsh	&	McLennan	Companies,	Inc.,	and	Marsh,	Inc.	on	October	14,	2004, the	major	independent	ratings	agencies	have	indicated	that	they	continue	to	monitor	developments	relating	to	the	suit.	On	October	22,	2004,	Standard	&	Poor's	revised	its outlook	on	the	U.S.	property/casualty	commercial	lines	sector	to	negative	from	stable.	On	November	23,	2004,	Standard	&	Poor's	revised	its	outlook	on	the	financial strength	and	credit	ratings	of	the	property-casualty	insurance	subsidiaries	to	negative	from	stable.	The	outlook	on	the	life	insurance	subsidiaries	and	corporate	debt	was unaffected.

The	following	table	summarizes	The	Hartford's	significant	United	States	member	companies'	financial	ratings	from	the	major	independent	rating	organizations	as	of February	25,	2005.

|  | A.M.	Best | Fitch | Standard	&amp;	Poor's | Moody's |
| :--- | :--- | :--- | :--- | :--- |
| Insurance\tFinancial\tStrength\tRatings: |  |  |  |  |
| Hartford\tFire | A+ | AA | AA- | Aa3 |
| Hartford\tLife\tInsurance\tCompany | A+ | AA | AA- | Aa3 |
| Hartford\tLife\tand\tAccident | A+ | AA | AA- | Aa3 |
| Hartford\tLife\tGroup\tInsurance\tCompany | A+ | AA | — | — |
| Hartford\tLife\tand\tAnnuity | A+ | AA | AA- | Aa3 |
| Hartford\tLife\tInsurance\tKK\t(Japan) | — | — | AA- | — |
| Other\tRatings: |  |  |  |  |
| The\tHartford\tFinancial\tServices\tGroup,\tInc.: |  |  |  |  |
| Senior\tdebt | a- | A | A- | A3 |
| Commercial\tpaper | AMB-2 | F1 | A-2 | P-2 |
| Hartford\tCapital\tIII\ttrust\toriginated\tpreferred\tsecurities | bbb | A- | BBB | Baa1 |
| Hartford\tLife,\tInc.: |  |  |  |  |
| Senior\tdebt | a- | A | A- | A3 |
| Commercial\tpaper | — | F1 | A-2 | P-2 |
| Hartford\tLife,\tInc.: |  |  |  |  |
| Capital\tII\ttrust\tpreferred\tsecurities | bbb | A- | BBB | Baa1 |
| Hartford\tLife\tInsurance\tCompany: |  |  |  |  |
| Short\tTerm\tRating | — | — | A-1+ | P-1 |

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

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

The	table	below	sets	forth	statutory	surplus	for	the	Company's	insurance	companies.

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Life\tOperations | $5,119 | $4,470 |
| Property\t&amp;\tCasualty\tOperations | 6,337 | 5,819 |
| Total | $11,456 | $10,289 |

# Risk-based	Capital

The	National	Association	of	Insurance	Commissioners	("NAIC")	has	regulations	establishing	minimum	capitalization	requirements	based	on	risk-based	capital	("RBC") formulas	for	both	life	and	property	and	casualty	companies.	The	requirements	consist	of	formulas,	which	identify	companies	that	are	undercapitalized	and	require	specific regulatory	actions.	The	RBC	formula	for	life	companies	establishes	capital	requirements	relating	to	insurance,	business,	asset	and	interest	rate	risks.	RBC	is	calculated	for property	and	casualty	companies	after	adjusting	capital	for	certain	underwriting,	asset,	credit	and	off-balance	sheet	risks.	As	of	December	31,	2004,	each	of	The	Hartford's insurance	subsidiaries	within	Life	and	Ongoing	Property	&	Casualty	had	more	than	sufficient	capital	to	meet	the	NAIC's	minimum	RBC	requirements.

# Terrorism	Risk	Insurance	Act	of	2002

The	Terrorism	Risk	Insurance	Act	of	2002	established	a	program	that	will	run	through	2005	that	provides	a	backstop	for	insurance-related	losses	resulting	from	any	"act	of terrorism"	certified	by	the	Secretary	of	the	Treasury,	in	concurrence	with	the	Secretary	of	State	and	Attorney	General.	Under	the	program,	the	federal	government	would pay	90%	of	covered	losses	after	an	insurer's	losses	exceed	15%	of	the	Company's	direct	commercial	earned	premiums	in	2004,	up	to	a	combined	annual	aggregate	limit	for the	federal	government	and	all	insurers	of	$100	billion.	If	an	act	of	terrorism	or	acts	of	terrorism	result	in	covered	losses	exceeding	the	$100	billion	annual	limit,	insurers with	losses	exceeding	their	deductibles	will	not	be	responsible	for	additional	losses.	The	statutory	formula	for	determining	a	company's	deductible	for	each	year	is	based	on the	company's	direct	commercial	earned	premiums	for	the	prior	calendar	year	multiplied	by	a	specified	percentage.	The	specified	percentage	is	15%	for	2005.

The	Act	requires	all	property	and	casualty	insurers,	including	The	Hartford,	to	make	terrorism	insurance	available	in	all	of	their	covered	commercial	property	and	casualty insurance	policies	(as	defined	in	the	Act).	The	Act	applies	to	a	significant	portion	of	The	Hartford's	commercial	property	and	casualty	contracts,	but	it	specifically	excludes some	of	The	Hartford's	other	insurance	business,	including	crop	or	livestock	insurance,	reinsurance	and	personal	lines	business.	The	Act	does	not	apply	to	group	life insurance	contracts.

The	Act	is	scheduled	to	expire	on	December	31,	2005.	If	the	Act	is	not	extended	or	renewed,	the	Company	is	exposed	to	terrorism	losses	in	2006	that	would	otherwise	have been	covered	by	the	Act,	including	terrorism	losses	arising	on	policies	written	in	2005	that	expire	after	December	31,	2005.	The	Department	of	Treasury	is	required	to provide	Congress	its	findings	and	recommendations	related	to	the	Act	by	June	30,	2005.	In	the	event	the	Act	is	not	renewed,	or	is	renewed	in	a	materially	different	form, the	Company

may	attempt	to	obtain	appropriate	reinsurance	for	the	related	terrorism	risk,	limit	certain	of	its	writings,	or	pursue	a	solution	encompassing	aspects	of	one	or	all	of	the foregoing	(see	Property	&	Casualty	of	MD&A).

Legal	Proceedings	-	For	a	discussion	regarding	contingencies	related	to	The	Hartford's	legal	proceedings,	please	see	Item	3,	"Legal	Proceedings".

Dependence	on	Certain	Third	Party	Relationships	-	The	Company	distributes	its	annuity,	life	and	certain	property	and	casualty	insurance	products	through	a	variety	of distribution	channels,	including	broker-dealers,	banks,	wholesalers,	its	own	internal	sales	force	and	other	third	party	organizations.	The	Company	periodically	negotiates provisions	and	renewals	of	these	relationships	and	there	can	be	no	assurance	that	such	terms	will	remain	acceptable	to	the	Company	or	such	third	parties.	An	interruption	in the	Company's	continuing	relationship	with	certain	of	these	third	parties	could	materially	affect	the	Company's	ability	to	market	its	products.

For	a	discussion	regarding	contingencies	related	to	the	manner	in	which	The	Hartford	compensates	brokers	and	other	producers,	please	see	"Overview—Broker Compensation"	above.

Regulatory	Developments	-	For	a	discussion	regarding	contingencies	related	to	regulatory	developments	that	affect	The	Hartford,	please	see	"Overview—Regulatory Developments"	above.

On	October	21,	2004,	the	Financial	Services	Agency	("FSA"),	the	Company's	primary	regulator	in	Japan,	issued	regulations	concerning	new	reserving	methodologies	and Solvency	Margin	Ratio	("SMR")	standards	for	variable	annuity	contracts.	The	regulations	allow	a	"Standard"	methodology	and	an	"Alternative"	methodology	to	determine required	reserve	levels	and	SMR	standards.	On	December	27,	2004,	the	FSA	also	issued	administrative	guidelines	that	describe	the	detailed	requirements	under	the	two methodologies.	The	regulations	are	scheduled	to	become	effective	on	April	1,	2005.

The	new	reserve	methodologies	and	SMR	standards	would	only	apply	to	capital	requirements	for	Japanese	regulatory	purposes,	and	are	not	directly	related	to	results	under accounting	principles	generally	accepted	in	the	United	States.	At	this	time,	the	Company	has	decided	to	adopt	the	Standard	methodology.	While	management	is	still evaluating	the	impact	of	the	regulations	on	the	Company's	Japanese	operations,	at	this	time,	based	on	the	Company's	assessment,	the	Standard	methodology	would	require $400	—	$650	of	additional	capital	during	2005.	This	estimate	assumes	that	the	Company	will	successfully	employ	various	capital	management	strategies	within	its discretion	and	control,	which	may	include,	but	are	not	limited	to,	product	re-filing.	The	Company	also	is	currently	evaluating	certain	reinsurance	strategies	which	have	the potential	to	reduce	the	additional	capital	required	to	$100.	These	reinsurance	strategies	would	be	subject	to	regulatory	approval,	which	may	not	be	granted.

For	further	information	on	other	contingencies,	see	Note	12	of	Notes	to	Consolidated	Financial	Statements.

# Legislative	Initiatives

On	July	10,	2003,	the	Senate	Judiciary	Committee	approved	legislation	that	would	have	provided	for	the	creation	of	a	Federal	asbestos	trust	fund	in	place	of	the	current	tort system	for	determining	asbestos	liabilities.	The	108th	Congress	concluded	without	further	action	on	the	proposal.	Although	Judiciary	Committee	chair	Arlen	Specter	may likely	pursue	reform	legislation	in	the	current	Congress,	the	prospects	for	enactment	and	the	ultimate	details	of	any	legislation	creating	a	Federal	asbestos	trust	fund	are uncertain.	Therefore,	any	potential	effect	on	the	Company's	financial	condition	or	results	of	operations	cannot	be	reasonably	estimated	at	this	time.

On	November	18,	2004,	the	House	Financial	Services	Committee	approved	legislation	which	would	have	extended	the	Terrorism	Risk	Insurance	Act	(TRIA)	beyond	its December	31,	2005,	termination.	Efforts	will	continue	in	2005	to	extend	TRIA	and	to	enact	permanent	legislation.	The	prospects	for	enactment	of	a	simple	extension	or more	permanent	legislation	are	uncertain.	Therefore,	any	potential	effect	on	the	Company's	financial	condition	or	results	of	operations	cannot	be	reasonably	estimated	at this	time.

President	Bush	has	proposed	new	investment	vehicles	with	larger	annual	contribution	limits	for	individuals	and	permanent	income	tax	rate	reductions	and	changes	to	the estate	tax.	These	changes	could	have	a	material	effect	on	sales	of	the	Company's	life	insurance	and	investment	products.	Prospects	for	enactment	of	this	legislation	in	2005 are	uncertain.	Therefore,	any	potential	effect	on	the	Company's	financial	condition	or	results	of	operations	from	such	potential	legislative	changes	cannot	be	reasonably estimated	at	this	time.	The	American	Jobs	Creation	Act	of	2004	imposes	new	restrictions	on	non-qualified	deferred	compensation	plans.	The	Company	does	not	believe these	changes	will	have	a	material	effect	on	the	sale	of	its	products.

In	addition,	other	tax	proposals	and	regulatory	initiatives	which	have	been	or	are	being	considered	by	Congress	could	have	a	material	effect	on	the	insurance	business. These	proposals	and	initiatives	include	changes	pertaining	to	the	tax	treatment	of	insurance	companies	and	life	insurance	products	and	annuities,	and	reductions	in	benefits currently	received	by	the	Company	stemming	from	the	dividends	received	deduction.	The	President	has	also	established	an	advisory	panel	to	study	reform	of	the	Internal Revenue	Code.	The	panel	is	scheduled	to	report	its	findings	and	make	recommendations	to	the	Secretary	of	the	Treasury	by	the	end	of	July,	2005.	Legislation	to	restructure the	Social	Security	system	and	expand	private	pension	plans	incentives	also	may	be	considered.	Prospects	for	enactment	and	the	ultimate	effect	of	these	proposals	are uncertain.

Congress	is	expected	to	consider	provisions	regarding	age	discrimination	in	defined	benefit	plans,	transition	relief	for	older	and	longer	service	workers	affected	by	changes to	traditional	defined	benefit	pension	plans	and	the	replacement	of	the	interest	rate	used	to	determine	pension	plan	funding	requirements.	These	changes	could	affect	the Company's	pension	plan.

The	President	has	signed	into	law	the	Class	Action	Fairness	Act	of	2005.	The	Act	will	reduce	the	number	and	type	of	national	class	actions	certified	by	state	judges	by updating	the	federal	rules	on	diversity	jurisdiction.	Any	potential	effect	on	the	Company	cannot	be	reasonably	estimated	at	this	time.

Congress	may	consider	a	number	of	other	legal	reform	proposals	this	year.	Prospects	for	enactment	of	these	proposals	in	2005	are	uncertain.

# Guaranty	Fund	and	Other	Insurance-related	Assessments

In	all	states,	insurers	licensed	to	transact	certain	classes	of	insurance	are	required	to	become	members	of	a	guaranty	fund.	In	most	states,	in	the	event	of	the	insolvency	of	an insurer	writing	any	such	class	of	insurance	in	the	state,	members	of	the	fund	are	assessed	to	pay	certain	claims	of	the	insolvent	insurer.	A	particular	state's	fund	assesses	its members	based	on	their	respective	written	premiums	in	the	state	for	the	classes	of	insurance	in	which	the	insolvent	insurer	is	engaged.	Assessments	are	generally	limited	for any	year	to	one	or	two	percent	of	premiums	written	per	year	depending	on	the	state.	Such	assessments	paid	by	The	Hartford	approximated	$23	in	2004,	$26	in	2003	and $26	in	2002.

The	Hartford	accounts	for	guaranty	fund	and	other	insurance	assessments	in	accordance	with	Statement	of	Position	No.	97-3,	"Accounting	by	Insurance	and	Other Enterprises	for	Insurance-Related	Assessments".	Liabilities	for	guaranty	fund	and	other	insurance-related	assessments	are	accrued	when	an	assessment	is	probable,	when	it can	be	reasonably	estimated,	and	when	the	event	obligating	the	entity	to	pay	an	imposed	or	probable	assessment	has	occurred.	Liabilities	for	guaranty	funds	and	other insurance-related	assessments	are	not	discounted	and	are	included	as	part	of	other	liabilities	in	the	Consolidated	Balance	Sheets.	As	of	December	31,	2004	and	2003,	the liability	balance	was	$215	and	$181,	respectively.	As	of	December	31,	2004	and	2003,	included	in	other	assets	was	$14	of	related	assets	for	premium	tax	offsets.

# IMPACT	OF	NEW	ACCOUNTING	STANDARDS

For	a	discussion	of	accounting	standards,	see	Note	1	of	Notes	to	Consolidated	Financial	Statements.

# Item	7A.	QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

The	information	required	by	this	item	is	set	forth	in	the	Capital	Markets	Risk	Management	section	of	the	Management's	Discussion	and	Analysis	of	Financial	Condition and	Results	of	Operations	and	is	incorporated	herein	by	reference.

# Item	8.	FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# See	Index	to	Consolidated	Financial	Statements	and	Schedules	elsewhere	herein.

# Item	9.	CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

None.

# Item	9A.	CONTROLS	AND	PROCEDURES

# Evaluation	of	disclosure	controls	and	procedures

The	Company's	principal	executive	officer	and	its	principal	financial	officer,	based	on	their	evaluation	of	the	Company's	disclosure	controls	and	procedures	(as	defined	in Exchange	Act	Rule	13a-15(e)),	have	concluded	that	the	Company's	disclosure	controls	and	procedures	are	effective	for	the	purposes	set	forth	in	the	definition	thereof	in Exchange	Act	Rule	13a-15(e)	as	of	December	31,	2004.

# Management's	annual	report	on	internal	control	over	financial	reporting

The	management	of	The	Hartford	Financial	Services	Group,	Inc.	and	its	subsidiaries	("The	Hartford")	is	responsible	for	establishing	and	maintaining	adequate	internal control	over	financial	reporting	for	The	Hartford	as	defined	in	Rule	13a-15(f)	under	the	Securities	Exchange	Act	of	1934.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States.	A	company's	internal	control over	financial	reporting	includes	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that	in	reasonable	detail	accurately	and	fairly	reflect	the	transactions and	dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	accounting	principles	generally	accepted	in	the	United	States,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with authorizations	of	management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of	effectiveness	to future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or	procedures may	deteriorate.

The	Hartford's	management	assessed	its	internal	controls	over	financial	reporting	as	of	December	31,	2004	in	relation	to	criteria	for	effective	internal	control	over	financial reporting	described	in	"Internal	Control	—	Integrated	Framework"	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	Based	on	this assessment	under	those	criteria,	The	Hartford's	management	concluded	that	its	internal	control	over	financial	reporting	was	effective	as	of	December	31,	2004.

The	Hartford's	independent	registered	public	accounting	firm,	Deloitte	&	Touche	LLP,	has	issued	their	attestation	report	on	management's	assessment	of	internal	control over	financial	reporting	which	is	set	forth	below.

# Attestation	report	of	the	Company's	registered	public	accounting	firm

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

To	the	Board	of	Directors	and	Stockholders	of

# Hartford,	Connecticut

We	have	audited	management's	assessment,	included	in	the	accompanying	Management's	Annual	Report	on	Internal	Control	Over	Financial	Reporting,	that	The	Hartford Financial	Services	Group,	Inc.	and	its	subsidiaries	(collectively,	the	"Company")	maintained	effective	internal	control	over	financial	reporting	as	of	December	31,	2004, based	on	the	criteria	established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	The Company's	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over financial	reporting.	Our	responsibility	is	to	express	an	opinion	on	management's	assessment	and	an	opinion	on	the	effectiveness	of	the	Company's	internal	control	over financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audit	included obtaining	an	understanding	of	internal	control	over	financial	reporting,	evaluating	management's	assessment,	testing	and	evaluating	the	design	and	operating	effectiveness of	internal	control,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a	reasonable	basis	for	our opinions.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	by,	or	under	the	supervision	of,	the	company's	principal	executive	and	principal	financial officers,	or	persons	performing	similar	functions,	and	effected	by	the	company's	board	of	directors,	management,	and	other	personnel	to	provide	reasonable	assurance regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles. A	company's	internal	control	over	financial	reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail, accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to permit	preparation	of	financial	statements	in	accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made only	in	accordance	with	authorizations	of	management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of unauthorized	acquisition,	use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	the	inherent	limitations	of	internal	control	over	financial	reporting,	including	the	possibility	of	collusion	or	improper	management	override	of	controls,	material misstatements	due	to	error	or	fraud	may	not	be	prevented	or	detected	on	a	timely	basis.	Also,	projections	of	any	evaluation	of	the	effectiveness	of	the	internal	control	over financial	reporting	to	future	periods	are	subject	to	the	risk	that	the	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with the	policies	or	procedures	may	deteriorate.

In	our	opinion,	management's	assessment	that	the	Company	maintained	effective	internal	control	over	financial	reporting	as	of	December	31,	2004,	is	fairly	stated,	in	all material	respects,	based	on	the	criteria	established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway Commission.	Also	in	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31,	2004,	based	on the	criteria	established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	financial	statements	and financial	statement	schedules	as	of	and	for	the	year	ended	December	31,	2004	of	the	Company	and	our	report	dated	February	24,	2005	expressed	an	unqualified	opinion	on those	financial	statements	and	financial	statement	schedules	and	included	an	explanatory	paragraph	regarding	the	Company's	change	in	its	method	of	accounting	and reporting	for	certain	nontraditional	long-duration	contracts	and	for	separate	accounts	in	2004.

# DELOITTE	&	TOUCHE	LLP

# Changes	in	internal	control	over	financial	reporting

There	was	no	change	in	the	Company's	internal	control	over	financial	reporting	that	occurred	during	the	Company's	fourth	fiscal	quarter	of	2004	that	has	materially affected,	or	is	reasonably	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

# Item	9B.	Other	Information

# PART	III

# Item	10.	DIRECTORS	AND	EXECUTIVE	OFFICERS	OF	THE	HARTFORD

Certain	of	the	information	called	for	by	Item	10	will	be	set	forth	in	the	definitive	proxy	statement	for	the	2005	annual	meeting	of	shareholders	(the	"Proxy	Statement")	to	be filed	by	The	Hartford	with	the	Securities	and	Exchange	Commission	within	120	days	after	the	end	of	the	fiscal	year	covered	by	this	Form	10-K	under	the	captions	"Item	1 Election	of	Directors",	"Common	Stock	Ownership	of	Directors,	Executive	Officers	and	Certain	Shareholders",	and	"Governance	of	the	Company"	and	is	incorporated herein	by	reference.

The	Company	has	adopted	a	Code	of	Ethics	and	Business	Conduct,	which	is	applicable	to	all	employees	of	the	Company,	including	the	principal	executive	officer,	the principal	financial	officer	and	the	principal	accounting	officer.	The	Code	of	Ethics	and	Business	Conduct	is	available	on	the	Company's	website	at:	www.thehartford.com.

# Executive	Officers	of	The	Hartford

Information	about	the	executive	officers	of	The	Hartford	who	are	also	nominees	for	election	as	directors	will	be	set	forth	in	The	Hartford's	Proxy	Statement.	Set	forth	below is	information	about	the	other	executive	officers	of	the	Company:

# ANN	M.	DE	RAISMES

(Executive	Vice	President,	Human	Resources)

Ms.	de	Raismes,	54,	has	held	the	position	of	Executive	Vice	President,	Human	Resources,	of	the	Company	since	May	2004.	She	previously	served	as	Group	Senior	Vice President,	Human	Resources,	of	the	Company	from	March	2003	to	May	2004,	and	as	Senior	Vice	President	of	Human	Resources	of	Hartford	Life,	Inc.	("Hartford	Life"),	a wholly-owned	subsidiary	of	the	Company,	from	1997	to	March	2003.

# DAVID	M.	JOHNSON

(Executive	Vice	President	and	Chief	Financial	Officer)

Mr.	Johnson,	44,	has	held	the	position	of	Executive	Vice	President	and	Chief	Financial	Officer	of	the	Company	since	May	1,	2001.	Prior	to	joining	the	Company, Mr.	Johnson	was	Senior	Executive	Vice	President	and	Chief	Financial	Officer	of	Cendant	Corporation	since	November	1998	and	Managing	Director,	Investment	Banking Division,	at	Merrill	Lynch,	Pierce,	Fenner	and	Smith	from	1986	to	1998.

# ROBERT	J.	PRICE

(Senior	Vice	President	and	Controller)

Mr.	Price,	54,	is	Senior	Vice	President	and	Controller	of	the	Company.	Mr.	Price	joined	the	Company	in	June	2002	in	his	current	role.	Prior	to	joining	the	Company, Mr.	Price	was	President	and	Chief	Executive	Officer	of	CitiInsurance,	the	international	insurance	indirect	subsidiary	of	Citigroup,	Inc.,	from	May	2000	to	December	2001. From	April	1989	to	April	2000,	Mr.	Price	held	various	positions	at	Aetna,	Inc.,	including	Senior	Vice	President	and	Chief	Financial	Officer	of	Aetna	International	and	Vice President	and	Corporate	Controller.

# NEAL	S.	WOLIN

(Executive	Vice	President	and	General	Counsel)

Mr.	Wolin,	43,	has	held	the	position	of	Executive	Vice	President	and	General	Counsel	since	joining	the	Company	on	March	20,	2001.	Previously,	Mr.	Wolin	served	as General	Counsel	of	the	U.S.	Department	of	the	Treasury	from	1999	to	January	2001.	In	that	capacity,	he	headed	Treasury's	legal	division,	composed	of	2,000	lawyers supporting	all	of	Treasury's	offices	and	bureaus,	including	the	Internal	Revenue	Service,	Customs,	Secret	Service,	Public	Debt,	the	Office	of	Thrift	Supervision,	the Financial	Management	Service,	the	U.S.	Mint	and	the	Bureau	of	Engraving	and	Printing.	Mr.	Wolin	served	as	the	Deputy	General	Counsel	of	the	Department	of	the Treasury	from	1995	to	1999.	Prior	to	joining	the	Treasury	Department,	he	served	in	the	White	House,	first	as	the	Executive	Assistant	to	the	National	Security	Advisor	and then	as	the	Deputy	Legal	Advisor	to	the	National	Security	Council.	Mr.	Wolin	joined	the	U.S.	Government	in	1991	as	special	assistant	to	the	Directors	of	Central Intelligence,	William	H.	Webster,	Robert	M.	Gates	and	R.	James	Woolsey.

# DAVID	M.	ZNAMIEROWSKI

(Executive	Vice	President	and	Chief	Investment	Officer)

Mr.	Znamierowski,	44,	has	served	as	Executive	Vice	President	of	the	Company	since	May	2004	and	as	Chief	Investment	Officer	of	the	Company	and	President	of	Hartford Investment	Management,	a	wholly-owned	subsidiary	of	the	Company,	since	November	2001.	From	November	2001	to	May	2004,	he	served	as	Group	Senior	Vice President	of	the	Company.	Previously,	he	was	Senior	Vice	President	and	Chief	Investment	Officer	for	the	Company's	life	operations	from	May	1999	to	November	2001, Vice	President	from

September	1998	to	May	1999	and	Vice	President,	Investment	Strategy	from	February	1997	to	September	1998.	Prior	to	joining	the	Company	in	April	1996,

Mr.	Znamierowski	held	a	variety	of	positions	in	the	investment	industry,	including	portfolio	manager	and	Vice	President	of	Investment	Strategy	and	Policy	for	Aetna	Life &	Casualty	Company	from	1991	to	April	1996	and	Vice	President	of	Corporate	Finance	for	Salomon	Brothers	Inc	from	1986	to	1991.	He	also	serves	as	a	director	of	each of	The	Hartford-sponsored	mutual	funds.

# Item	11.	EXECUTIVE	COMPENSATION

The	information	called	for	by	Item	11	will	be	set	forth	in	the	Proxy	Statement	under	the	captions	"Compensation	of	Executive	Officers",	"Governance	of	the	Company- Compensation	of	Directors"	and	"Performance	of	the	Common	Stock"	and	is	incorporated	herein	by	reference.

# Item	12.	SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT

Certain	of	the	information	called	for	by	Item	12	will	be	set	forth	in	the	Proxy	Statement	under	the	caption	"Common	Stock	Ownership	of	Directors,	Executive	Officers	and Certain	Shareholders"	and	is	incorporated	herein	by	reference.

# Equity	Compensation	Plan	Information

The	following	table	provides	information	as	of	December	31,	2004	about	the	securities	authorized	for	issuance	under	the	Company's	equity	compensation	plans.	The Company	maintains	The	Hartford	Incentive	Stock	Plan,	The	Hartford	Employee	Stock	Purchase	Plan	(the	"ESPP"),	and	The	Hartford	Restricted	Stock	Plan	for	Non-

Employee	Directors	(the	"Director's	Plan"),	pursuant	to	which	it	may	grant	equity	awards	to	eligible	persons.	In	addition,	the	Company	maintains	the	2000	PLANCO	Non-

employee	Option	Plan	(the	"PLANCO	Plan"),	pursuant	to	which	it	may	grant	awards	to	non-employee	wholesalers	of	PLANCO	products.

Number	of	Securities	to	be

Weighted-average

Number	of	Securities	Remaining

# [1] Of	these	shares,	2,715,202	shares	remain	available	for	purchase	under	the	ESPP.

[2] Of	these	shares,	a	maximum	of	2,460,154	shares	remain	available	for	issuance	as	restricted	stock	or	performance	shares	under	The	Hartford	Incentive	Stock	Plan.

[3] Of	these	shares,	125,349	shares	remain	available	for	issuance	under	the	Director's	Plan.

# Summary	Description	of	the	2000	PLANCO	Non-Employee	Option	Plan

The	Company's	Board	of	Directors	adopted	the	PLANCO	Plan	on	July	20,	2000,	and	amended	it	on	February	20,	2003	to	increase	the	number	of	shares	of	the	Company's common	stock	subject	to	the	plan	to	450,000	shares.	The	stockholders	of	the	Company	have	not	approved	the	PLANCO	Plan.

Eligibility	-	Any	non-employee	independent	contractor	serving	on	the	wholesale	sales	force	as	an	insurance	agent	who	is	an	exclusive	agent	of	the	Company	or	who	derives more	than	50%	of	his	or	her	annual	income	from	the	Company	is	eligible.

Terms	of	options	-	Nonqualified	stock	options	("NQSOs")	to	purchase	shares	of	common	stock	are	available	for	grant	under	the	PLANCO	Plan.	The	administrator	of	the PLANCO	Plan,	the	Compensation	and	Personnel	Committee,	(i)	determines	the	recipients	of	options	under	the	PLANCO	Plan,	(ii)	determines	the	number	of	shares	of common	stock	covered	by	such	options,	(iii)	determines	the	dates	and	the	manner	in	which	options	become	exercisable	(which	is	typically	in	three	equal	annual	installments beginning	on	the	first	anniversary	of	the	date	of	grant),	(iv)	sets	the	exercise	price	of	options	(which	may	be	less	than,	equal	to	or	greater	than	the	fair	market	value	of common	stock	on	the	date	of	grant)	and	(v)	determines	the	other	terms	and	conditions	of	each	option.	Payment	of	the	exercise	price	may	be	made	in	cash,	other	shares	of the	Company's	common	stock	or	through	a	same	day	sale	program.	The	term	of	an	NQSO	may	not	exceed	ten	years	and	two	days	from	the	date	of	grant.

If	an	optionee's	required	relationship	with	the	Company	terminates	for	any	reason,	other	than	for	cause,	any	exercisable	options	remain	exercisable	for	a	fixed	period	of four	months,	not	to	exceed	the	remainder	of	the	option's	term.	Any	options	that	are	not	exercisable	at	the	time	of	such	termination	are	cancelled	on	the	date	of	such termination.	If	the	optionee's	required	relationship	is	terminated	for	cause,	the	options	are	canceled	immediately.

Acceleration	in	Connection	with	a	Change	in	Control	-	Upon	the	occurrence	of	a	change	in	control,	each	option	outstanding	on	the	date	of	such	change	in	control,	and which	is	not	then	fully	vested	and	exercisable,	shall	immediately	vest	and	become	exercisable.	In	general,	a	"Change	in	Control"	will	be	deemed	to	have	occurred	upon	the acquisition	of	20%	or	more	of	the	outstanding	voting	stock	of	the	Company,	a	tender	or	exchange	offer	to	acquire	15%	or	more	of	the	outstanding	voting	stock	of	the Company,	certain	mergers	or	corporate	transactions	resulting	in	the	shareholders	of	the	Company	before	the	transactions	owning	less	than	55%	of	the	entity	surviving	the transactions,	certain	transactions	involving	a	transfer	of	substantially	all	of	the	Company's	assets	or	a	change	in	greater	than	50%	of	the	Board	members	over	a	two	year period.	See	Note	18	of	Notes	to	Consolidated	Financial	Statements	for	a	description	of	The	Hartford	Incentive	Stock	Plan	and	the	ESPP.

# Item	13.	CERTAIN	RELATIONSHIPS	AND	RELATED	TRANSACTIONS

Any	information	called	for	by	Item	13	will	be	set	forth	in	the	Proxy	Statement	under	the	caption	"Common	Stock	Ownership	of	Directors,	Executive	Officers	and	Certain Shareholders"	and	is	incorporated	herein	by	reference.

# Item	14.	PRINCIPAL	ACCOUNTING	FEES	AND	SERVICES

The	information	called	for	by	Item	14	will	be	set	forth	in	the	Proxy	Statement	under	the	caption	"Audit	Committee	Charter	and	Report	Concerning	Financial	Matters	— Fees	to	Independent	Auditor	for	Years	Ended	December	31,	2004	and	2003"	and	is	incorporated	herein	by	reference.

# PART	IV

# Item	15.	EXHIBITS,	FINANCIAL	STATEMENT	SCHEDULES	AND	REPORTS	ON	FORM	8-K

(a) Documents	filed	as	a	part	of	this	report:

(1) Consolidated	Financial	Statements.	See	Index	to	Consolidated	Financial	Statements	elsewhere	herein.

(2) Consolidated	Financial	Statement	Schedules.	See	Index	to	Consolidated	Financial	Statement	Schedules	elsewhere	herein.

(3) Exhibits.	See	Exhibit	Index	elsewhere	herein.

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS	AND	SCHEDULES

We	have	audited	the	accompanying	consolidated	balance	sheets	of	The	Hartford	Financial	Services	Group,	Inc.	and	its	subsidiaries	(collectively,	the	"Company")	as	of December	31,	2004	and	2003,	and	the	related	consolidated	statements	of	operations,	changes	in	stockholders'	equity,	comprehensive	income,	and	cash	flows	for	each	of	the three	years	in	the	period	ended	December	31,	2004.	Our	audits	also	included	the	financial	statement	schedules	listed	in	the	Index	at	Item	15.	These	financial	statements	and financial	statement	schedules	are	the	responsibility	of	the	Company's	management.	Our	responsibility	is	to	express	an	opinion	on	these	financial	statements	and	financial statement	schedules	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit	includes	examining,	on	a	test	basis, evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the	accounting	principles	used	and	significant	estimates	made by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	such	consolidated	financial	statements	present	fairly,	in	all	material	respects,	the	financial	position	of	The	Hartford	Financial	Services	Group,	Inc.	and	its subsidiaries	as	of	December	31,	2004	and	2003,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2004,	in conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Also,	in	our	opinion,	such	financial	statement	schedules,	when	considered	in relation	to	the	basic	consolidated	financial	statements	taken	as	a	whole,	present	fairly,	in	all	material	respects,	the	information	set	forth	therein.

As	discussed	in	Note	1	of	the	consolidated	financial	statements,	the	Company	changed	its	method	of	accounting	and	reporting	for	certain	nontraditional	long-duration contracts	and	for	separate	accounts	in	2004.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	effectiveness	of	the	Company's	internal control	over	financial	reporting	as	of	December	31,	2004,	based	on	the	criteria	established	in	Internal	Control—Integrated	Framework	issued	by	the	Committee	of Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated	February	24,	2005	expressed	an	unqualified	opinion	on	management's	assessment	of	the effectiveness	of	the	Company's	internal	control	over	financial	reporting	and	an	unqualified	opinion	on	the	effectiveness	of	the	Company's	internal	control	over	financial reporting.

# Consolidated	Statements	of	Operations

| (In	millions,	except	for	per	share	data) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Revenues |  |  |  |
| Earned\tpremiums | $13,566 | $11,891 | $10,811 |
| Fee\tincome | 3,252 | 2,760 | 2,577 |
| Net\tinvestment\tincome | 5,162 | 3,233 | 2,929 |
| Other\trevenues | 437 | 556 | 476 |
| Net\trealized\tcapital\tgains\t(losses) | 276 | 293 | (376) |
| Total\trevenues | 22,693 | 18,733 | 16,417 |
| Benefits,\tclaims\tand\texpenses |  |  |  |
| Benefits,\tclaims\tand\tclaim\tadjustment\texpenses | 13,640 | 13,548 | 10,034 |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 2,828 | 2,411 | 2,241 |
| Insurance\toperating\tcosts\tand\texpenses | 2,776 | 2,314 | 2,220 |
| Interest\texpense | 251 | 271 | 265 |
| Other\texpenses | 675 | 739 | 589 |
| Total\tbenefits,\tclaims\tand\texpenses | 20,170 | 19,283 | 15,349 |
| Income\t(loss)\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 2,523 | (550) | 1,068 |
| Income\ttax\texpense\t(benefit) | 385 | (459) | 68 |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchange | 2,138 | (91) | 1,000 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax | (23) | — | — |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |
| Basic\tearnings\t(loss)\tper\tshare |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchange | $7.32 | $(0.33) | $4.01 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax | (0.08) | — | — |
| Net\tincome\t(loss) | $7.24 | $(0.33) | $4.01 |
| Diluted\tearnings\t(loss)\tper\tshare |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchange | $7.20 | $(0.33) | $3.97 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax | (0.08) | — | — |
| Net\tincome\t(loss) | $7.12 | $(0.33) | $3.97 |
| Weighted\taverage\tcommon\tshares\toutstanding | 292.3 | 272.4 | 249.4 |
| Weighted\taverage\tcommon\tshares\toutstanding\tand\tdilutive\tpotential\tcommon\tshares | 297.0 | 272.4 | 251.8 |
| Cash\tdividends\tdeclared\tper\tshare | $1.13 | $1.09 | $1.05 |

# See	Notes	to	Consolidated	Financial	Statements.

# Consolidated	Balance	Sheets

| (In	millions,	except	for	share	data) | 2004 | 2003 |
| :--- | :--- | :--- |
| Assets |  |  |
| Investments |  |  |
| Fixed\tmaturities,\tavailable-for-sale,\tat\tfair\tvalue\t(amortized\tcost\tof\t$71,359\tand\t$58,127) | $75,100 | $61,263 |
| Equity\tsecurities,\theld\tfor\ttrading,\tat\tfair\tvalue\t(cost\tof\t$11,569\tand\t$—) | 13,634 | — |
| Equity\tsecurities,\tavailable-for-sale,\tat\tfair\tvalue\t(cost\tof\t$742\tand\t$505) | 832 | 565 |
| Policy\tloans,\tat\toutstanding\tbalance | 2,662 | 2,512 |
| Other\tinvestments | 2,180 | 1,507 |
| Total\tinvestments | 94,408 | 65,847 |
| Cash | 1,148 | 462 |
| Premiums\treceivable\tand\tagents'\tbalances | 3,235 | 3,085 |
| Reinsurance\trecoverables | 6,178 | 5,958 |
| Deferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 8,509 | 7,599 |
| Deferred\tincome\ttaxes | 419 | 845 |
| Goodwill | 1,720 | 1,720 |
| Property\tand\tequipment,\tnet | 643 | 593 |
| Other\tassets | 3,452 | 3,108 |
| Separate\taccount\tassets | 140,023 | 136,633 |
| Total\tassets | $259,735 | $225,850 |
| Liabilities |  |  |
| Reserve\tfor\tfuture\tpolicy\tbenefits\tand\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses |  |  |
| Property\tand\tcasualty | $21,329 | $21,715 |
| Life | 12,246 | 11,402 |
| Other\tpolicyholder\tfunds\tand\tbenefits\tpayable | 52,833 | 26,185 |
| Unearned\tpremiums | 4,807 | 4,423 |
| Short-term\tdebt | 621 | 1,050 |
| Long-term\tdebt | 4,308 | 4,610 |
| Other\tliabilities | 9,330 | 8,193 |
| Separate\taccount\tliabilities | 140,023 | 136,633 |
| Total\tliabilities | 245,497 | 214,211 |
| Commitments\tand\tContingencies\t(Note\t12) |  |  |
| Stockholders'\tEquity |  |  |
|  | 3 | 3 |
| Additional\tpaid-in\tcapital | 4,567 | 3,929 |
| Retained\tearnings | 8,283 | 6,499 |
| Treasury\tstock,\tat\tcost\t2,991,820\tand\t2,959,692\tshares | (40) | (38) |
| Accumulated\tother\tcomprehensive\tincome | 1,425 | 1,246 |
| Total\tstockholders'\tequity | 14,238 | 11,639 |
| Total\tliabilities\tand\tstockholders'\tequity | $259,735 | $225,850 |

# Consolidated	Statements	of	Changes	in	Stockholders'	Equity

| (In	millions,	except	for	share	data) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Common\tStock/Additional\tPaid-in\tCapital |  |  |  |
| Balance\tat\tbeginning\tof\tyear | $3,932 | $2,787 | $2,364 |
| Issuance\tof\tcommon\tstock\tin\tunderwritten\tofferings | 411 | 1,161 | 330 |
| Issuance\tof\tequity\tunits | — | (112) | (33) |
| Issuance\tof\tshares\tand\tcompensation\texpense\tassociated\twith\tincentive\tand\tstock\tcompensation\tplans | 200 | 83 | 101 |
| Tax\tbenefit\ton\temployee\tstock\toptions\tand\tawards | 27 | 13 | 25 |
| Balance\tat\tend\tof\tyear | 4,570 | 3,932 | 2,787 |
| Retained\tEarnings |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 6,499 | 6,890 | 6,152 |
| Net\tincome\t(loss) | 2,115 | (91) | 1,000 |
| Dividends\tdeclared\ton\tcommon\tstock | (331) | (300) | (262) |
| Balance\tat\tend\tof\tyear | 8,283 | 6,499 | 6,890 |
| Treasury\tStock,\tat\tCost |  |  |  |
| Balance\tat\tbeginning\tof\tyear | (38) | (37) | (37) |
| Return\tof\tshares\tto\ttreasury\tstock\tunder\tincentive\tand\tstock\tcompensation\tplans | (2) | (1) | — |
| Balance\tat\tend\tof\tyear | (40) | (38) | (37) |
| Accumulated\tOther\tComprehensive\tIncome,\tNet\tof\tTax |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 1,246 | 1,094 | 534 |
| Change\tin\tunrealized\tgain/loss\ton\tsecurities |  |  |  |
| Change\tin\tunrealized\tgain/loss\ton\tsecurities | 106 | 320 | 838 |
| Cumulative\teffect\tof\taccounting\tchange | 292 | — | — |
| Change\tin\tnet\tgain/loss\ton\tcash-flow\thedging\tinstruments | (173) | (170) | 65 |
| Foreign\tcurrency\ttranslation\tadjustments | 59 | (6) | 21 |
| Minimum\tpension\tliability\tadjustment | (105) | 8 | (364) |
| Total\tother\tcomprehensive\tincome | 179 | 152 | 560 |
| Balance\tat\tend\tof\tyear | 1,425 | 1,246 | 1,094 |
| Total\tstockholders'\tequity | $14,238 | $11,639 | $10,734 |
| Outstanding\tShares\t(in\tthousands) |  |  |  |
| Balance\tat\tbeginning\tof\tyear | 283,380 | 255,241 | 245,536 |
| Issuance\tof\tcommon\tstock\tin\tunderwritten\tofferings | 6,703 | 26,377 | 7,303 |
| Issuance\tof\tshares\tunder\tincentive\tand\tstock\tcompensation\tplans | 4,157 | 1,778 | 2,402 |
| Return\tof\tshares\tto\ttreasury\tstock\tunder\tincentive\tand\tstock\tcompensation\tplans | (32) | (16) | — |
| Balance\tat\tend\tof\tyear | 294,208 | 283,380 | 255,241 |

# Consolidated	Statements	of	Comprehensive	Income

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| (In\tmillions) | 2004 | 2003 | 2002 |
| Comprehensive\tIncome |  |  |  |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |
| Other\tComprehensive\tIncome |  |  |  |
| Change\tin\tunrealized\tgain/loss\ton\tsecurities |  |  |  |
| Change\tin\tunrealized\tgain/loss\ton\tsecurities | 106 | 320 | 838 |
| Cumulative\teffect\tof\taccounting\tchange | 292 | — | — |
| Change\tin\tnet\tgain/loss\ton\tcash-flow\thedging\tinstruments | (173) | (170) | 65 |
| Foreign\tcurrency\ttranslation\tadjustments | 59 | (6) | 21 |
| Minimum\tpension\tliability\tadjustment | (105) | 8 | (364) |
| Total\tother\tcomprehensive\tincome | 179 | 152 | 560 |
| Total\tcomprehensive\tincome | $2,294 | $61 | $1,560 |

# Consolidated	Statements	of	Cash	Flows

| (In	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |
| Adjustments\tto\treconcile\tnet\tincome\t(loss)\tto\tnet\tcash\tprovided\tby\toperating\tactivities |  |  |  |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 2,828 | 2,411 | 2,241 |
| Additions\tto\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | (3,914) | (3,313) | (2,859) |
| Change\tin: |  |  |  |
| Reserve\tfor\tfuture\tpolicy\tbenefits,\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses\tand\tunearned\tpremiums | 877 | 5,597 | 1,654 |
| Reinsurance\trecoverables | 128 | (1,105) | 191 |
| Receivables | (395) | (47) | (280) |
| Payables\tand\taccruals | (11) | 576 | (2) |
| Accrued\tand\tdeferred\tincome\ttaxes | 529 | (327) | 202 |
| Net\trealized\tcapital\t(gains)\tlosses | (276) | (293) | 376 |
| Net\tincrease\tin\tequity\tsecurities,\theld\tfor\ttrading | (7,409) | — | — |
| Net\treceipts\tfrom\tinvestment\tcontracts\tcredited\tto\tpolicyholder\taccounts\tassociated\twith\tequity\tsecurities,\theld\tfor |  |  |  |
| trading | 7,909 | — | — |
| Depreciation\tand\tamortization | 274 | 219 | 104 |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax | 23 | — | — |
| Other,\tnet | (44) | 269 | (50) |
| Net\tcash\tprovided\tby\toperating\tactivities | 2,634 | 3,896 | 2,577 |
| Investing\tActivities |  |  |  |
| Purchase\tof\tinvestments | (27,950) | (28,918) | (21,338) |
| Sale\tof\tinvestments | 21,592 | 17,320 | 12,017 |
| Maturity\tof\tinvestments | 4,195 | 3,731 | 2,910 |
| Purchase\tof\tbusiness/affiliate,\tnet\tof\tcash\tacquired | (58) | (464) | — |
| Sale\tof\taffiliates | — | 33 | — |
| Additions\tto\tproperty\tand\tequipment,\tnet | (180) | (89) | (189) |
| Net\tcash\tused\tfor\tinvesting\tactivities | (2,401) | (8,387) | (6,600) |
| Financing\tActivities |  |  |  |
| (Repayment)\tissuance\tof\tshort-term\tdebt,\tnet | (477) | 535 | 16 |
| Issuance\tof\tlong-term\tdebt | 197 | 1,235 | 617 |
| Repayment\tof\tlong-term\tdebt | (450) | (500) | (300) |
| Issuance\tof\tcommon\tstock\tin\tunderwritten\toffering | 411 | 1,161 | 330 |
| Net\treceipts\tfrom\tinvestment\tand\tuniversal\tlife-type\tcontracts\tcharged\tagainst\tpolicyholder\taccounts | 962 | 2,409 | 3,539 |
| Dividends\tpaid | (325) | (291) | (257) |
| Return\tof\tshares\tto\ttreasury\tunder\tincentive\tand\tstock\tcompensation\tplans | (2) | (1) | — |
| Proceeds\tfrom\tissuances\tof\tshares\tunder\tincentive\tand\tstock\tcompensation\tplans | 161 | 60 | 92 |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 477 | 4,608 | 4,037 |
| Foreign\texchange\trate\teffect\ton\tcash | (24) | (32) | 10 |
| Net\tincrease\tin\tcash | 686 | 85 | 24 |
| Cash\t–\tbeginning\tof\tyear | 462 | 377 | 353 |
| Cash\t–\tend\tof\tyear | $1,148 | $462 | $377 |
| Supplemental\tDisclosure\tof\tCash\tFlow\tInformation: |  |  |  |
| Net\tCash\tPaid\t(Received)\tDuring\tthe\tYear\tfor: |  |  |  |
| Income\ttaxes | $32 | $(107) | $(102) |
| Interest | $246 | $233 | $258 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

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

# Consolidation

The	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.	Entities	in	which	The	Hartford	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.

In	2004,	the	Company	sponsored	and	purchased	an	investment	interest	in	a	synthetic	collateralized	loan	obligation	transaction,	a	variable	interest	entity	("VIE")	for	which the	Company	determined	itself	to	be	the	primary	beneficiary.	Accordingly,	the	assets,	liabilities	and	results	of	operations	of	the	entity	are	included	in	the	Company's consolidated	financial	statements.	For	further	discussion	of	the	synthetic	collateralized	loan	transaction	see	Note	4.

On	December	31,	2003,	the	Company	acquired	the	group	life	and	accident,	and	short-term	and	long-term	disability	business	of	CNA	Financial	Corporation.	Revenues	and expenses	of	this	acquired	business	are	included	in	the	Company's	results	of	operations	subsequent	to	December	31,	2003.	For	further	discussion	of	the	CNA	Financial Corporation	acquisition,	see	Note	20.

# Use	of	Estimates

The	preparation	of	financial	statements,	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America,	requires	management	to	make estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and	disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	financial	statements and	the	reported	amounts	of	revenues	and	expenses	during	the	reporting	period.	Actual	results	could	differ	from	those	estimates.

The	most	significant	estimates	include	those	used	in	determining	insurance	reserves;	Life	operations	deferred	policy	acquisition	costs	and	present	value	of	future	profits;	the valuation	of	investments	and	derivative	instruments	and	the	evaluation	of	other-than-temporary	impairments;	pension	and	other	postretirement	benefits;	and	contingencies.

# Reclassifications

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

# Adoption	of	New	Accounting	Standards

In	July	2003,	the	American	Institute	of	Certified	Public	Accountants	("AICPA")	issued	Statement	of	Position	("SOP")	03-1,	"Accounting	and	Reporting	by	Insurance Enterprises	for	Certain	Nontraditional	Long-Duration	Contracts	and	for	Separate	Accounts"	("SOP	03-1").	SOP	03-1	addresses	a	wide	variety	of	topics,	some	of	which have	a	significant	impact	on	the	Company.	The	major	provisions	of	SOP	03-1	require:

•		Recognizing	expenses	for	a	variety	of	contracts	and	contract	features,	including	guaranteed	minimum	death	benefits	("GMDB"),	certain	death	benefits	on	universal-life type	contracts	and	annuitization	options,	on	an	accrual	basis	versus	the	previous	method	of	recognition	upon	payment;

•		Reporting	and	measuring	assets	and	liabilities	of	certain	separate	account	products	as	general	account	assets	and	liabilities	when	specified	criteria	are	not	met;

•		Reporting	and	measuring	the	Company's	interest	in	its	separate	accounts	as	general	account	assets	based	on	the	insurer's	proportionate	beneficial	interest	in	the	separate account's	underlying	assets;	and

•		Capitalizing	sales	inducements	that	meet	specified	criteria	and	amortizing	such	amounts	over	the	life	of	the	contracts	using	the	same	methodology	as	used	for	amortizing deferred	acquisition	costs	("DAC").

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS	(continued)

# 1.	Basis	of	Presentation	and	Accounting	Policies	(continued)

SOP	03-1	was	effective	for	financial	statements	for	fiscal	years	beginning	after	December	15,	2003.	At	the	date	of	initial	application,	January	1,	2004,	the	cumulative	effect of	the	adoption	of	SOP	03-1	on	net	income	and	other	comprehensive	income	was	comprised	of	the	following	individual	impacts	shown	net	of	income	tax	benefit	of	$12:

| Components	of	Cumulative	Effect	of	Adoption | Net	Income | Other	Comprehensive	Income |
| :--- | :--- | :--- |
| Establishing\tGMDB\tand\tother\tbenefit\treserves\tfor\tannuity\tcontracts | $(54) | $— |
| Reclassifying\tcertain\tseparate\taccounts\tto\tgeneral\taccount | 30 | 294 |
| Other | 1 | (2) |
| Total\tcumulative\teffect\tof\tadoption | $(23) | $292 |

In	May	2003,	the	Financial	Accounting	Standards	Board	("FASB")	issued	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	150,	"Accounting	for	Certain Financial	Instruments	with	Characteristics	of	both	Liabilities	and	Equity".	SFAS	No.	150	establishes	standards	for	classifying	and	measuring	as	liabilities	certain	financial instruments	that	embody	obligations	of	the	issuer	and	have	characteristics	of	both	liabilities	and	equity.	Generally,	SFAS	No.	150	requires	liability	classification	for	two broad	classes	of	financial	instruments:	(a)	instruments	that	represent,	or	are	indexed	to,	an	obligation	to	buy	back	the	issuer's	shares	regardless	of	whether	the	instrument	is settled	on	a	net-cash	or	gross-physical	basis	and	(b)	obligations	that	(i)	can	be	settled	in	shares	but	derive	their	value	predominately	from	another	underlying	instrument	or index	(e.g.	security	prices,	interest	rates,	and	currency	rates),	(ii)	have	a	fixed	value,	or	(iii)	have	a	value	inversely	related	to	the	issuer's	shares.	Mandatorily	redeemable equity	and	written	options	requiring	the	issuer	to	buyback	shares	are	examples	of	financial	instruments	that	should	be	reported	as	liabilities	under	this	new	guidance.	SFAS No.	150	specifies	accounting	only	for	certain	freestanding	financial	instruments	and	does	not	affect	whether	an	embedded	derivative	must	be	bifurcated	and	accounted	for separately.	SFAS	No.	150	was	effective	for	instruments	entered	into	or	modified	after	May	31,	2003	and	for	all	other	instruments	beginning	with	the	first	interim	reporting period	beginning	after	June	15,	2003.	Adoption	of	this	statement	did	not	have	a	material	impact	on	the	Company's	consolidated	financial	condition	or	results	of	operations.

In	January	2003,	the	FASB	issued	Interpretation	No.	46,	"Consolidation	of	Variable	Interest	Entities,	an	interpretation	of	ARB	No.	51"	("FIN	46"),	which	required	an enterprise	to	assess	whether	consolidation	of	an	entity	is	appropriate	based	upon	its	interests	in	a	variable	interest	entity.	A	VIE	is	an	entity	in	which	the	equity	investors	do not	have	the	characteristics	of	a	controlling	financial	interest	or	do	not	have	sufficient	equity	at	risk	for	the	entity	to	finance	its	activities	without	additional	subordinated financial	support	from	other	parties.	The	initial	determination	of	whether	an	entity	is	a	VIE	shall	be	made	on	the	date	at	which	an	enterprise	becomes	involved	with	the entity.	An	enterprise	shall	consolidate	a	VIE	if	it	has	a	variable	interest	that	will	absorb	a	majority	of	the	VIEs	expected	losses	if	they	occur,	receive	a	majority	of	the entity's	expected	residual	returns	if	they	occur	or	both.	FIN	46	was	effective	immediately	for	new	VIEs	established	or	purchased	subsequent	to	January	31,	2003.	For	VIEs established	or	purchased	subsequent	to	January	31,	2003,	the	adoption	of	FIN	46	did	not	have	a	material	impact	on	the	Company's	consolidated	financial	condition	or results	of	operations	as	there	were	no	material	VIEs	which	required	consolidation.

In	December	2003,	the	FASB	issued	a	revised	version	of	FIN	46	("FIN	46R"),	which	incorporated	a	number	of	modifications	and	changes	made	to	the	original	version. FIN	46R	replaced	the	previously	issued	FIN	46	and,	subject	to	certain	special	provisions,	was	effective	no	later	than	the	end	of	the	first	reporting	period	that	ends	after December	15,	2003	for	entities	considered	to	be	special-purpose	entities	and	no	later	than	the	end	of	the	first	reporting	period	that	ends	after	March	15,	2004	for	all	other VIEs.	Early	adoption	was	permitted.	The	Company	adopted	FIN	46R	in	the	fourth	quarter	of	2003.	The	adoption	of	FIN	46R	did	not	result	in	the	consolidation	of	any material	VIEs	but	resulted	in	the	deconsolidation	of	VIEs	that	issued	Mandatorily	Redeemable	Preferred	Securities	of	Subsidiary	Trusts	("trust	preferred	securities").	The Company	is	not	the	primary	beneficiary	of	the	VIEs,	which	issued	the	trust	preferred	securities.	The	Company	does	not	own	any	of	the	trust	preferred	securities	which	were issued	to	unrelated	third	parties.	These	trust	preferred	securities	are	considered	the	principal	variable	interests	issued	by	the	VIEs.	As	a	result,	the	VIEs,	which	the	Company previously	consolidated,	are	no	longer	consolidated.	The	sole	assets	of	the	VIEs	are	junior	subordinated	debentures	issued	by	the	Company	with	payment	terms	identical	to the	trust	preferred	securities.	Previously,	the	trust	preferred	securities	were	reported	as	a	separate	liability	on	the	Company's	consolidated	balance	sheets	as	"company obligated	mandatorily	redeemable	preferred	securities	of	subsidiary	trusts	holding	solely	junior	subordinated	debentures".	At	December	31,	2003	and	2002,	the	impact	of deconsolidation	was	to	increase	long-term	debt	and	decrease	the	trust	preferred	securities	by	$952	and	$1.5	billion,	respectively.	(For	further	discussion,	see	Note	14	for disclosure	of	information	related	to	these	VIEs	as	required	under	FIN	46R.)

# Future	Adoption	of	New	Accounting	Standards

In	December	2004,	the	FASB	issued	SFAS	No.	123	(revised	2004),	"Share-Based	Payment"	("SFAS	No.	123R"),	which	replaces	SFAS	No.	123,	"Accounting	for	Stock- Based	Compensation"	("SFAS	No.	123")	and	supercedes	APB	Opinion	No.	25,	"Accounting	for	Stock	Issued	to	Employees".	SFAS	No.	123R	requires	all	companies	to recognize	compensation	costs	for	share-based	payments	to	employees	based	on	the	grant-date	fair	value	of	the	award	for	financial	statements	for	reporting	periods beginning	after	June	15,	2005.	The	pro	forma	disclosures	previously	permitted	under	SFAS	No.	123	will	no	longer	be	an	alternative	to	financial	statement	recognition.	The transition	methods	include	prospective	and	retrospective	adoption	options.	The	prospective	method	requires	that

compensation	expense	be	recorded	for	all	unvested	stock-based	awards	including	those	granted	prior	to	adoption	of	the	fair	value	recognition	provisions	of	SFAS	No.	123, at	the	beginning	of	the	first	quarter	of	adoption	of	SFAS	No.123R,	while	the	retrospective	methods	would	record	compensation	expense	for	all	unvested	stock-based	awards beginning	with	the	first	period	restated.	The	Company	will	adopt	SFAS	No.	123R	in	the	third	quarter	of	fiscal	2005	using	the	prospective	method.	In	January	2003,	the Company	began	expensing	all	stock-based	compensation	awards	granted	or	modified	after	January	1,	2003	under	the	fair	value	recognition	provisions	of	SFAS	No.	123	and therefore,	the	adoption	is	not	expected	to	have	a	material	impact	on	the	Company's	consolidated	financial	condition	or	results	of	operations.

In	March	2004,	the	Emerging	Issues	Task	Force	("EITF")	reached	a	final	consensus	on	EITF	Issue	No.	03-1,	"The	Meaning	of	Other-Than-Temporary	Impairment	and	Its Application	to	Certain	Investments"	("EITF	Issue	No.	03-1").	EITF	Issue	No.	03-1	was	effective	for	periods	beginning	after	June	15,	2004	and	adopts	a	three-step impairment	model	for	securities	within	its	scope.	The	three-step	model	must	be	applied	on	a	security-by-security	basis	as	follows:

Step	1: 	 Determine	whether	an	investment	is	impaired.	An	investment	is	impaired	if	the	fair	value	of	the	investment	is	less	than	its	cost	basis.

Step	2: Evaluate	whether	an	impairment	is	other-than-temporary.	For	debt	securities	that	cannot	be	contractually	prepaid	or	otherwise	settled	in	such	a	way	that	the investor	would	not	recover	substantially	all	of	its	cost,	an	impairment	is	deemed	other-than-temporary	if	the	investor	does	not	have	the	ability	and	intent	to	hold the	investment	until	a	forecasted	market	price	recovery	or	it	is	probable	that	the	investor	will	be	unable	to	collect	all	amounts	due	according	to	the	contractual terms	of	the	debt	security.

Step	3: If	the	impairment	is	other-than-temporary,	recognize	an	impairment	loss	equal	to	the	difference	between	the	investment's	cost	basis	and	its	fair	value.

Subsequent	to	an	other-than-temporary	impairment	loss,	a	debt	security	should	be	accounted	for	in	accordance	with	SOP	03-3,	"Accounting	for	Certain	Loans	and	Debt Securities	Acquired	in	a	Transfer"	("SOP	03-3").	SOP	03-3	requires	that	the	amount	of	a	security's	expected	cash	flows	in	excess	of	the	investor's	initial	cost	or	amortized cost	investment	be	recognized	as	interest	income	on	a	level-yield	basis	over	the	life	of	the	security.	EITF	Issue	No.	03-1	does	not	replace	the	impairment	guidance	for investments	accounted	for	under	EITF	Issue	No.	99-20,	"Recognition	of	Interest	Income	and	Impairments	on	Purchased	and	Retained	Beneficial	Interests	in	Securitized Financial	Assets"	("EITF	Issue	No.	99-20"),	however,	it	requires	investors	to	determine	if	a	security	is	other-than-temporarily	impaired	under	EITF	Issue	No.	03-1	if	the security	is	determined	not	to	be	other-than-temporarily	impaired	under	EITF	Issue	No.	99-20.

In	September	2004,	the	FASB	staff	issued	clarifying	guidance	for	comment	in	FASB	Staff	Position	("FSP")	EITF	Issue	No.	03-1-a,	"Implementation	Guidance	for	the Application	of	Paragraph	16	of	EITF	Issue	No.	03-1"	("FSP	Issue	No.	03-1-a")	and	subsequently	voted	to	delay	the	implementation	of	the	impairment	measurement	and recognition	guidance	contained	in	paragraphs	10–20	of	EITF	Issue	No.	03-1	in	order	to	redeliberate	certain	aspects	of	the	consensus	as	well	as	the	implementation	guidance included	in	FSP	Issue	No.	03-1-a.	The	disclosure	requirements	including	quantitative	and	qualitative	information	regarding	investments	in	an	unrealized	loss	position remain	effective	and	are	included	in	Note	4.

The	ultimate	impact	the	adoption	of	EITF	Issue	No.	03-1	will	have	on	the	Company's	consolidated	financial	condition	and	results	of	operations	is	still	unknown. Depending	on	the	nature	of	the	ultimate	guidance,	adoption	of	the	standard	could	potentially	result	in	the	recognition	of	unrealized	losses,	including	those	declines	in	value that	are	attributable	to	interest	rate	movements,	as	other-than-temporary	impairments,	except	those	deemed	to	be	minor	in	nature.	As	of	December	31,	2004,	the	Company had	$265	of	total	gross	unrealized	losses.	The	amount	of	impairments	to	be	recognized,	if	any,	will	depend	on	the	final	standard,	market	conditions	and	management's intent	and	ability	to	hold	securities	with	unrealized	losses	at	the	time	of	the	impairment	evaluation.

# Stock-Based	Compensation

In	January	2003,	the	Company	began	expensing	all	stock-based	compensation	awards	granted	or	modified	after	January	1,	2003	under	the	fair	value	recognition	provisions of	Statement	of	Financial	Accounting	Standard	("SFAS")	No.	123	"Accounting	for	Stock-Based	Compensation".	The	fair	value	of	stock-based	awards	granted	during	the years	ended	December	31,	2004	and	2003	were	$43	and	$42,	respectively,	after-tax.	The	fair	value	of	these	awards	will	be	recognized	as	expense	over	the	awards'	vesting periods,	generally	three	years.

Prior	to	January	1,	2004,	the	Company	used	the	Black-Scholes	model	to	determine	the	fair	value	of	the	Company's	stock-based	compensation.	For	all	awards	granted	or modified	on	or	after	January	1,	2004,	the	Company	uses	a	binomial	option-pricing	model	that	incorporates	the	possibility	of	early	exercise	of	options	into	the	valuation.	The binomial	model	also	incorporates	the	Company's	historical	forfeiture	and	exercise	experience	to	determine	the	option	value.	For	these	reasons,	the	Company	believes	the binomial	model	provides	a	fair	value	that	is	more	representative	of	actual	experience	than	the	value	calculated	under	the	Black-Scholes	model.

All	stock-based	awards	granted	or	modified	prior	to	January	1,	2003	continue	to	be	valued	using	the	intrinsic	value-based	provisions	set	forth	in	Accounting	Principles Board	("APB")	Opinion	No.	25,	"Accounting	for	Stock	Issued	to	Employees".	Under	the	intrinsic	value	method,	compensation	expense	is	determined	on	the	measurement date,	which	is	the	first	date	on	which	both	the	number	of	shares	the	employee	is	entitled	to	receive	and	the	exercise	price	are	known.	Compensation	expense,	if	any,	is measured	based	on	the	award's	intrinsic	value,	which	is	the	excess	of	the	market	price	of	the	stock	over	the	exercise	price	on	the	measurement	date,	and	is	recognized	over the	award's	vesting	period.	The	expense,	including	non-option	plans,	related	to	stock-based	employee	compensation	included	in	the	determination	of	net	income	for	the years	ended	December	31,	2004,	2003	and	2002	is	less	than	that	which	would	have	been	recognized	if	the	fair	value	method	had	been	applied	to	all	awards	since	the effective	date	of	SFAS	No.	123.	For	further	discussion	of	the	Company's	stock-based	compensation	plans,	see	Note	18.

The	following	table	illustrates	the	effect	on	net	income	(loss)	and	earnings	(loss)	per	share	(basic	and	diluted)	as	if	the	fair	value	method	had	been	applied	to	all	outstanding and	unvested	awards	in	each	period.	The	pro-forma	fair	values	disclosed	below	related	to	awards	granted	prior	to	2004	were	calculated	using	the	Black-Scholes	option- pricing	model	and	were	not	recalculated	using	the	binomial	model.	The	change	in	valuation	methodology	would	have	an	immaterial	impact	on	the	pro-forma	net	income amounts	disclosed.

| (In	millions,	except	for	per	share	data) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tincome\t(loss),\tas\treported | $2,115 | $(91) | $1,000 |
| Add:\tStock-based\temployee\tcompensation\texpense\tincluded\tin\treported\tnet\tincome\t(loss),\tnet\tof\trelated\ttax\teffects\t[1] | 27 | 20 | 6 |
| Deduct:\tTotal\tstock-based\temployee\tcompensation\texpense\tdetermined\tunder\tthe\tfair\tvalue\tmethod\tfor\tall\tawards,\tnet |  |  |  |
| of\trelated\ttax\teffects | (38) | (50) | (59) |
| Pro\tforma\tnet\tincome\t(loss)\t[2] | $2,104 | $(121) | $947 |
| Earnings\t(loss)\tper\tshare: |  |  |  |
| Basic\t–\tas\treported | $7.24 | $(0.33) | $4.01 |
| Basic\t–\tpro\tforma\t[2] | $7.20 | $(0.44) | $3.80 |
| Diluted\t–\tas\treported\t[3] | $7.12 | $(0.33) | $3.97 |
| Diluted\t–\tpro\tforma\t[2]\t[3] | $7.08 | $(0.44) | $3.76 |

[2] The	pro	forma	disclosures	are	not	representative	of	the	effects	on	net	income	(loss)	and	earnings	(loss)	per	share	in	future	years.

The	fair	value	of	each	option	grant	is	estimated	on	the	date	of	the	grant	using	the	following	weighted	average	or	range	assumptions	for	grants	in	2004,	2003	and	2002:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Dividend\tyield | 2.1% | 2.3% | 1.6% |
| Expected\tprice\tvolatility | 25.2%\t—\t34.7% | 39.8% | 40.8% |
| Risk-free\tinterest\trate | 1.08%\t—\t4.28% | 2.77% | 4.27% |
| Expected\tlife | 7\tyears | 6\tyears | 6\tyears |

The	expected	life	of	options	granted	in	2004	is	an	output	derived	from	the	binomial	option-pricing	model.

The	use	of	the	fair	value	recognition	method	results	in	compensation	expense	being	recognized	in	the	financial	statements	at	different	amounts	and	in	different	periods	than the	related	income	tax	deduction.	Generally,	the	compensation	expense	recognized	under	SFAS	No.	123	will	result	in	a	deferred	tax	asset	since	the	stock	compensation expense	is	not	deductible	for	tax	until	the	option	is	exercised.	Deferred	tax	assets	arising	under	SFAS	No.	123	are	evaluated	as	to	future	realizability	to	determine	whether	a valuation	allowance	is	necessary.	(For	further	discussion,	see	Note	13.)

The	Hartford's	investments	in	fixed	maturities,	which	include	bonds,	redeemable	preferred	stock	and	commercial	paper;	and	certain	equity	securities,	which	include common	and	non-redeemable	preferred	stocks,	are	classified	as	"available-for-sale"	as	defined	in	SFAS	No.	115,	"Accounting	for	Certain	Investments	in	Debt	and	Equity Securities"	("SFAS	No.	115").	Accordingly,	these	securities	are	carried	at	fair	value	with	the	after-tax	difference	from	amortized	cost,	as	adjusted	for	the	effect	of	deducting the	life	and	pension	policyholders'	share	of	the	immediate	participation	guaranteed	contracts	and	certain	life	and	annuity	deferred	policy	acquisition	costs,	reflected	in stockholders'	equity	as	a	component	of	accumulated	other	comprehensive	income	("AOCI").	The	equity	investments	associated	with	the	variable	annuity	products	offered in	Japan	are	recorded	at	fair	value	and	are	classified	as	"trading"	as	defined	in

SFAS	No.	115,	with	changes	in	fair	value	recorded	in	net	investment	income.	Policy	loans	are	carried	at	outstanding	balance,	which	approximates	fair	value.	Other investments	primarily	consist	of	limited	partnership	interests,	derivatives	and	mortgage	loans.	Limited	partnerships	are	accounted	for	under	the	equity	method	and accordingly	the	Company's	share	of	partnership	earnings	are	included	in	net	investment	income.	Derivatives	are	carried	at	fair	value	and	mortgage	loans	on	real	estate	are recorded	at	the	outstanding	principal	balance	adjusted	for	amortization	of	premiums	or	discounts	and	net	of	valuation	allowances,	if	any.

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
|  | General\tAccount\nFixed\tMaturity\nat\tFair\tValue | Percentage\nof\tTotal\nFair\tValue | General\tAccount\nFixed\tMaturity\nat\tFair\tValue | Percentage\nof\tTotal\nFair\tValue |
| Priced\tvia\tindependent\tmarket\tquotations | $62,568 | 83.3% | $51,301 | 83.8% |
| Priced\tvia\tbroker\tquotations | 4,233 | 5.6% | 3,090 | 5.0% |
| Priced\tvia\tmatrices | 4,847 | 6.5% | 3,297 | 5.4% |
| Priced\tvia\tother\tmethods | 52 | 0.1% | 209 | 0.3% |
| Short-term\tinvestments\t[1] | 3,400 | 4.5% | 3,366 | 5.5% |
| Total\t[2] | $75,100 | 100.0% | $61,263 | 100.0% |

The	fair	value	of	a	financial	instrument	is	the	amount	at	which	the	instrument	could	be	exchanged	in	a	current	transaction	between	knowledgeable,	unrelated	willing	parties. As	such,	the	estimated	fair	value	of	a	financial	instrument	may	differ	significantly	from	the	amount	that	could	be	realized	if	the	security	was	sold	immediately.

Securities	not	subject	to	EITF	Issue	No.	99-20	("non-EITF	Issue	No.	99-20	securities")	that	are	in	an	unrealized	loss	position,	are	reviewed	at	least	quarterly	to	determine	if an	other-than-temporary	impairment	is	present	based	on	certain	quantitative	and	qualitative	factors.	The	primary	factors	considered	in	evaluating	whether	a	decline	in	value for	non-EITF	Issue	No.	99-20	securities	is	other-

than-temporary	include:	(a)	the	length	of	time	and	the	extent	to	which	the	fair	value	has	been	less	than	cost,	(b)	the	financial	condition,	credit	rating	and	near-term	prospects of	the	issuer,	(c)	whether	the	debtor	is	current	on	contractually	obligated	interest	and	principal	payments	and	(d)	the	intent	and	ability	of	the	Company	to	retain	the investment	for	a	period	of	time	sufficient	to	allow	for	recovery.	Non-EITF	Issue	No.	99-20	securities	depressed	by	twenty	percent	or	more	for	six	months	are	presumed	to	be other-than-temporarily	impaired	unless	significant	objective	verifiable	evidence	supports	that	the	security	price	is	temporarily	depressed	and	is	expected	to	recover	within	a reasonable	period	of	time.	The	evaluation	of	non-EITF	Issue	No.	99-20	securities	depressed	more	than	ten	percent	is	documented	and	discussed	quarterly	by	the	committee.

Once	an	impairment	charge	has	been	recorded,	the	Company	then	continues	to	review	the	other-than-temporarily	impaired	securities	for	additional	other-than-temporary impairments.	The	ultimate	completion	of	EITF	Issue	No.	03-1	may	impact	the	Company's	current	other-than-temporary	impairment	evaluation	process.	(For	further discussion	of	EITF	Issue	No.	03-1,	see	the	Future	Adoption	of	New	Accounting	Standards	section	of	Note	1.)

Net	realized	capital	gains	and	losses,	after	deducting	the	life	and	pension	policyholders'	share	and	related	amortization	of	deferred	policy	acquisition	costs	for	certain	Life products,	are	reported	as	a	component	of	revenues	and	are	determined	on	a	specific	identification	basis.	Net	realized	capital	gains	and	losses	on	security	transactions associated	with	the	Company's	immediate	participation	guaranteed	contracts	are	recorded	and	offset	by	amounts	owed	to	policyholders	and	were	less	than	$1	for	the	year ended	December	31,	2004	and	were	$1	for	the	years	ended	December	31,	2003	and	2002.	Under	the	terms	of	the	contracts,	the	net	realized	capital	gains	and	losses	will	be credited	to	policyholders	in	future	years	as	they	are	entitled	to	receive	them.

# Net	Investment	Income

Interest	income	from	fixed	maturities	is	recognized	when	earned	on	a	constant	effective	yield	basis	based	on	estimated	principal	repayments,	if	applicable.	Prepayment	fees are	recorded	in	net	investment	income	when	earned.	The	Company	stops	recognizing	interest	income	when	it	does	not	expect	to	receive	amounts	in	accordance	with	the contractual	terms	of	the	security.	Interest	income	on	these	investments	is	recognized	only	when	interest	payments	are	received.

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,	price	or	currency	exchange	rate	volatility;	to	manage	liquidity;	to	control	transaction	costs;	or	to	enter	into	replication	transactions. (For	a	further	discussion	of	derivative	instruments,	see	the	Derivative	Instruments	section	of	Note	4.)

The	Company's	derivative	transactions	are	permitted	uses	of	derivatives	under	the	derivatives	use	plan	filed	and/or	approved,	as	applicable,	by	the	State	of	Connecticut,	the State	of	Illinois	and	the	State	of	New	York	insurance	departments.	The	Company	does	not	make	a	market	or	trade	in	these	instruments	for	the	express	purpose	of	earning short-term	trading	profits.

# Accounting	and	Financial	Statement	Presentation	of	Derivative	Instruments	and	Hedging	Activities

Derivatives	are	recognized	on	the	balance	sheet	at	fair	value.	Fair	value	is	based	upon	either	independent	market	quotations	or	pricing	valuation	models	which	utilize independent	third	party	data	as	inputs.	The	derivative	contracts	are	reported	as	assets	or	liabilities	in	other	investments	and	other	liabilities,	respectively,	in	the	consolidated balance	sheets,	excluding	embedded	derivatives	and	guaranteed	minimum	withdrawal	benefits	("GMWB")	reinsurance	contracts.	Embedded	derivatives	are	recorded	in	the consolidated	balance	sheets	with	the	associated	host	instrument.	GMWB	reinsurance	contract	amounts	are	recorded	in	reinsurance	recoverables	in	the	consolidated	balance sheets.

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	a	forecasted	transaction	or	of	the	variability	of	cash	flows	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	or	(5)	held	for	other	investment	and	risk	management	activities,	which	primarily	involve managing	asset	or	liability	related	risks	which	do	not	qualify	for	hedge	accounting.

# Fair-Value	Hedges

Changes	in	the	fair	value	of	a	derivative	that	is	designated	and	qualifies	as	a	fair-value	hedge,	along	with	the	changes	in	the	fair	value	of	the	hedged	asset	or	liability	that	is attributable	to	the	hedged	risk,	are	recorded	in	current	period	earnings	with	any	differences	between	the	net	change	in	fair	value	of	the	derivative	and	the	hedged	item representing	the	hedge	ineffectiveness.	Periodic	derivative	net	coupon	settlements	are	recorded	in	net	investment	income	with	the	exception	of	hedges	of	Company	issued debt	which	are	recorded	in	interest	expense.

# Cash-Flow	Hedges

Changes	in	the	fair	value	of	a	derivative	that	is	designated	and	qualifies	as	a	cash-flow	hedge	are	recorded	in	AOCI	and	are	reclassified	into	earnings	when	the	variability	of the	cash	flow	of	the	hedged	item	impacts	earnings.	Gains	and	losses	on	derivative	contracts	that	are	reclassified	from	AOCI	to	current	period	earnings	are	included	in	the line	item	in	the	consolidated	statements	of	operations	in	which	the	hedged	item	is	recorded.	Any	hedge	ineffectiveness	is	recorded	immediately	in	current	period	earnings	as net	realized	capital	gains	and	losses.	Periodic	derivative	net	coupon	settlements	are	recorded	in	net	investment	income.

# Foreign-Currency	Hedges

Changes	in	the	fair	value	of	derivatives	that	are	designated	and	qualify	as	foreign-currency	hedges	are	recorded	in	either	current	period	earnings	or	AOCI,	depending	on whether	the	hedged	transaction	is	a	fair-value	hedge	or	a	cash-flow	hedge,	respectively.	Any	hedge	ineffectiveness	is	recorded	immediately	in	current	period	earnings	as	net realized	capital	gains	and	losses.	Periodic	derivative	net	coupon	settlements	are	recorded	in	net	investment	income.

# Net	Investment	in	a	Foreign	Operation	Hedges

Changes	in	fair-value	of	a	derivative	used	as	a	hedge	of	a	net	investment	in	a	foreign	operation,	to	the	extent	effective	as	a	hedge,	are	recorded	in	the	foreign	currency translation	adjustments	account	within	AOCI.	Cumulative	changes	in	fair	value	recorded	in	AOCI	are	reclassified	into	earnings	upon	the	sale	or	complete	or	substantially complete	liquidation	of	the	foreign	entity.	Any	hedge	ineffectiveness	is	recorded	immediately	in	current	period	earnings	as	net	realized	capital	gains	and	losses.	Periodic derivative	net	coupon	settlements	are	recorded	in	net	investment	income.

# Other	Investment	and	Risk	Management	Activities

The	Company's	other	investment	and	risk	management	activities	primarily	relate	to	strategies	used	to	reduce	economic	risk	or	enhance	income,	and	do	not	receive	hedge accounting	treatment.	Changes	in	the	fair	value,	including	periodic	net	coupon	settlements,	of	derivative	instruments	held	for	other	investment	and	risk	management purposes	are	reported	in	current	period	earnings	as	net	realized	capital	gains	and	losses.

# Hedge	Documentation	and	Effectiveness	Testing

To	qualify	for	hedge	accounting	treatment,	a	derivative	must	be	highly	effective	in	mitigating	the	designated	change	in	value	of	the	hedged	item.	At	hedge	inception,	the Company	formally	documents	all	relationships	between	hedging	instruments	and	hedged	items,	as	well	as	its	risk-management	objective	and	strategy	for	undertaking	each hedge	transaction.	The	documentation	process	includes	linking	all	derivatives	that	are	designated	as	fair-value,	cash-flow,	foreign-currency	or	net-investment	hedges	to specific	assets	or	liabilities	on	the	balance	sheet	or	to	specific	forecasted	transactions.	The	Company	also	formally	assesses,	both	at	the	hedge's	inception	and	on	an ongoing	basis,	whether	the	derivatives	that	are	used	in	hedging	transactions	are	highly	effective	in	offsetting	changes	in	fair	values	or	cash	flows	of	hedged	items.	Hedge effectiveness	is	assessed	using	qualitative	and	quantitative	methods.	Qualitative	methods	may	include	comparison	of	critical	terms	of	the	derivative	to	the	hedged	item. Depending	on	the	hedging	strategy,	quantitative	methods	may	include	the	"Change	in	Variable	Cash	Flows	Method,"	the	"Change	in	Fair	Value	Method"	and	the "Hypothetical	Derivative	Method".	In	addition,	certain	hedging	relationships	are	considered	highly	effective	if	the	changes	in	the	fair	value	or	discounted	cash	flows	of	the hedging	instrument	are	within	a	ratio	of	80-125%	of	the	inverse	changes	in	the	fair	value	or	discounted	cash	flows	of	the	hedged	item.	If	it	is	determined	that	a	derivative	is no	longer	highly	effective	as	a	hedge,	the	Company	prospectively	discontinues	hedge	accounting	in	the	period	in	which	the	derivative	became	ineffective.

# Discontinuance	of	Hedge	Accounting

The	Company	discontinues	hedge	accounting	prospectively	when	(1)	it	is	determined	that	the	derivative	is	no	longer	highly	effective	in	offsetting	changes	in	the	fair	value or	cash	flows	of	a	hedged	item;	(2)	the	derivative	is	dedesignated	as	a	hedging	instrument,	because	it	is	unlikely	that	a	forecasted	transaction	will	occur;	or	(3)	the	derivative expires	or	is	sold,	terminated,	or	exercised.

When	hedge	accounting	is	discontinued	because	it	is	determined	that	the	derivative	no	longer	qualifies	as	an	effective	fair-value	hedge,	the	derivative	continues	to	be carried	at	fair	value	on	the	balance	sheet	with	changes	in	its	fair	value	recognized	in	current	period	earnings.

When	hedge	accounting	is	discontinued	because	the	Company	becomes	aware	that	it	is	not	probable	that	the	forecasted	transaction	will	occur,	the	derivative	continues	to	be carried	on	the	balance	sheet	at	its	fair	value,	and	gains	and	losses	that	were	accumulated	in	AOCI	are	recognized	immediately	in	earnings.

In	other	situations	in	which	hedge	accounting	is	discontinued	on	a	cash-flow	hedge,	including	those	where	the	derivative	is	sold,	terminated	or	exercised,	amounts previously	deferred	in	AOCI	are	amortized	into	earnings	when	earnings	are	impacted	by	the	variability	of	the	cash	flow	of	the	hedged	item.

# Embedded	Derivatives

The	Company	purchases	and	issues	financial	instruments	and	products	that	contain	a	derivative	instrument	that	is	embedded	in	the	financial	instruments	or	products.	When it	is	determined	that	(1)	the	embedded	derivative	possesses	economic	characteristics	that	are	not	clearly	and	closely	related	to	the	economic	characteristics	of	the	host contract,	and	(2)	a	separate	instrument	with	the	same	terms	would	qualify	as	a	derivative	instrument,	the	embedded	derivative	is	bifurcated	from	the	host	for	measurement purposes.	The	embedded	derivative,	which	is	reported	with	the	host	instrument	in	the	consolidated	balance	sheets,	is	carried	at	fair	value	with	changes	in	fair	value	reported in	net	realized	capital	gains	and	losses.

# Credit	Risk

The	Company's	derivatives	counterparty	exposure	policy	establishes	market-based	credit	limits,	favors	long-term	financial	stability	and	creditworthiness,	and	typically requires	credit	enhancement/credit	risk	reducing	agreements.	By	using	derivative	instruments,	the	Company	is	exposed	to	credit	risk,	which	is	measured	as	the	amount owed	to	the	Company	based	on	current	market	conditions	and	potential	payment	obligations	between	the	Company	and	its	counterparties.	When	the	fair	value	of	a derivative	contract	is	positive,	this	indicates	that	the	counterparty	owes	the	Company,	and,	therefore,	exposes	the	Company	to	credit	risk.	Credit	exposures	are	generally quantified	daily,	netted	by	counterparty	for	each	legal	entity	of	the	Company,	and	then	collateral	is	pledged	to	and	held	by,	or	on	behalf	of,	the	Company	to	the	extent	the current	value	of	derivatives	exceeds	exposure	policy	thresholds.	The	Company	also	minimizes	the	credit	risk	in	derivative	instruments	by	entering	into	transactions	with high	quality	counterparties	that	are	monitored	by	the	Company's	internal	compliance	unit	and	reviewed	frequently	by	senior	management.	In	addition,	the	compliance	unit monitors	counterparty	credit	exposure	on	a	monthly	basis	to	ensure	compliance	with	Company	policies	and	statutory	limitations.	The	Company	also	maintains	a	policy	of requiring	that	all	derivative	contracts	be	governed	by	an	International	Swaps	and	Dealers	Association	Master	Agreement	which	is	structured	by	legal	entity	and	by counterparty	and	permits	the	right	of	offset.	In	addition,	the	Company	periodically	enters	into	swap	agreements	in	which	the	Company	assumes	credit	exposure	from	a single	entity,	referenced	index	or	asset	pool.

# Product	Derivatives	and	Risk	Management

The	Company	offers	certain	variable	annuity	products	with	a	guaranteed	minimum	withdrawal	benefit	("GMWB")	rider.	The	GMWB	provides	the	policyholder	with	a guaranteed	remaining	balance	("GRB")	if	the	account	value	is	reduced	to	zero	through	a	combination	of	market	declines	and	withdrawals.	The	GRB	is	generally	equal	to premiums	less	withdrawals.	However,	annual	withdrawals	that	exceed	a	specific	percentage	of	the	premiums	paid	may	reduce	the	GRB	by	an	amount	greater	than	the withdrawals	and	may	also	impact	the	guaranteed	annual	withdrawal	amount	that	subsequently	applies	after	the	excess	annual	withdrawals	occur.	For	certain	of	the withdrawal	benefit	features,	the	policyholder	also	has	the	option,	after	a	specified	time	period,	to	reset	the	GRB	to	the	then-current	account	value,	if	greater.	The	GMWB represents	an	embedded	derivative	in	the	variable	annuity	contract	that	is	required	to	be	reported	separately	from	the	host	variable	annuity	contract.	It	is	carried	at	fair	value and	reported	in	other	policyholder	funds.	The	fair	value	of	the	GMWB	obligations	is	calculated	based	on	actuarial	assumptions	related	to	the	projected	cash	flows,	including benefits	and	related	contract	charges,	over	the	lives	of	the	contracts,	incorporating	expectations	concerning	policyholder	behavior.	Because	of	the	dynamic	and	complex nature	of	these	cash	flows,	stochastic	techniques	under	a	variety	of	market	return	scenarios	and	other	best	estimate	assumptions	are	used.	Estimating	these	cash	flows involves	numerous	estimates	and	subjective	judgments	including	those	regarding	expected	market	rates	of	return,	market	volatility,	correlations	of	market	returns	and discount	rates.

In	valuing	the	embedded	derivative,	the	Company	attributes	to	the	derivative	a	portion	of	the	fees	collected	from	the	policyholder	equal	to	the	present	value	of	future GMWB	claims	(the	"Attributed	Fees").	All	changes	in	the	fair	value	of	the	embedded	derivative	are	recorded	in	net	realized	capital	gains	and	losses.	The	excess	of	fees collected	from	the	policyholder	for	the	GMWB	over	the	Attributed	Fees	are	associated	with	the	host	variable	annuity	contract	and	recorded	in	fee	income.

For	contracts	issued	prior	to	July	2003,	the	Company	has	a	reinsurance	arrangement	in	place	to	offset	its	exposure	to	the	GMWB.	This	arrangement	is	recognized	as	a derivative	and	carried	at	fair	value	in	reinsurance	recoverables.	Changes	in	the	fair	value	of	both	the	derivative	assets	and	liabilities	related	to	the	reinsured	GMWB	are recorded	in	net	realized	capital	gains	and	losses.	As	of	July	2003,

the	Company	had	substantially	exhausted	all	of	its	reinsurance	capacity,	with	respect	to	contracts	issued	after	July	2003	and	began	hedging	its	exposure	to	the	GMWB	rider using	a	sophisticated	program	involving	interest	rate	futures,	Standard	and	Poor's	("S&P")	500	and	NASDAQ	index	put	options	and	futures	contracts	and	Europe, Australasia	and	Far	East	("EAFE")	Index	swaps	to	hedge	GMWB	exposure	to	international	equity	markets.	For	the	years	ended	December	31,	2004	and	2003,	net	realized capital	gains	and	losses	included	the	change	in	market	value	of	the	embedded	derivative	related	to	the	GMWB	liability,	the	derivative	reinsurance	arrangement	and	the related	derivative	contracts	that	were	purchased	as	economic	hedges,	the	net	effect	of	which	was	a	gain	of	$8	and	$6	before	deferred	policy	acquisition	costs	and	tax	effects, respectively.

# Separate	Accounts

The	Company	maintains	separate	account	assets	and	liabilities,	which	are	reported	at	fair	value.	Separate	accounts	reflect	two	categories	of	risk	assumption:	non- guaranteed	separate	accounts,	wherein	the	policyholder	assumes	the	investment	risk,	and	guaranteed	separate	accounts,	wherein	the	Company	contractually	guarantees either	a	minimum	return	or	account	value	to	the	policyholder.	Non-guaranteed	separate	account	assets	are	segregated	from	other	investments	and	investment	income	and gains	and	losses	accrue	directly	to	the	policyholder.	Effective	January	1,	2004,	guaranteed	separate	account	assets	are	included	with	general	account	assets	as	a	result	of adopting	SOP	03-1	and	fees	earned	for	administrative	and	contractholder	maintenance	services	performed	for	these	separate	accounts	are	included	in	fee	income.

# Deferred	Policy	Acquisition	Costs	and	Present	Value	of	Future	Profits

Life	–	Policy	acquisition	costs	include	commissions	and	certain	other	expenses	that	vary	with	and	are	primarily	associated	with	acquiring	business.	Present	value	of	future profits	is	an	intangible	asset	recorded	upon	applying	purchase	accounting	in	an	acquisition	of	a	life	insurance	company.	Deferred	policy	acquisition	costs	and	the	present value	of	future	profits	intangible	asset	are	amortized	in	the	same	way.	Both	are	amortized	over	the	estimated	life	of	the	contracts	acquired,	usually	20	years.	Within	the following	discussion,	deferred	policy	acquisition	costs	and	the	present	value	of	future	profits	intangible	asset	will	be	referred	to	as	"DAC".	At	December	31,	2004	and	2003, the	carrying	value	of	the	Life's	DAC	was	$7.4	billion	and	$6.6	billion,	respectively.	For	statutory	accounting	purposes,	such	costs	are	expensed	as	incurred.

The	Company	regularly	evaluates	its	EGPs	to	determine	if	actual	experience	or	other	evidence	suggests	that	earlier	estimates	should	be	revised.	In	the	event	that	the Company	were	to	revise	its	EGPs,	the	cumulative	DAC	amortization	would	be	adjusted	to	reflect	such	revised	EGPs	in	the	period	the	revision	was	determined	to	be necessary.	Several	assumptions	considered	to	be	significant	in	the	development	of	EGPs	include	separate	account	fund	performance,	surrender	and	lapse	rates,	estimated interest	spread	and	estimated	mortality.	The	separate	account	fund	performance	assumption	is	critical	to	the	development	of	the	EGPs	related	to	the	Company's	variable annuity	and	to	a	lesser	extent,	variable	universal	life	insurance	businesses.	The	average	annual	long-term	rate	of	assumed	separate	account	fund	performance	(before mortality	and	expense	charges)	used	in	estimating	gross	profits	for	the	variable	annuity	and	variable	universal	life	business	was	9%	for	the	years	ended	December	31,	2004 and	2003.	For	other	products	including	fixed	annuities	and	other	universal	life-type	contracts,	the	average	assumed	investment	yield	ranged	from	5.7%	to	7.9%	for	both years	ended	December	31,	2004	and	2003.

The	Company	had	developed	models	to	evaluate	its	DAC	asset,	which	allowed	it	to	run	a	large	number	of	stochastically	determined	scenarios	of	separate	account	fund performance.	These	scenarios	were	then	utilized	to	calculate	a	statistically	significant	range	of	reasonable	estimates	of	EGPs.	This	range	was	then	compared	to	the	present value	of	EGPs	currently	utilized	in	the	DAC	amortization	model.	As	of	December	31,	2004,	the	present	value	of	the	EGPs	utilized	in	the	DAC	amortization	model	fall within	a	reasonable	range	of	statistically	calculated	present	value	of	EGPs.	As	a	result,	the	Company	does	not	believe	there	is	sufficient	evidence	to	suggest	that	a	revision to	the	EGPs	(and	therefore,	a	revision	to	the	DAC)	as	of	December	31,	2004	is	necessary;	however,	if	in	the	future	the	EGPs	utilized	in	the	DAC	amortization	model	were	to exceed	the	margin	of	the	reasonable	range	of	statistically	calculated	EGPs,	a	revision	could	be	necessary.

Additionally,	the	Company	continues	to	perform	analyses	with	respect	to	the	potential	impact	of	a	revision	to	future	EGPs.	If	such	a	revision	to	EGPs	were	deemed necessary,	the	Company	would	adjust,	as	appropriate,	all	of	its	assumptions	for	products	accounted	for	in	accordance	with	Statement	of	Financial	Accounting	Standards ("SFAS")	No.	97,	"Accounting	and	Reporting	by	Insurance	Enterprises	for	Certain	Long-Duration	Contracts	and	for	Realized	Gains	and	Losses	from	the	Sale	of Investments",	and	reproject	its	future	EGPs	based	on	current	account	values	at	the	end	of	the	quarter	in	which	a	revision	is	deemed	to	be	necessary.

Aside	from	absolute	levels	and	timing	of	market	performance	assumptions,	additional	factors	that	will	influence	the	determination	to	adjust	assumptions	include	the	degree of	volatility	in	separate	account	fund	performance	and	shifts	in	asset	allocation	within	the	separate	account	made	by	policyholders.	The	overall	return	generated	by	the separate	account	is	dependent	on	several	factors,	including	the	relative	mix	of	the	underlying	sub-accounts	among	bond	funds	and	equity	funds	as	well	as	equity	sector weightings.	The	Company's	overall	separate	account	fund	performance	has	been	reasonably	correlated	to	the	overall	performance	of	the	S&P	500	Index	(which	closed	at 1,212	on	December	31,	2004),	although	no	assurance	can	be	provided	that	this	correlation	will	continue	in	the	future.

The	overall	recoverability	of	the	DAC	asset	is	dependent	on	the	future	profitability	of	the	business.	The	Company	tests	the	aggregate	recoverability	of	the	DAC	asset	by comparing	the	amounts	deferred	to	the	present	value	of	total	EGPs.	In	addition,	the	Company	routinely	stress	tests	its	DAC	asset	for	recoverability	against	severe	declines	in its	separate	account	assets,	which	could	occur	if	the	equity	markets	experienced	another	significant	sell-off,	as	the	majority	of	policyholders'	funds	in	the	separate	accounts is	invested	in	the	equity	market.

Property	&	Casualty	—	The	Property	&	Casualty	operations	also	incur	costs	including	commissions,	premium	taxes	and	certain	underwriting	and	policy	issuance	costs that	vary	with	and	are	related	primarily	to	the	acquisition	of	property	and	casualty	insurance	business	and	are	deferred	and	amortized	ratably	over	the	period	the	related premiums	are	earned.	Deferred	acquisition	costs	are	reviewed	to	determine	if	they	are	recoverable	from	future	income,	and	if	not,	are	charged	to	expense.	Anticipated investment	income	is	considered	in	the	determination	of	the	recoverability	of	deferred	policy	acquisition	costs.	For	the	years	ended	December	31,	2004,	2003	and	2002,	no material	amounts	of	deferred	policy	acquisition	costs	were	charged	to	expense	based	on	the	determination	of	recoverability.

# Reserve	for	Future	Policy	Benefits	and	Unpaid	Claims	and	Claim	Adjustment	Expenses

Life	—	Liabilities	for	the	Company's	group	life	and	disability	contracts	as	well	its	individual	term	life	insurance	policies	include	amounts	for	unpaid	claims	and	future policy	benefits.	Liabilities	for	unpaid	claims	include	estimates	of	amounts	to	fully	settle	known	reported	claims	as	well	as	claims	related	to	insured	events	that	the Company	estimates	have	been	incurred	but	have	not	yet	been	reported.	Liabilities	for	future	policy	benefits	are	calculated	by	the	net	level	premium	method	using	interest, withdrawal	and	mortality	assumptions	appropriate	at	the	time	the	policies	were	issued.	The	methods	used	in	determining	the	liability	for	unpaid	claims	and	future	policy benefits	are	standard	actuarial	methods	recognized	by	the	American	Academy	of	Actuaries.	For	the	tabular	reserves,	discount	rates	are	based	on	the	Company's	earned investment	yield	and	the	morbidity/mortality	tables	used	are	standard	industry	tables	modified	to	reflect	the	Company's	actual	experience	when	appropriate.	In	particular, for	the	Company's	group	disability	known	claim	reserves,	the	morbidity	table	for	the	early	durations	of	claim	is	based	exclusively	on	the	Company's	experience, incorporating	factors	such	as	sex,	elimination	period	and	diagnosis.	These	reserves	are	computed	such	that	they	are	expected	to	meet	the	Company's	future	policy obligations.	Future	policy	benefits	are	computed	at	amounts	that,	with	additions	from	estimated	premiums	to	be	received	and	with	interest	on	such	reserves	compounded annually	at	certain	assumed	rates,	are	expected	to	be	sufficient	to	meet	the	Company's	policy	obligations	at	their	maturities	or	in	the	event	of	an	insured's	death.	Changes	in or	deviations	from	the	assumptions	used	for	mortality,	morbidity,	expected	future	premiums	and	interest	can	significantly	affect	the	Company's	reserve	levels	and	related future	operations	and,	as	such,	provisions	for	adverse	deviation	are	built	into	the	long-tailed	liability	assumptions.

Property	&	Casualty	—	The	Hartford	establishes	property	and	casualty	reserves	to	provide	for	the	estimated	costs	of	paying	claims	under	insurance	policies	written	by	the Company.	These	reserves	include	estimates	for	both	claims	that	have	been	reported	and	those	that	have	been	incurred	but	not	reported,	and	include	estimates	of	all expenses	associated	with	processing	and	settling	these	claims.	Estimating	the	ultimate	cost	of	future	claims	and	claim	adjustment	expenses	is	an	uncertain	and	complex process.	This	estimation	process	is	based	significantly	on	the	assumption	that	past	developments	are	an	appropriate	predictor	of	future	events,	and	involves	a	variety	of actuarial	techniques	that	analyze	experience,	trends	and	other	relevant	factors.	The	uncertainties	involved	with	the	reserving	process	have	become	increasingly	difficult	due to	a	number	of	complex	factors	including	social	and	economic	trends	and	changes	in	the	concepts	of	legal	liability	and	damage	awards.	Accordingly,	final	claim	settlements may	vary	from	the	present	estimates,	particularly	when	those	payments	may	not	occur	until	well	into	the	future.

The	Hartford	regularly	reviews	the	adequacy	of	its	estimated	claims	and	claim	adjustment	expense	reserves	by	line	of	business	within	the	various	operating	segments. Adjustments	to	previously	established	reserves	which	may	be	significant,	are	reflected	in	the	operating	results	of	the	period	in	which	the	adjustment	is	determined	to	be necessary.	Such	adjustments	could	possibly	be	significant,	reflecting	any	variety	of	new	and	adverse	or	favorable	trends.

Most	of	the	Company's	property	and	casualty	reserves	are	not	discounted.	However,	certain	liabilities	for	unpaid	claims	for	permanently	disabled	claimants	have	been discounted	to	present	value	using	an	average	interest	rate	of	4.6%	in	2004	and	4.7%	in	2003.	At	December	31,	2004	and	2003,	such	discounted	reserves	totaled	$707	and $666,	respectively	(net	of	discounts	of	$440	and	$429,	respectively).	In	addition,	certain	structured	settlement	contracts	that	fund	loss	run-offs	for	unrelated	parties	and	have payment	patterns	that	are	fixed	and	determinable,	have	been	discounted	to	present	value	using	an	average	interest	rate	of	5.5%.	At	December	31,	2004	and	2003,	such discounted	reserves	totaled	$257	and	$245,	respectively	(net	of	discounts	of	$116	and	$127,	respectively).	Accretion	of	this	discount	did	not	have	a	material	effect	on	net income	during	2004	and	2003.

# Other	Policyholder	Funds	and	Benefits	Payable

The	Company	has	classified	its	fixed	and	variable	annuities,	401(k),	certain	governmental	annuities,	private	placement	life	insurance	("PPLI"),	variable	universal	life insurance,	universal	life	insurance	and	interest	sensitive	whole	life	insurance	as	universal	life-type	contracts.	The	liability	for	universal	life-type	contracts	is	equal	to	the balance	that	accrues	to	the	benefit	of	the	policyholders	as	of	the	financial	statement	date	(commonly	referred	to	as	the	account	value),	including	credited	interest,	amounts that	have	been	assessed	to	compensate	the	Company	for	services	to	be	performed	over	future	periods,	and	any	amounts	previously	assessed	against	policyholders	that	are refundable	on	termination	of	the	contract.	Certain	contracts	classified	as	universal	life-type	may	also	include	additional	death	or	other	insurance	benefit	features,	such	as guaranteed	minimum	death	or	income	benefits	offered	with	variable	annuity	contracts	or	no	lapse	guarantees	offered	with	universal	life	insurance	contracts.	An	additional liability	is	established	for	these	benefits	by	estimating	the	expected	present	value	of	the	benefits	in	excess	of	the	projected	account	value	in	proportion	to	the	present	value	of total	expected	assessments.	Excess	benefits	are	accrued	as	a	liability	as	actual	assessments	are	recorded.	Determination	of	the	expected	value	of	excess	benefits	and assessments	are	based	on	a	range	of	scenarios	and	assumptions	including	those	related	to	market	rates	of	return	and	volatility,	contract	surrender	rates	and	mortality experience.

The	Company	has	classified	its	institutional	and	governmental	products,	without	life	contingencies,	including	funding	agreements,	certain	structured	settlements	and guaranteed	investment	contracts,	as	investment	contracts.	The	liability	for	investment	contracts	is	equal	to	the	balance	that	accrues	to	the	benefit	of	the	contract	holder	as	of the	financial	statement	date,	which	includes	the	accumulation	of	deposits	plus	credited	interest,	less	withdrawals	and	amounts	assessed	through	the	financial	statement	date.

# Revenue	Recognition

Life	—	For	investment	and	universal	life-type	contracts,	the	amounts	collected	from	policyholders	are	considered	deposits	and	are	not	included	in	revenue.	Fee	income	for investment	and	universal	life-type	contracts	consists	of	policy	charges	for	policy	administration,	cost	of	insurance	charges	and	surrender	charges	assessed	against policyholders'	account	balances	and	are	recognized	in	the	period	in	which	services	are	provided.	The	Company's	traditional	life	and	group	disability	products	are	classified as	long	duration	contracts,	and	premiums	are	recognized	as	revenue	when	due	from	policyholders.

Property	&	Casualty	—	Property	and	casualty	insurance	premiums	are	earned	principally	on	a	pro	rata	basis	over	the	lives	of	the	policies	and	include	accruals	for	ultimate premium	revenue	anticipated	under	auditable	and	retrospectively	rated	policies.	Unearned	premiums	represent	the	portion	of	premiums	written	applicable	to	the	unexpired terms	of	policies	in	force.	Unearned	premiums	also	include	estimated	and	unbilled	premium	adjustments	related	to	a	small	percentage	of	the	Company's	loss-sensitive workers'	compensation	business.	An	estimated	allowance	for	doubtful	accounts	is	recorded	on	the	basis	of	periodic	evaluations	of	balances	due	from	insurers, management's	experience	and	current	economic	conditions.	The	allowance	for	doubtful	accounts	included	in	premiums	receivable	and	agents'	balances	in	the	consolidated balance	sheets	was	$175	and	$150	as	of	December	31,	2004	and	2003,	respectively.	Other	revenue	consists	primarily	of	revenues	associated	with	the	Company's	servicing businesses.

# Foreign	Currency	Translation

Foreign	currency	translation	gains	and	losses	are	reflected	in	stockholder's	equity	as	a	component	of	accumulated	other	comprehensive	income.	The	Company's	foreign subsidiaries'	balance	sheet	accounts	are	translated	at	the	exchange	rates	in	effect	at	each	year	end	and	income	statement	accounts	are	translated	at	the	average	rates	of exchange	prevailing	during	the	year.	Gains	and	losses	on	foreign	currency	transactions	are	reflected	in	earnings.	The	national	currencies	of	the	international	operations	are their	functional	currencies.

# Dividends	to	Policyholders

Policyholder	dividends	are	accrued	using	an	estimate	of	the	amount	to	be	paid	based	on	underlying	contractual	obligations	under	policies	and	applicable	state	laws.

Life	—	Participating	life	insurance	in	force	accounted	for	5%,	6%,	and	6%	as	of	December	31,	2004,	2003	and	2002,	respectively,	of	total	life	insurance	in	force. Dividends	to	policyholders	were	$29,	$63,	and	$65	for	the	years	ended	December	31,	2004,	2003	and	2002,	respectively.	There	were	no	additional	amounts	of	income allocated	to	participating	policyholders.	If	limitations	exist	on	the	amount	of	net	income	from	participating	life	insurance	contracts	that	may	be	distributed	to	stockholders, the	policyholder's	share	of	net	income	on	those	contracts	that	cannot	be	distributed	is	excluded	from	stockholders'	equity	by	a	charge	to	operations	and	a	credit	to	a liability.

Property	&	Casualty	—	Net	written	premiums	for	participating	property	and	casualty	insurance	policies	represented	8%,	9%	and	9%	of	total	net	written	premiums	for	the years	ended	December	31,	2004,	2003	and	2002,	respectively.	Dividends	to	policyholders	were	$12,	$34	and	$57	for	the	years	ended	December	31,	2004,	2003	and	2002, respectively.

# Mutual	Funds

The	Company	maintains	a	retail	mutual	fund	operation,	whereby	the	Company,	through	wholly-owned	subsidiaries,	provides	investment	management	and	administrative services	to	The	Hartford	Mutual	Funds,	Inc.	and	The	Hartford	Mutual	Funds	II,	Inc.	("The	Hartford	mutual	funds"),	families	of	40	mutual	funds.	The	Company	charges	fees to	the	shareholders	of	the	mutual	funds,	which	are	recorded	as	revenue	by	the	Company.	Investors	can	purchase	"shares"	in	the	mutual	funds,	all	of	which	are	registered	with the	Securities	and	Exchange	Commission	("SEC"),	in	accordance	with	the	Investment	Company	Act	of	1940.	The	mutual	funds	are	owned	by	the	shareholders	of	those funds	and	not	by	the	Company.	As	such,	the	mutual	fund	assets	and	liabilities	and	related	investment	returns	are	not	reflected	in	the	Company's	consolidated	financial statements	since	they	are	not	assets,	liabilities	and	operations	of	the	Company.

# Reinsurance

Written	premiums,	earned	premiums	and	incurred	insurance	losses	and	loss	adjustment	expense	all	reflect	the	net	effects	of	assumed	and	ceded	reinsurance	transactions. Assumed	reinsurance	refers	to	our	acceptance	of	certain	insurance	risks	that	other	insurance	companies	have	underwritten.	Ceded	reinsurance	means	other	insurance companies	have	agreed	to	share	certain	risks	the	Company	has	underwritten.	Reinsurance	accounting	is	followed	for	assumed	and	ceded	transactions	when	the	risk	transfer provisions	of	SFAS	No.	113,	"Accounting	and	Reporting	for	Reinsurance	of	Short-Duration	and	Long-Duration	Contracts,"	have	been	met.

The	Company	recognizes	taxes	payable	or	refundable	for	the	current	year	and	deferred	taxes	for	the	tax	consequences	of	differences	between	the	financial	reporting	and	tax basis	of	assets	and	liabilities.	Deferred	tax	assets	and	liabilities	are	measured	using	enacted	tax	rates	expected	to	apply	to	taxable	income	in	the	years	the	temporary differences	are	expected	to	reverse.

# Property	and	Equipment

Property	and	equipment	is	carried	at	cost	net	of	accumulated	depreciation.	Depreciation	is	based	on	the	estimated	useful	lives	of	the	various	classes	of	property	and equipment	and	is	determined	principally	on	the	straight-line	method.	Accumulated	depreciation	as	of	December	31,	2004	and	2003	was	$1.1	billion	and	$958,	respectively.

# 2.	Earnings	(Loss)	per	Share

Earnings	(loss)	per	share	amounts	have	been	computed	in	accordance	with	the	provisions	of	SFAS	No.	128.	The	following	tables	present	a	reconciliation	of	net	income (loss)	and	shares	used	in	calculating	basic	earnings	(loss)	per	share	to	those	used	in	calculating	diluted	earnings	(loss)	per	share.

(In	millions,	except	for	per	share	data)

|  | Net<br>Income	(Loss) | Shares | Per	Share<br>Amount |
| :--- | :--- | :--- | :--- |
| 2004 |  |  |  |
| Basic\tEarnings\tper\tShare |  |  |  |
| Net\tincome\tavailable\tto\tcommon\tshareholders | $2,115 | 292.3 | $7.24 |
| Diluted\tEarnings\tper\tShare |  |  |  |
| Options | — | 2.8 |  |
| Equity\tUnits | — | 1.9 |  |
| Net\tincome\tavailable\tto\tcommon\tshareholders\tplus\tassumed\tconversions | $2,115 | 297.0 | $7.12 |
| 2003 |  |  |  |
| Basic\tEarnings\t(Loss)\tper\tshare |  |  |  |
| Net\tincome\t(loss)\tavailable\tto\tcommon\tshareholders | $(91) | 272.4 | $(0.33) |
| Diluted\tEarnings\t(Loss)\tper\tShare\t[1] |  |  |  |
| Options | — | — |  |
| Net\tincome\t(loss)\tavailable\tto\tcommon\tshareholders\tplus\tassumed\tconversions | $(91) | 272.4 | $(0.33) |
| 2002 |  |  |  |
| Basic\tEarnings\tper\tShare |  |  |  |
| Net\tincome\tavailable\tto\tcommon\tshareholders | $1,000 | 249.4 | $4.01 |
| Diluted\tEarnings\tper\tShare |  |  |  |
| Options | — | 2.4 |  |
| Net\tincome\tavailable\tto\tcommon\tshareholders\tplus\tassumed\tconversions | $1,000 | 251.8 | $3.97 |

[1] As	a	result	of	the	net	loss	for	the	year	ended	December	31,	2003,	SFAS	No.	128	requires	the	Company	to	use	basic	weighted	average	common	shares	outstanding	in the	calculation	of	the	year	ended	December	31,	2003	diluted	earnings	(loss)	per	share,	since	the	inclusion	of	options	of	1.8	would	have	been	antidilutive	to	the earnings	per	share	calculation.	In	the	absence	of	the	net	loss,	weighted	average	common	shares	outstanding	and	dilutive	potential	common	shares	would	have	totaled 274.2.

# 2.	Earnings	(Loss)	per	Share	(continued)

Basic	earnings	(loss)	per	share	are	computed	based	on	the	weighted	average	number	of	shares	outstanding	during	the	year.	Diluted	earnings	(loss)	per	share	include	the dilutive	effect	of	outstanding	options	and	the	Company's	equity	units,	if	any,	using	the	treasury	stock	method,	and	also	contingently	issuable	shares.	Under	the	treasury stock	method,	exercise	of	options	is	assumed	with	the	proceeds	used	to	purchase	common	stock	at	the	average	market	price	for	the	period.	The	difference	between	the number	of	shares	assumed	issued	and	number	of	shares	purchased	represents	the	dilutive	shares.	Under	the	treasury	stock	method	for	the	equity	units,	the	number	of	shares of	common	stock	used	in	calculating	diluted	earnings	per	share	is	increased	by	the	excess,	if	any,	of	the	number	of	shares	issuable	upon	settlement	of	the	purchase	contracts, over	the	number	of	shares	that	could	be	purchased	by	The	Hartford	in	the	market	using	the	proceeds	received	upon	settlement.	The	number	of	issuable	shares	is	based	on	the average	market	price	for	the	last	20	trading	days	of	the	period.	The	number	of	shares	purchased	is	based	on	the	average	market	price	during	the	entire	period.	Contingently issuable	shares	are	included	upon	satisfaction	of	certain	conditions	related	to	the	contingency.

Upon	exercise	of	outstanding	options,	the	additional	shares	issued	and	outstanding	are	included	in	the	calculation	of	the	Company's	weighted	average	shares	from	the	date of	exercise.	Similarly,	upon	settlement	of	the	purchase	contracts	associated	with	the	Company's	equity	units,	the	associated	common	shares	are	added	to	the	Company's issued	and	outstanding	shares.	Accordingly,	assuming	The	Hartford's	common	stock	price	exceeds	$56.875	per	share	and	assuming	operation	of	the	equity	unit	purchase contracts	in	the	ordinary	course,	on	August	16,	2006,	12.1	million	common	shares	will	be	added	to	the	Company's	issued	and	outstanding	shares	and	will	be	included	in	the calculation	of	the	Company's	weighted	average	shares	for	the	period	the	shares	are	outstanding.	Additionally,	assuming	The	Hartford's	common	stock	price	exceeds $57.645	per	share	and	assuming	operation	of	the	equity	unit	purchase	contracts	in	the	ordinary	course,	on	November	16,	2006,	5.7	million	common	shares	will	be	added	to the	Company's	issued	and	outstanding	shares	and	will	be	included	in	the	calculation	of	the	Company's	weighted	average	shares	for	the	period	the	shares	are	outstanding. For	further	discussion	of	the	Company's	equity	units	offerings,	see	Note	14.

# 3.	Segment	Information

The	Hartford	is	organized	into	two	major	operations:	Life	and	Property	&	Casualty,	each	containing	reporting	segments.	In	the	quarter	ended	March	31,	2004,	and	as	more fully	described	below,	the	Company	changed	its	reporting	segments	to	reflect	the	current	manner	by	which	its	chief	operating	decision	maker	views	and	manages	the business.	All	segment	data	for	prior	reporting	periods	have	been	adjusted	to	reflect	the	current	segment	reporting.	Within	the	Life	and	Property	&	Casualty	operations,	The Hartford	conducts	business	principally	in	eight	operating	segments.	Additionally,	Corporate	includes	all	of	the	Company's	debt	financing	and	related	interest	expense,	as well	as	certain	capital	raising	activities	and	purchase	accounting	adjustments.

Life's	business	is	conducted	by	Hartford	Life,	Inc.	("Hartford	Life"	or	"Life"),	an	indirect	subsidiary	of	The	Hartford,	headquartered	in	Simsbury,	Connecticut,	and	is	a leading	financial	services	and	insurance	organization.	Life	has	changed	its	reportable	operating	segments	in	2004	from	Investment	Products,	Individual	Life,	Group Benefits	and	Corporate	Owned	Life	Insurance	("COLI")	to	Retail	Products	Group	("Retail"),	Institutional	Solutions	Group	("Institutional"),	Individual	Life	and	Group Benefits.

Institutional	primarily	offers	retirement	plan	products	and	services	to	municipalities	under	Section	457	plans,	other	institutional	investment	products,	structured	settlements, and	private	placement	life	insurance	(formerly	COLI).

Group	Benefits	sells	group	insurance	products,	including	group	life	and	group	disability	insurance	as	well	as	other	products,	including	medical	stop	loss	and	supplementary medical	coverages	to	employers	and	employer	sponsored	plans,	accidental	death	and	dismemberment,	travel	accident	and	other	special	risk	coverages	to	employers	and associations.

Life	includes	in	an	Other	category	its	international	operations,	which	are	primarily	located	in	Japan	and	Brazil;	as	well	as	Life	Corporate,	which	includes	net	realized capital	gains	and	losses	other	than	periodic	net	coupon	settlements	on	non-qualifying	derivatives,	net	realized	capital	gains	and	losses	related	to	guaranteed	minimum withdrawal	benefits;	corporate	items	not	directly	allocated	to	any	of	its	reportable	operating	segments;	and	intersegment	eliminations.	Periodic	net	coupon	settlements	on non-qualifying	derivatives	and	net	realized	capital	gains	and	losses	related	to	guaranteed	minimum	withdrawal	benefits	are	reflected	in	each	applicable	segment	in	net realized	capital	gains	and	losses.

The	accounting	policies	of	the	reportable	operating	segments	are	the	same	as	those	described	in	the	summary	of	significant	accounting	policies	in	Note	1.	Life	evaluates performance	of	its	segments	based	on	revenues,	net	income	and	the	segment's	return	on	allocated	capital.	The	Company	charges	direct	operating	expenses	to	the appropriate	segment	and	allocates	the	majority	of	indirect	expenses	to	the	segments	based	on	an	intercompany	expense	arrangement.	Intersegment	revenues	primarily	occur between	Life's	Other	category

# 3.	Segment	Information	(continued)

and	the	operating	segments.	These	amounts	primarily	include	interest	income	on	allocated	surplus,	interest	charges	on	excess	separate	account	surplus,	the	allocation	of	net realized	capital	gains	and	losses	and	the	allocation	of	credit	risk	charges.	Each	operating	segment	is	allocated	corporate	surplus	as	needed	to	support	its	business.	Portfolio management	is	a	corporate	function	and	net	realized	capital	gains	and	losses	on	invested	assets	are	recognized	in	Life's	Other	category.	Those	net	realized	capital	gains	and losses	that	are	interest	rate	related	are	subsequently	allocated	back	to	the	operating	segments	in	future	periods,	with	interest,	over	the	average	estimated	duration	of	the operating	segment's	investment	portfolios,	through	an	adjustment	to	each	respective	operating	segment's	net	investment	income,	with	an	offsetting	adjustment	in	Life's Other	category.	Credit	related	net	capital	losses	are	retained	by	Life	Corporate.	However,	in	exchange	for	retaining	credit	related	losses,	Life's	Other	category	charges	each operating	segment	a	"credit-risk"	fee	through	net	investment	income.	The	"credit-risk"	fee	covers	fixed	income	assets	included	in	each	operating	segment's	general	account and	guaranteed	separate	accounts.	The	"credit-risk"	fee	is	based	upon	historical	default	rates	in	the	corporate	bond	market,	the	Company's	actual	default	experience	and estimates	of	future	losses.	The	Company's	revenues	are	primarily	derived	from	customers	within	the	United	States.	The	Company's	long-lived	assets	primarily	consist	of deferred	policy	acquisition	costs	and	deferred	tax	assets	from	within	the	United	States.

Property	&	Casualty	is	now	organized	into	four	reportable	operating	segments:	the	underwriting	segments	of	Business	Insurance,	Personal	Lines,	and	Specialty	Commercial (collectively	"Ongoing	Operations");	and	the	Other	Operations	segment.	Prior	to	the	first	quarter	of	2004,	Property	&	Casualty	had	also	included	a	Reinsurance	segment. With	the	discontinuance	of	writing	new	assumed	reinsurance	business,	the	assumed	reinsurance	business	is	included	in	the	Other	Operations	segment	for	all	periods presented.

Personal	Lines	provides	automobile,	homeowners'	and	home-based	business	coverages	to	the	members	of	AARP	through	a	direct	marketing	operation;	to	individuals	who prefer	local	agent	involvement	through	a	network	of	independent	agents	in	the	standard	personal	lines	market;	and	through	the	Omni	Insurance	Group	in	the	non-standard automobile	market.	Personal	Lines	also	operates	a	member	contact	center	for	health	insurance	products	offered	through	AARP's	Health	Care	Options.	AARP	accounts	for earned	premiums	of	$2.1	billion,	$2.0	billion	and	$1.7	billion	in	2004,	2003	and	2002,	respectively.

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	intersegment	transactions	occur	in	Life.	These	transactions	include	interest	income	on	allocated	surplus	and	the allocation	of	certain	net	realized	capital	gains	and	losses	through	net	investment	income	utilizing	the	duration	of	the	segment's	investment	portfolios.	Consolidated	Life	net investment	income	and	net	realized	capital	gains	and	losses	are	unaffected	by	such	transactions.	During	the	year	ended	December	31,	2003,	$1.8	billion	of	securities	were sold	by	the	Property	&	Casualty	operation	to	the	Life	operation.	For	segment	reporting,	the	net	gain	on	this	sale	was	deferred	and	will	be	reported	by	the	Property	& Casualty	operation	as	realized	when	the	underlying	securities	are	sold	by	the	Life	operation.	On	December	1,	2002,	the	Property	&	Casualty	segments	entered	into	a contract	with	a	subsidiary,	whereby	reinsurance	will	be	provided	to	the	Property	&	Casualty	operation.	This	reinsurance	program	enables	Property	&	Casualty	to	purchase reinsurance	at	the	overall	Property	&	Casualty	operation	level	rather	than	by	the	individual	segment.	The	financial	results	of	this	reinsurance	program,	net	of	retrocessions to	unrelated	reinsurers,	are	included	in	the	Specialty	Commercial	segment.

The	following	tables	present	revenues	and	net	income	(loss).	Underwriting	results	are	presented	for	the	Business	Insurance,	Personal	Lines,	Specialty	Commercial	and Other	Operations	segments,	while	net	income	is	presented	for	Life,	Property	&	Casualty	and	Corporate.	Segment	information	for	the	previous	periods	have	been	restated	to reflect	the	change	in	composition	of	reportable	operating	segments.

# Revenues	by	Product	Line

| Revenues | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Life |  |  |  |
| Earned\tpremiums,\tfees,\tand\tother\tconsiderations |  |  |  |
| Retail |  |  |  |
| Individual\tannuity | $1,618 | $1,310 | $1,236 |
| Retail\tmutual\tfunds | 393 | 303 | 291 |
| 401(k) | 77 | 49 | 35 |
| Other | 17 | 10 | 5 |
| Total\tRetail | 2,105 | 1,672 | 1,567 |
| Institutional |  |  |  |
| Institutional | 474 | 790 | 417 |
| Governmental | 50 | 46 | 45 |
| PPLI | 254 | 267 | 315 |
| Total\tInstitutional | 778 | 1,103 | 777 |
| Total\tIndividual\tLife | 746 | 727 | 697 |
| Group\tBenefits |  |  |  |
| Group\tdisability | 1,602 | 1,010 | 990 |
| Group\tlife | 1,655 | 1,012 | 968 |
| Other | 395 | 340 | 369 |
| Total\tGroup\tBenefits | 3,652 | 2,362 | 2,327 |
| Other | 36 | 113 | 26 |
| Total\tLife\tpremiums,\tfees,\tand\tother\tconsiderations | 7,317 | 5,977 | 5,394 |
| Net\tinvestment\tincome\t[1] | 3,894 | 2,041 | 1,849 |
| Net\trealized\tcapital\tgains\t(losses) | 149 | 40 | (308) |
| Total\tLife | 11,360 | 8,058 | 6,935 |
| Property\t&amp;\tCasualty |  |  |  |
| Ongoing\tOperations |  |  |  |
| Earned\tpremiums\tand\tother\trevenues |  |  |  |
| Business\tInsurance |  |  |  |
| Workers'\tCompensation | 1,511 | 1,242 | 1,079 |
| Property | 1,235 | 1,116 | 927 |
| Automobile | 754 | 676 | 590 |
| Liability | 445 | 419 | 382 |
| Other | 353 | 242 | 148 |
| Total\tBusiness\tInsurance | 4,298 | 3,695 | 3,126 |
| Personal\tLines |  |  |  |
| Automobile | 2,469 | 2,325 | 2,232 |
| Homeowners\tand\tother\t[2] | 1,099 | 979 | 875 |
| Total\tPersonal\tLines | 3,568 | 3,304 | 3,107 |
| Specialty\tCommercial |  |  |  |
| Workers'\tCompensation | 72 | 106 | 112 |
| Property | 201 | 238 | 198 |
| Automobile | 21 | 21 | 19 |
| Liability | 405 | 352 | 238 |
| Other\t[2] | 1,341 | 1,147 | 888 |
| Total\tSpecialty\tCommercial | 2,040 | 1,864 | 1,455 |
| Total\tOngoing\tOperations\tearned\tpremiums\tand\tother\trevenues | 9,906 | 8,863 | 7,688 |
| Other\tOperations | 24 | 370 | 782 |
| Net\tinvestment\tincome | 1,248 | 1,172 | 1,060 |
| Net\trealized\tcapital\tgains\t(losses) | 133 | 253 | (68) |
| Total\tProperty\t&amp;\tCasualty | 11,311 | 10,658 | 9,462 |
| Corporate | 22 | 17 | 20 |
| Total\trevenues | $22,693 | $18,733 | $16,417 |

[1] With	the	adoption	of	SOP	03-1,	certain	annuity	products	were	required	to	be	accounted	for	in	the	general	account.	This	change	in	accounting	resulted	in	net	investment income	of	$1,637,	for	the	year	ended	December	31,	2004.

[2]	Includes	servicing	revenue.

| Net	Income	(Loss) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Life |  |  |  |
| Retail | $526 | $430 | $356 |
| Institutional\t[1] | 124 | 83 | 108 |
| Individual\tLife | 153 | 145 | 133 |
| Group\tBenefits | 229 | 148 | 128 |
| Other\t[2] | 350 | 39 | (95) |
| Total\tLife | 1,382 | 845 | 630 |
| Property\t&amp;\tCasualty |  |  |  |
| Ongoing\tOperations\tUnderwriting\tResults |  |  |  |
| Business\tInsurance | 360 | 158 | 94 |
| Personal\tLines | 138 | 130 | (31) |
| Specialty\tCommercial | (53) | 10 | 6 |
| Total\tOngoing\tOperations\tunderwriting\tresults | 445 | 298 | 69 |
| Other\tOperations\tunderwriting\tresults\t[3] | (448) | (2,840) | (220) |
| Total\tProperty\t&amp;\tCasualty\tunderwriting\tresults | (3) | (2,542) | (151) |
| Net\tservicing\tand\tother\tincome\t[4] | 42 | 8 | 15 |
| Net\tinvestment\tincome | 1,248 | 1,172 | 1,060 |
| Net\trealized\tcapital\tgains\t(losses) | 133 | 253 | (68) |
| Other\texpenses | (235) | (214) | (201) |
| Income\ttax\t(expense)\tbenefit\t[2] | (275) | 578 | (112) |
| Total\tProperty\t&amp;\tCasualty | 910 | (745) | 543 |
| Corporate | (177) | (191) | (173) |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |

2003	includes	$40	of	after-tax	expense	related	to	the	settlement of	the	Bancorp	Services,	LLC	litigation	dispute.

For	the	year	ended	December	31,	2004	Life	includes	a	$190	tax benefit	recorded	in	its	Other	category,	and	Property	&	Casualty includes	a	$26	tax	benefit,	which	relate	to	agreement	with	the IRS	on	the	resolution	of	matters	pertaining	to	tax	years	prior	to 2004.	For	further	discussion	of	this	tax	benefit,	see	Note	12.

Includes	$2,604	for	the	year	ended	December	31,	2003	of	before- tax	impact	of	asbestos	reserve	addition.

Net	of	expenses	related	to	service	business.

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| Amortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | 2004 | 2003 | 2002 |
| Life |  |  |  |
| Retail | $661 | $509 | $436 |
| Institutional | 37 | 34 | 8 |
| Individual\tLife | 180 | 176 | 160 |
| Group\tBenefits | 23 | 18 | 17 |
| Other | 77 | 32 | 7 |
| Total\tLife | 978 | 769 | 628 |
| Property\t&amp;\tCasualty |  |  |  |
| Ongoing\tOperations |  |  |  |
| Business\tInsurance | 1,058 | 913 | 779 |
| Personal\tLines | 530 | 386 | 415 |
| Specialty\tCommercial | 257 | 254 | 240 |
| Total\tOngoing\tOperations | 1,845 | 1,553 | 1,434 |
| Other\tOperations | 5 | 89 | 179 |
| Total\tProperty\t&amp;\tCasualty | 1,850 | 1,642 | 1,613 |
| Total\tamortization\tof\tdeferred\tpolicy\tacquisition\tcosts\tand\tpresent\tvalue\tof\tfuture\tprofits | $2,828 | $2,411 | $2,241 |

| Income	tax	expense	(benefit) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Life |  |  |  |
| Retail | $114 | $78 | $96 |
| Institutional | 44 | 32 | 48 |
| Individual\tLife | 70 | 64 | 63 |
| Group\tBenefits | 84 | 43 | 35 |
| Other\t[1] | (110) | 4 | (193) |
| Total\tLife | 202 | 221 | 49 |
| Total\tProperty\t&amp;\tCasualty\t[1] | 275 | (578) | 112 |
| Corporate | (92) | (102) | (93) |
| Total\tincome\ttax\texpense\t(benefit) | $385 | $(459) | $68 |

Life	includes	tax	benefits	reflecting	the	impact	of	audit settlements	of	$190,	$0,	and	$76	for	the	years	ended December	31,	2004,	2003	and	2002,	respectively.	Property	& Casualty	includes	a	tax	benefit	of	$26	in	2004	reflecting	the impact	of	audit	settlements.

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| Geographical\tSegment\tInformation\tRevenues | 2004 | 2003 | 2002 |
| North\tAmerica | $21,311 | $18,480 | $16,289 |
| Other | 1,382 | 253 | 128 |
| Total\trevenues | $22,693 | $18,733 | $16,417 |

|  | As	of	December	31, | As	of	December	31, |
| :--- | :--- | :--- |
| Assets | 2004 | 2003 |
| Life |  |  |
| Retail | $122,214 | $106,409 |
| Institutional | 58,325 | 51,562 |
| Individual\tLife | 12,489 | 11,791 |
| Group\tBenefits | 8,244 | 7,993 |
| Other | 19,163 | 9,837 |
| Total\tLife | 220,435 | 187,592 |
| Total\tProperty\t&amp;\tCasualty | 38,018 | 37,159 |
| Corporate | 1,282 | 1,099 |
| Total\tAssets | $259,735 | $225,850 |

# 4.	Investments	and	Derivative	Instruments

| Components	of	Net	Investment	Income | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Fixed\tmaturities | $3,689 | $2,800 | $2,510 |
| Policy\tloans | 186 | 210 | 254 |
| Equity\ttrading\tsecurities | 1,018 | — | — |
| Other\tinvestments | 324 | 267 | 208 |
| Gross\tinvestment\tincome | 5,217 | 3,277 | 2,972 |
| Less:\tInvestment\texpenses | 55 | 44 | 43 |
| Net\tinvestment\tincome | $5,162 | $3,233 | $2,929 |
| Components\tof\tNet\tRealized\tCapital\tGains\t(Losses) |  |  |  |
| Fixed\tmaturities | $297 | $255 | $(378) |
| Equity\tsecurities | 3 | (29) | (42) |
| Periodic\tnet\tcoupon\tsettlements\ton\tnon-qualifying\tderivatives | 15 | 44 | 24 |
| Sale\tof\taffiliates | 2 | 22 | (4) |
| Other\t[1] | (41) | — | 23 |
| Change\tin\tliability\tto\tpolicyholders\tfor\tnet\trealized\tcapital\tgains | — | 1 | 1 |
| Net\trealized\tcapital\tgains\t(losses) | $276 | $293 | $(376) |

| Gross	unrealized	gains | $103 | $76 | $57 |
| :--- | :--- | :--- | :--- |
| Gross\tunrealized\tlosses | (13) | (16) | (77) |
| Net\tunrealized\tgains\t(losses) | 90 | 60 | (20) |
| Deferred\tincome\ttaxes\tand\tother\titems | 29 | 20 | (7) |
| Net\tunrealized\tgains\t(losses),\tnet\tof\ttax | 61 | 40 | (13) |
| Balance\t–\tbeginning\tof\tyear | 40 | (13) | 41 |
| Change\tin\tunrealized\tgains\t(losses)\ton\tavailable-for-sale\tequity\tsecurities | $21 | $53 | $(54) |

The	change	in	net	unrealized	gain	or	loss	on	equity	securities	classified	as	trading	included	in	net	investment	income	during	the	year	ended	December	31,	2004,	and substantially	offset	by	amounts	credited	to	policyholders	was	$677.	This	amount	was	not	included	in	the	gross	unrealized	gains	(losses)	in	the	chart	above.	The	Company had	no	securities	classified	as	trading	in	2003	or	2002.

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| Components\tof\tUnrealized\tGains\t(Losses)\ton\tFixed\tMaturities | 2004 | 2003 | 2002 |
| Gross\tunrealized\tgains | $3,993 | $3,413 | $3,062 |
| Gross\tunrealized\tlosses | (252) | (277) | (414) |
| Net\tunrealized\tgains\tcredited\tto\tpolicyholders | (20) | (63) | (58) |
| Net\tunrealized\tgains | 3,721 | 3,073 | 2,590 |
| Deferred\tincome\ttaxes\tand\tother\titems | 1,620 | 1,349 | 1,133 |
| Net\tunrealized\tgains,\tnet\tof\ttax | 2,101 | 1,724 | 1,457 |
| Balance\t–\tbeginning\tof\tyear | 1,724 | 1,457 | 565 |
| Change\tin\tunrealized\tgains\t(losses)\ton\tfixed\tmaturities | $377 | $267 | $892 |

# 4.	Investments	and	Derivative	Instruments	(continued)

# Components	of	Fixed	Maturity	Investments

|  | As	of	December	31,	2004 | As	of	December	31,	2004 | As	of	December	31,	2004 | As	of	December	31,	2004 | As	of	December	31,	2003 | As	of	December	31,	2003 | As	of	December	31,	2003 | As	of	December	31,	2003 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Gross\nUnrealized\nGains | Gross\nUnrealized\nLosses | Fair\nValue | Amortized\nCost | Gross\nUnrealized\nGains | Gross\nUnrealized\nLosses | Fair\nValue |
| Bonds\tand\tNotes |  |  |  |  |  |  |  |  |
| Asset-backed\tsecurities\t("ABS") | $7,446 | $95 | $(72) | $7,469 | $5,143 | $133 | $(83) | $5,193 |
| Collateralized\tmortgage\tobligations\t("CMOs") |  |  |  |  |  |  |  |  |
| Agency\tbacked | 1,138 | 11 | (3) | 1,146 | 880 | 12 | (2) | 890 |
| Non-agency\tbacked | 80 | 1 | — | 81 | 27 | — | — | 27 |
| Commercial\tmortgage-backed\tsecurities |  |  |  |  |  |  |  |  |
| ("CMBS") |  |  |  |  |  |  |  |  |
| Agency\tbacked | 71 | 2 | (1) | 72 | 35 | 1 | (2) | 34 |
| Non-agency\tbacked | 11,235 | 473 | (32) | 11,676 | 8,065 | 408 | (37) | 8,436 |
| Corporate | 31,826 | 2,444 | (117) | 34,153 | 25,639 | 1,865 | (126) | 27,378 |
| Government/Government\tagencies |  |  |  |  |  |  |  |  |
| Foreign | 1,648 | 153 | (5) | 1,796 | 1,436 | 148 | (2) | 1,582 |
| United\tStates | 1,116 | 22 | (6) | 1,132 | 1,060 | 13 | (3) | 1,070 |
| Mortgage-backed\tsecurities\t("MBS")\t–\tU.S. |  |  |  |  |  |  |  |  |
| Government/Government\tagencies | 2,774 | 29 | (4) | 2,799 | 2,400 | 40 | (3) | 2,437 |
| States,\tmunicipalities\tand\tpolitical\tsubdivisions | 10,589 | 760 | (12) | 11,337 | 10,003 | 786 | (19) | 10,770 |
| Redeemable\tpreferred\tstock | 36 | 3 | — | 39 | 76 | 4 | ¾ | 80 |
| Short-term\tinvestments | 3,400 | — | — | 3,400 | 3,363 | 3 | ¾ | 3,366 |
| Total\tfixed\tmaturities | $71,359 | $3,993 | $(252) | $75,100 | $58,127 | $3,413 | $(277) | $61,263 |

Included	in	the	fair	value	of	total	fixed	maturities	as	of	December	31,	2004	are	$11.7	billion	of	guaranteed	separate	account	assets.	Guaranteed	separate	account	assets	were reclassified	to	the	general	account	on	January	1,	2004	as	a	result	of	the	adoption	of	SOP	03-1.	(For	further	discussion,	see	the	Adoption	of	New	Accounting	Standards section	of	Note	1.)

The	amortized	cost	and	estimated	fair	value	of	fixed	maturity	investments	at	December	31,	2004	by	contractual	maturity	year	are	shown	below.	Estimated	maturities	may differ	from	contractual	maturities	due	to	call	or	prepayment	provisions.	Asset-backed	securities,	including	MBS	and	CMOs,	are	distributed	to	maturity	year	based	on	the Company's	estimates	of	the	rate	of	future	prepayments	of	principal	over	the	remaining	lives	of	the	securities.	These	estimates	are	developed	using	prepayment	speeds provided	in	broker	consensus	data.	Such	estimates	are	derived	from	prepayment	speeds	experienced	at	the	interest	rate	levels	projected	for	the	applicable	underlying collateral.	Actual	prepayment	experience	may	vary	from	these	estimates.

| Maturity | Amortized	Cost | Fair	Value |
| :--- | :--- | :--- |
| One\tyear\tor\tless | $7,250 | $7,307 |
| Over\tone\tyear\tthrough\tfive\tyears | 19,217 | 20,093 |
| Over\tfive\tyears\tthrough\tten\tyears | 22,162 | 23,255 |
| Over\tten\tyears | 22,730 | 24,445 |
| Total | $71,359 | $75,100 |

# Non-Income	Producing	Investments

Investments	that	were	non-income	producing	as	of	December	31,	are	as	follows:

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
| Security\tType | Amortized\tCost | Fair\tValue | Amortized\tCost | Fair\tValue |
| ABS | $5 | $4 | $3 | $5 |
| CMOs | 2 | 1 | — | 1 |
| CMBS | 1 | 1 | — | — |
| Corporate | 5 | 10 | 19 | 50 |
| Government/Government\tagencies\t—\tforeign | 13 | 13 | 12 | 12 |
| Total | $26 | $29 | $34 | $68 |

For	2004,	2003	and	2002,	net	investment	income	was	$17,	$31	and	$26,	respectively,	lower	than	it	would	have	been	if	interest	on	non-accrual	securities	had	been recognized	in	accordance	with	the	original	terms	of	these	investments.

# Sales	of	Fixed	Maturity	and	Equity	Security	Investments

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Sale\tof\tFixed\tMaturities |  |  |  |
| Sale\tproceeds | $21,339 | $13,827 | $9,174 |
| Gross\tgains | 525 | 576 | 276 |
| Gross\tlosses | (202) | (150) | (134) |
| Sale\tof\tAvailable-for-Sale\tEquity\tSecurities |  |  |  |
| Sale\tproceeds | $124 | $490 | $649 |
| Gross\tgains | 21 | 47 | 144 |
| Gross\tlosses | (6) | (46) | (122) |

# Concentration	of	Credit	Risk

# Security	Unrealized	Loss	Aging

The	Company	has	a	security	monitoring	process	overseen	by	a	committee	of	investment	and	accounting	professionals	that,	on	a	quarterly	basis,	identifies	securities	in	an unrealized	loss	position	that	could	potentially	be	other-than-temporarily	impaired.	(For	further	discussion	regarding	the	Company's	other-than-temporary	impairment policy,	see	the	Investments	section	of	Note	1.)	Due	to	the	issuers'	continued	satisfaction	of	the	securities'	obligations	in	accordance	with	their	contractual	terms	and	the expectation	that	they	will	continue	to	do	so,	management's	intent	and	ability	to	hold	these	securities	for	a	period	of	time	sufficient	to	allow	for	any	anticipated	recovery	in market	value,	as	well	as	the	evaluation	of	the	fundamentals	of	the	issuers'	financial	condition	and	other	objective	evidence,	the	Company	believes	that	the	prices	of	the securities	in	the	sectors	identified	in	the	tables	below	were	temporarily	depressed	as	of	December	31,	2004	and	2003.

The	following	table	presents	amortized	cost,	fair	value	and	unrealized	losses	for	the	Company's	fixed	maturity	and	available-for-sale	equity	securities,	aggregated	by investment	category	and	length	of	time	that	individual	securities	have	been	in	a	continuous	unrealized	loss	position	as	of	December	31,	2004.

|  |  |  |  |  | 2004 |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Less\tThan\t12\tMonths | Less\tThan\t12\tMonths | Less\tThan\t12\tMonths | 12\tMonths\tor\tMore | 12\tMonths\tor\tMore | 12\tMonths\tor\tMore | Total | Total | Total |
|  | Amortized\nCost | Fair\nValue | Unrealized\nLosses | Amortized\nCost | Fair\nValue | Unrealized\nLosses | Amortized\nCost | Fair\nValue | Unrealized\nLosses |
| ABS | $1,556 | $1,540 | $(16) | $429 | $373 | $(56) | $1,985 | $1,913 | $(72) |
| CMOs |  |  |  |  |  |  |  |  |  |
| Agency\tbacked | 555 | 552 | (3) | 2 | 2 | — | 557 | 554 | (3) |
| Non-agency\tbacked | 39 | 39 | — | — | — | — | 39 | 39 | — |
| CMBS |  |  |  |  |  |  |  |  |  |
| Agency\tbacked | 26 | 25 | (1) | — | — | — | 26 | 25 | (1) |
| Non-agency\tbacked | 2,788 | 2,764 | (24) | 172 | 164 | (8) | 2,960 | 2,928 | (32) |
| Corporate | 4,940 | 4,873 | (67) | 1,474 | 1,424 | (50) | 6,414 | 6,297 | (117) |
| Government/Government\tagencies |  |  |  |  |  |  |  |  |  |
| Foreign | 236 | 234 | (2) | 68 | 65 | (3) | 304 | 299 | (5) |
| United\tStates | 640 | 634 | (6) | 10 | 10 | — | 650 | 644 | (6) |
| MBS\t–\tU.S.\tGovernment/Government |  |  |  |  |  |  |  |  |  |
| agencies | 638 | 634 | (4) | 29 | 29 | — | 667 | 663 | (4) |
| States,\tmunicipalities\tand\tpolitical |  |  |  |  |  |  |  |  |  |
| subdivisions | 402 | 394 | (8) | 91 | 87 | (4) | 493 | 481 | (12) |
| Short-term\tinvestments | 94 | 94 | — | — | — | — | 94 | 94 | — |
| Total\tfixed\tmaturities | 11,914 | 11,783 | (131) | 2,275 | 2,154 | (121) | 14,189 | 13,937 | (252) |
| Common\tstock | 1 | 1 | — | 2 | 2 | — | 3 | 3 | — |
| Non-redeemable\tpreferred\tstock | 97 | 95 | (2) | 140 | 129 | (11) | 237 | 224 | (13) |
| Total\tequity | 98 | 96 | (2) | 142 | 131 | (11) | 240 | 227 | (13) |
| Total\ttemporarily\timpaired\tsecurities | $12,012 | $11,879 | $(133) | $2,417 | $2,285 | $(132) | $14,429 | $14,164 | $(265) |

As	of	December	31,	2004,	fixed	maturities	represented	approximately	95%	of	the	Company's	total	unrealized	loss	amount,	which	was	comprised	of	approximately	1,800 different	securities.	The	Company	held	no	securities	as	of	December	31,	2004	that	were	in	an	unrealized	loss	position	in	excess	of	$11.	There	were	no	fixed	maturities	or equity	securities	as	of	December	31,	2004,	with	a	fair	value	less	than	80%	of	the	security's	amortized	cost	for	six	continuous	months	other	than	certain	ABS	and	CMBS. Other-than-temporary	impairments	for	certain	ABS	and	CMBS	are	recognized	if	the	fair	value	of	the	security,	as	determined	by	external	pricing

sources,	is	less	than	its	carrying	amount	and	there	has	been	a	decrease	in	the	present	value	of	the	expected	cash	flows	since	the	last	reporting	period.	Based	on management's	best	estimate	of	future	cash	flows,	there	were	no	such	ABS	and	CMBS	in	an	unrealized	loss	position	as	of	December	31,	2004	that	were	deemed	to	be	other- than-temporarily	impaired.

Securities	in	an	unrealized	loss	position	for	less	than	twelve	months	were	comprised	of	over	1,500	securities	of	which	92%,	or	$123,	were	comprised	of	securities	with	fair value	to	amortized	cost	ratios	at	or	greater	than	90%.	The	majority	of	these	securities	are	investment	grade	fixed	maturities	depressed	due	to	changes	in	interest	rates	from the	date	of	purchase.

The	securities	depressed	for	twelve	months	or	more	as	of	December	31,	2004	were	comprised	of	approximately	300	securities,	with	the	majority	of	the	unrealized	loss amount	relating	to	ABS	and	corporate	fixed	maturities	within	the	financial	services	sector.	A	description	of	these	events	contributing	to	the	security	types'	unrealized	loss position	and	the	factors	considered	in	determining	that	recording	an	other-than-temporary	impairment	was	not	warranted	are	outlined	below.

ABS	—	ABS	represents	$56	of	the	securities	in	an	unrealized	loss	position	for	twelve	months	or	more.	These	securities	were	primarily	supported	by	aircraft	lease receivables	that	had	suffered	a	decrease	in	value	in	recent	years	as	a	result	of	a	prolonged	decline	in	airline	travel,	the	uncertainty	of	a	potential	industry	recovery	and	lack of	market	liquidity	in	this	sector.	Although	uncertainty	surrounding	the	stability	of	domestic	airlines	continues	to	weigh	heavily	on	this	sector,	worldwide	travel	and	aircraft demand	appears	to	be	improving,	resulting	in	a	modest	increase	in	market	prices	and	greater	liquidity	in	this	sector	during	2004.	As	of	December	31,	2004,	the	estimated future	cash	flows	for	these	securities	indicated	full	recovery	and	as	a	result,	based	on	management's	intent	and	ability	to	hold	these	securities,	the	prices	of	these	securities were	deemed	to	be	temporarily	depressed.

Financial	services	—	Financial	services	represents	approximately	$18	of	the	securities	in	an	unrealized	loss	position	for	twelve	months	or	more.	These	securities	are investment	grade	securities	priced	at	or	greater	than	90%	of	amortized	cost.	As	of	December	31,	2004,	the	financial	services	twelve	months	or	more	unrealized	loss	amount primarily	related	to	variable	rate	securities	with	extended	maturity	dates,	which	have	been	adversely	impacted	by	the	reduction	in	forward	interest	rates	after	the	purchase date,	resulting	in	lower	expected	cash	flows.	Unrealized	losses	for	these	securities	have	declined	during	the	year	as	interest	rates	have	risen.	Additional	changes	in	fair	value of	these	securities	are	primarily	dependent	on	future	changes	in	forward	interest	rates.	The	majority	of	these	variable	rate	securities	are	currently	hedged	with	interest	rate swaps,	which	convert	the	variable	rate	earned	on	the	securities	to	a	fixed	amount.	The	swaps	generally	receive	cash	flow	hedge	accounting	treatment	and	are	currently	in	an unrealized	gain	position.

The	remaining	balance	of	$58	in	the	twelve	months	or	more	unrealized	loss	category	is	comprised	of	approximately	170	securities,	substantially	all	of	which	were	depressed only	a	minor	extent	with	fair	value	to	amortized	cost	ratios	at	or	greater	than	90%	as	of	December	31,	2004.	The	decline	in	market	value	for	these	securities	is	primarily attributable	to	changes	in	interest	rates.

The	following	table	presents	amortized	cost,	fair	value	and	unrealized	losses	for	the	Company's	fixed	maturity	and	equity	securities,	aggregated	by	investment	category	and length	of	time	that	individual	securities	have	been	in	a	continuous	unrealized	loss	position	as	of	December	31,	2003.

|  | Less	Than	12	Months | Less	Than	12	Months | Less	Than	12	Months | 12	Months	or	More | 12	Months	or	More | 12	Months	or	More | Total | Total | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amortized\nCost | Fair\nValue | Unrealized\nLosses | Amortized\nCost | Fair\nValue | Unrealized\nLosses | Amortized\nCost | Fair\nValue | Unrealized\nLosses |
| ABS | $384 | $380 | $(4) | $94 | $93 | $(1) | $478 | $473 | $(5) |
| CMOs |  |  |  |  |  |  |  |  |  |
| Agency\tbacked | 270 | 268 | (2) | 1 | 1 | — | 271 | 269 | (2) |
| Non-agency\tbacked | 4 | 4 | — | — | — | — | 4 | 4 | — |
| CMBS |  |  |  |  |  |  |  |  |  |
| Non-agency\tbacked | 1,515 | 1,489 | (26) | 57 | 56 | (1) | 1,572 | 1,545 | (27) |
| Corporate | 3,836 | 3,740 | (96) | 517 | 492 | (25) | 4,353 | 4,232 | (121) |
| Government/Government\tagencies |  |  |  |  |  |  |  |  |  |
| Foreign | 128 | 126 | (2) | — | — | — | 128 | 126 | (2) |
| United\tStates | 310 | 307 | (3) | — | — | — | 310 | 307 | (3) |
| MBS\t–\tU.S.\tGovernment/Government |  |  |  |  |  |  |  |  |  |
| agencies | 251 | 248 | (3) | 1 | 1 | — | 252 | 249 | (3) |
| States,\tmunicipalities\tand\tpolitical |  |  |  |  |  |  |  |  |  |
| subdivisions | 448 | 429 | (19) | — | — | — | 448 | 429 | (19) |
| Redeemable\tpreferred\tstock | 3 | 3 | — | — | — | — | 3 | 3 | — |
| Total\tfixed\tmaturities | 7,149 | 6,994 | (155) | 670 | 643 | (27) | 7,819 | 7,637 | (182) |
| Common\tstock | 4 | 4 | — | 4 | 4 | — | 8 | 8 | — |
| Non-redeemable\tpreferred\tstock | 70 | 63 | (7) | 80 | 71 | (9) | 150 | 134 | (16) |
| Total\tequity | 74 | 67 | (7) | 84 | 75 | (9) | 158 | 142 | (16) |
| Total\ttemporarily\timpaired\tsecurities |  |  |  |  |  |  |  |  |  |
| [1] | $7,223 | $7,061 | $(162) | $754 | $718 | $(36) | $7,977 | $7,779 | $(198) |

[1] Excludes	securities	subject	to	EITF	Issue	No.	99-20	and	guaranteed	separate	account	assets.

There	were	no	fixed	maturities	or	equity	securities	as	of	December	31,	2003,	with	a	fair	value	less	than	80%	of	the	security's	amortized	cost	for	six	continuous	months.	As of	December	31,	2003,	fixed	maturities	represented	approximately	92%	of	the	Company's	unrealized	loss	amount,	which	was	comprised	of	approximately	800	different securities.	As	of	December	31,	2003,	the	Company	held	no	securities	presented	in	the	table	above	that	were	at	an	unrealized	loss	position	in	excess	of	$5.

The	majority	of	the	securities	in	an	unrealized	loss	position	for	less	than	twelve	months	were	depressed	due	to	the	rise	in	long-term	interest	rates.	This	group	of	securities was	comprised	of	over	700	securities.	Of	the	less	than	twelve	months	total	unrealized	loss	amount	$148,	or	91%,	was	comprised	of	securities	with	fair	value	to	amortized cost	ratios	as	of	December	31,	2003	at	or	greater	than	90%.	As	of	December	31,	2003,	$144	of	the	less	than	twelve	months	total	unrealized	loss	amount	was	comprised	of securities	in	an	unrealized	loss	position	for	less	than	six	continuous	months.

The	securities	depressed	for	twelve	months	or	more	were	comprised	of	less	than	100	securities.	Of	the	twelve	months	or	more	unrealized	loss	amount	$24,	or	67%,	was comprised	of	securities	with	fair	value	to	amortized	cost	ratios	as	of	December	31,	2003	at	or	greater	than	90%.

As	of	December	31,	2003,	the	securities	in	an	unrealized	loss	position	for	twelve	months	or	more	were	primarily	interest	rate	related.	The	sector	in	the	greatest	gross unrealized	loss	position	in	the	table	above	was	financial	services,	which	is	included	within	the	corporate	category	above.	A	description	of	the	events	contributing	to	the security	type's	unrealized	loss	position	and	the	factors	considered	in	determining	that	recording	an	other-than-temporary	impairment	was	not	warranted	are	outlined	below.

Financial	services	—	Financial	services	represents	approximately	$23	of	the	securities	in	an	unrealized	loss	position	for	twelve	months	or	more.	All	of	these	positions	were priced	at	or	greater	than	80%	of	amortized	cost	as	of	December	31,	2003.	The	financial	services	securities	in	an	unrealized	loss	position	are	primarily	investment	grade variable	rate	securities	with	extended	maturity	dates,	which	have	been	adversely	impacted	by	the	reduction	in	forward	interest	rates	after	the	purchase	date,	resulting	in lower	expected	cash	flows.	Unrealized	loss	amounts	for	these	securities	declined	during	2003	as	interest	rates	increased.	Additional	changes	in	fair	value	of	these	securities are	primarily	dependent	on	future	changes	in	forward	interest	rates.	A	substantial	percentage	of	these	securities	are	currently	hedged	with	interest	rate	swaps,	which	convert the	variable	rate	earned	on	the	securities	to	a	fixed	amount.	The	swaps	generally	receive	cash	flow	hedge	accounting	treatment	and	are	currently	in	an	unrealized	gain position.

The	remaining	balance	of	$13	in	the	twelve	months	or	more	unrealized	loss	category	is	comprised	of	approximately	60	securities	with	fair	value	to	amortized	cost	ratios	at or	greater	than	80%.

In	addition	to	managing	the	general	account	assets	of	the	Company,	Hartford	Investment	Management	Company	("HIM")	is	also	an	investment	advisor	for	third	party institutional	clients,	a	sub-advisor	for	certain	fixed	income	mutual	funds	offered	by	Hartford	Life	and	serves	as	the	sponsor	and	collateral	manager	for	synthetic collateralized	loan	obligations	("CLOs").	During	2004,	HIM	issued	one	and	began	serving	as	the	collateral	asset	manager	for	two	additional	synthetic	CLOs,	which	invest in	senior	secured	bank	loans	through	total	return	swaps	("referenced	bank	loan	portfolios").	The	notional	value	of	the	referenced	bank	loan	portfolios	from	the	three synthetic	CLOs	as	of	December	31,	2004	was	$1.1	billion.	The	synthetic	CLOs	issued	approximately	$185	of	notes	and	preferred	shares	("CLO	issuances"),	approximately $170	of	which	was	to	third	party	investors.	The	proceeds	from	the	CLO	issuances	were	invested	in	collateral	accounts	consisting	of	high	credit	quality	securities	that	were pledged	to	the	referenced	bank	loan	portfolios'	swap	counterparties.	Investors	in	the	CLO	issuances	receive	the	net	proceeds	from	the	referenced	bank	loan	portfolios.	Any principal	losses	incurred	by	the	swap	counterparties	associated	with	the	referenced	bank	loan	portfolios	are	borne	by	the	CLO	issuances	investors	through	the	total	return swaps.

Pursuant	to	the	requirements	of	FIN	46R,	the	Company	has	concluded	that	the	three	synthetic	CLOs	are	VIEs	and	for	the	CLO	issued	in	2004,	the	Company	is	the	primary beneficiary	and	must	consolidate	this	CLO.	Accordingly,	the	Company	has	recorded	in	the	consolidated	balance	sheets	$65	of	cash	and	invested	assets,	total	return	swaps with	a	fair	value	of	$3	in	other	assets,	which	reference	a	bank	loan	portfolio	with	a	maximum	notional	of	$400,	and	$52	in	other	liabilities	related	to	the	CLO	issuances. The	total	return	from	the	referenced	bank	loan	portfolio	of	$3	was	received	via	the	total	return	swap	and	recorded	in	realized	capital	gains	and	losses.	Income	from	the	fixed maturity	collateral	account	and	CLO	issuance	investor	payments	were	recorded	in	net	investment	income	in	the	consolidated	statements	of	operations.	The	Company's investment	in	the	consolidated	synthetic	CLO	issuance	is	$14,	which	is	its	maximum	exposure	to	loss.	Of	the	two	non-consolidated	synthetic	CLOs,	the	Company	has	a	$2 preferred	share	investment	in	one	of	the	CLO	issuances,	which	is	its	maximum	exposure	to	loss.	The	investors	in	the	three	synthetic	CLO	issuances	have	recourse	only	to the	VIE	assets	and	not	to	the	general	credit	of	the	Company.	The	collateral	management	fees	earned	by	HIM	for	the	two	non-consolidated	synthetic	CLOs	totaled	$3	for	the year	ended	December	31,	2004	and	are	reported	in	other	income	in	the	consolidated	statements	of	operations.

Derivative	instruments	are	recorded	at	fair	value	and	presented	in	the	consolidated	balance	sheets	as	of	December	31,	as	follows:

|  | Asset	Values | Asset	Values | Liability	Values | Liability	Values |
| :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2004 | 2003 |
| Other\tinvestments | $196 | $199 | $—\t $— | $—\t $— |
| Reinsurance\trecoverables | — | — | 67 | 89 |
| Other\tpolicyholder\tfunds\tand\tbenefits\tpayable | 129 | 115 | — | — |
| Fixed\tmaturities | 4 | 7 | — | — |
| Other\tliabilities | — | — | 590 | 303 |
| Total | $329 | $321 | $657 | $392 |

The	following	table	summarizes	the	primary	derivative	instruments	used	by	the	Company	and	the	hedging	strategies	to	which	they	relate.	Derivatives	in	the	Company's separate	accounts	are	not	included	because	the	associated	gains	and	losses	accrue	directly	to	policyholders.	The	notional	value	of	derivative	contracts	represent	the	basis upon	which	pay	or	receive	amounts	are	calculated	and	are	not	reflective	of	credit	risk.	The	fair	value	amounts	of	derivative	assets	and	liabilities	are	presented	on	a	net	basis as	of	December	31.

|  | Notional	Amount | Notional	Amount | Fair	Value | Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Hedging\tStrategy | 2004 | 2003 | 2004 | 2003 |
| Cash-Flow\tHedges |  |  |  |  |
| Interest\trate\tswaps |  |  |  |  |
| Interest\trate\tswaps\tare\tprimarily\tused\tto\tconvert\tinterest\treceipts\ton\tfloating-rate\tfixed\tmaturity |  |  |  |  |
| forward\tstarting\tswap\tagreements\tto\thedge\tthe\tinterest\trate\texposure\ton\tanticipated\tfixed-rate |  |  |  |  |
| asset\tpurchases\tdue\tto\tchanges\tin\tthe\tbenchmark\tinterest\trate\tLondon-Interbank\tOffered\tRate |  |  |  |  |
| assumptions\tused\tto\tprice\tprimarily\tcertain\tlong-term\tdisability\tproducts. |  |  |  |  |
| Interest\trate\tswaps\tare\talso\tused\tto\thedge\ta\tportion\tof\tthe\tCompany's\tfloating\trate\tguaranteed |  |  |  |  |
| payments\tto\ta\tfixed\trate\tto\tbetter\tmatch\tthe\tcash\treceipts\tearned\tfrom\tthe\tsupporting\tinvestment |  |  |  |  |
| portfolio. | $6,044 | $2,599 | $57 | $91 |
| Foreign\tcurrency\tswaps |  |  |  |  |
| Foreign\tcurrency\tswaps\tare\tused\tto\tconvert\tforeign\tdenominated\tcash\tflows\tassociated\twith |  |  |  |  |
| maturities\tare\tprimarily\tdenominated\tin\teuros\tand\tare\tswapped\tto\tminimize\tcash\tflow |  |  |  |  |
| fluctuations\tdue\tto\tchanges\tin\tcurrency\trates. | 1,735 | 1,060 | (499) | (175) |
| Fair-Value\tHedges |  |  |  |  |
| Interest\trate\tswaps |  |  |  |  |
| A\tportion\tof\tthe\tCompany's\tfixed\tdebt\tis\thedged\tagainst\tincreases\tin\tLIBOR,\tthe\tdesignated |  |  |  |  |
|  | 951 | 862 | (2) | 4 |
| Interest\trate\tcaps\tand\tfloors |  |  |  |  |
| Interest\trate\tcaps\tand\tfloors\tare\tused\tto\toffset\tthe\tchanges\tin\tfair\tvalue\trelated\tto\tcorresponding |  |  |  |  |
| interest\trate\tcaps\tand\tfloors\tthat\texist\tin\tcertain\tof\tthe\tCompany's\tvariable-rate\tfixed\tmaturity |  |  |  |  |
| investments. | 148 | 80 | (1) | (1) |
| Swaptions |  |  |  |  |
| Swaption\tarrangements\tare\tutilized\tto\toffset\tthe\tchange\tin\tthe\tfair\tvalue\tof\tcall\toptions\tembedded |  |  |  |  |
| arising\tfrom\tthe\tcall\toption\tembedded\tin\tthe\tmunicipal\tsecurity,\tproviding\tfor\ta\tfixed\treturn\tover |  |  |  |  |
| the\toriginal\tterm\tto\tmaturity. | 14 | 14 | 1 | 1 |
| Net\tInvestment\tHedges |  |  |  |  |
| Forwards |  |  |  |  |
| Yen\tdenominated\tforwards\tare\tused\tto\thedge\tthe\tnet\tinvestment\tin\tthe\tJapanese\tLife\toperation |  |  |  |  |
|  | 401 | 200 | (23) | (4) |

|  | Notional	Amount | Notional	Amount | Fair	Value | Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Hedging\tStrategy | 2004 | 2003 | 2004 | 2003 |
| Options |  |  |  |  |
| The\tCompany\twrites\toption\tcontracts\tfor\ta\tpremium\tto\tmonetize\tthe\toption\tembedded\tin\tcertain |  |  |  |  |
| by\tthe\tthen\tfair\tvalue\tof\tthe\tbond\tin\texcess\tof\tthe\tstrike\tvalue,\twhich\tis\texpected\tto\tbe\tentirely |  |  |  |  |
|  | $95 | $333 | $1 | $1 |
| Product\tderivatives |  |  |  |  |
| embedded\tderivative\tthat\tprovides\tthe\tpolicyholder\twith\ta\tguaranteed\tremaining\tbalance |  |  |  |  |
| ("GRB")\tif\tthe\taccount\tvalue\tis\treduced\tto\tzero\tthrough\ta\tcombination\tof\tmarket\tdeclines\tand |  |  |  |  |
| has\tthe\toption,\tafter\ta\tspecified\ttime\tperiod,\tto\treset\tthe\tGRB\tto\tthe\tthen-current\taccount\tvalue,\tif |  |  |  |  |
| value\tof\tthe\tembedded\tderivative\tis\tthe\tGRB\tbalance. | 25,433 | 14,961 | 129 | 115 |
| Reinsurance\tcontracts |  |  |  |  |
| Reinsurance\tarrangements\tare\tused\tto\toffset\tthe\tCompany's\texposure\tto\tthe\tGMWB\tembedded |  |  |  |  |
| reinsurance\tcontracts\tis\tthe\tGRB\tamount. | 9,107 | 9,139 | (67) | (89) |
| GMWB\thedging\tinstruments |  |  |  |  |
| The\tCompany\tenters\tinto\tinterest\trate\tfutures,\tStandard\tand\tPoor's\t("S&amp;P")\t500\tand\tNASDAQ |  |  |  |  |
| index\tfutures\tcontracts\tand\tput\tand\tcall\toptions,\tas\twell\tas\tinterest\trate\tswap\tcontracts\tto\thedge |  |  |  |  |
| exposure\tto\tthe\tvolatility\tassociated\twith\tthe\tportion\tof\tthe\tGMWB\tliabilities\twhich\tare\tnot |  |  |  |  |
| reinsured. | 3,117 | 544 | 108 | 21 |
| Statutory\treserve\thedging\tinstruments |  |  |  |  |
| The\tCompany\tpurchased\tone\tand\ttwo\tyear\tS&amp;P500\tput\toption\tcontracts\tto\teconomically\thedge |  |  |  |  |
| the\tstatutory\treserve\timpact\tof\tequity\texposure\tarising\tprimarily\tfrom\tGMDB\tobligations\tagainst |  |  |  |  |
| a\tdecline\tin\tthe\tequity\tmarkets. | 1,921 | — | 32 | — |
| Total | $56,278 | $35,804 | $(328) | $(71) |

The	increase	in	notional	amount	since	December	31,	2003	is	primarily	due	to	an	increase	in	embedded	derivatives	associated	with	GMWB	product	sales,	and,	to	a	lesser extent,	derivatives	transferred	to	the	general	account	as	a	result	of	the	adoption	of	SOP	03-1	and	new	hedging	strategies.	The	decrease	in	the	net	fair	value	of	derivative instruments	since	December	31,	2003	was	primarily	due	to	the	changes	in	foreign	currency	exchange	rates,	the	rise	in	short-term	interest	rates	during	2004	and	derivatives transferred	to	the	general	account	pursuant	to	the	adoption	of	SOP	03-1,	partially	offset	by	the	increase	in	derivatives	associated	with	GMWB.

Due	to	the	adoption	of	SOP	03-1,	derivatives	previously	included	in	separate	accounts	were	reclassified	into	various	other	balance	sheet	classifications.	On	January	1,	2004, the	notional	amount	and	net	fair	value	of	derivative	instruments	reclassified	totaled	$2.9	billion	and	$(71),	respectively.

For	the	year	ended	December	31,	2004,	gross	gains	and	losses	representing	the	total	ineffectiveness	of	all	fair-value	and	net	investment	hedges	were	immaterial.	For	the year	ended	December	31,	2004,	the	Company's	net	gain	and	loss	representing	hedge	ineffectiveness	on	cash	flow	hedges	was	$(11),	after-tax.	For	the	years	ended December	31,	2003	and	2002,	the	Company's	gross	gains	and	losses	representing	the	total	ineffectiveness	of	all	cash-flow,	fair-value	and	net	investment	hedges	were immaterial.

The	total	change	in	value	for	other	derivative-based	strategies	which	do	not	qualify	for	hedge	accounting	treatment,	including	periodic	net	coupon	settlements,	are	reported as	net	realized	capital	gains	and	losses	in	the	consolidated	statements	of	operations.	For	the	years	ended	December	31,	2004,	2003	and	2002,	the	Company	recognized	an after-tax	net	gain	of	$6,	$11	and	$22,	respectively,	for	derivative-based	strategies,	which	do	not	qualify	for	hedge	accounting	treatment.	The	net,	after-tax,	GMWB	activity (including	the	embedded	derivative	liability,	reinsurance	contracts	and	futures,	swaps	and	option	contracts)	is	included	in	this	amount	and	totaled	$5,	$4	and	$0	for	the	years ended	December	31,	2004,	2003	and	2002,	respectively.

As	of	December	31,	2004	and	2003,	the	after-tax	deferred	net	gains	on	derivative	instruments	accumulated	in	AOCI	that	are	expected	to	be	reclassified	to	earnings	during the	next	twelve	months	are	$7.	This	expectation	is	based	on	the	anticipated	interest	payments	on	hedged	investments	in	fixed	maturity	securities	that	will	occur	over	the next	twelve	months,	at	which	time	the	Company	will	recognize	the	deferred	net	gains	(losses)	as	an	adjustment	to	interest	income	over	the	term	of	the	investment	cash flows.	The	maximum	term	over	which	the	Company	is	hedging	its	exposure	to	the	variability	of	future	cash	flows	(for	all	forecasted	transactions,

excluding	interest	payments	on	variable-rate	debt)	is	twenty-four	months.	For	the	years	ended	December	31,	2004,	2003	and	2002,	the	net	reclassifications	from	AOCI	to earnings	resulting	from	the	discontinuance	of	cash-flow	hedges	were	immaterial.

The	net	investment	hedge	of	the	Japanese	Life	operation	was	established	in	the	fourth	quarter	of	2003.	The	after-tax	amount	of	gain	(loss)	included	in	the	foreign	currency translation	adjustment	associated	with	the	net	investment	hedge	was	$(14)	as	of	December	31,	2004.	The	net	amount	of	gains	(losses)	recorded	in	the	foreign	currency translation	adjustments	account	pertaining	to	the	net	investment	hedge	for	the	years	ended	December	31,	2004	and	2003	was	$(14)	and	$(3),	respectively.

The	Company	began	issuing	a	yen	denominated	individual	fixed	annuity	product	in	the	fourth	quarter	of	2004.	The	yen	denominated	fixed	annuity	product	is	recorded	in the	consolidated	balance	sheets	in	other	policyholder	funds	and	benefits	payable	in	U.S.	dollars	based	upon	the	December	31,	2004	yen	to	dollar	spot	rate.	To	mitigate	the yen	exposure	associated	with	the	product,	during	the	fourth	quarter	of	2004,	the	Company	entered	into	pay	fixed	U.S.	dollar	receive	fixed	yen,	zero	coupon	currency	swaps (dollar	to	yen	derivatives).	As	of	December	31,	2004	the	dollar	to	yen	derivatives	had	a	notional	and	fair	value	of	$408	and	$9,	respectively.	Changes	in	fair	value	of	the dollar	to	yen	derivatives	totaled	$9	for	the	year	ended	December	31,	2004.	Although	economically	an	effective	hedge,	a	divergence	between	the	yen	denominated	fixed annuity	product	liability	and	the	dollar	to	yen	derivatives	exists	primarily	due	to	the	difference	in	the	basis	of	accounting	between	the	liability	and	the	derivative	instruments (i.e.	historical	cost	versus	fair	value).	The	yen	denominated	fixed	annuity	product	liabilities	are	recorded	on	a	historical	cost	basis	and	are	only	adjusted	for	changes	in foreign	spot	rates	and	accrued	income.	The	dollar	to	yen	derivatives	are	recorded	at	fair	value	incorporating	changes	in	value	due	to	changes	in	forward	foreign	exchange rates,	interest	rates	and	accrued	income.

# Securities	Lending	and	Collateral	Arrangements

The	Company	participates	in	a	securities	lending	program	to	generate	additional	income,	whereby	certain	domestic	fixed	income	securities	are	loaned	for	a	short	period	of time	from	the	Company's	portfolio	to	qualifying	third	parties,	via	a	lending	agent.	Borrowers	of	these	securities	provide	collateral	of	102%	of	the	market	value	of	the loaned	securities.	Acceptable	collateral	may	be	in	the	form	of	cash	or	U.S.	Government	securities.	The	market	value	of	the	loaned	securities	is	monitored	and	additional collateral	is	obtained	if	the	market	value	of	the	collateral	falls	below	100%	of	the	market	value	of	the	loaned	securities.	Under	the	terms	of	the	securities	lending	program, the	lending	agent	indemnifies	the	Company	against	borrower	defaults.	As	of	December	31,	2004	and	2003,	the	fair	value	of	the	loaned	securities	was	approximately $1.5	billion	and	$1.1	billion,	respectively,	and	was	included	in	fixed	maturities	in	the	consolidated	balance	sheets.	The	Company	retains	a	portion	of	the	income	earned from	the	cash	collateral	or	receives	a	fee	from	the	borrower.	The	Company	recorded	before-tax	income	from	securities	lending	transactions,	net	of	lending	fees,	of	$2	and $1	for	the	years	ended	December	31,	2004	and	2003,	respectively,	which	was	included	in	net	investment	income.

The	Company	enters	into	various	collateral	arrangements,	which	require	both	the	pledging	and	accepting	of	collateral	in	connection	with	its	derivative	instruments.	As	of December	31,	2004	and	2003,	collateral	pledged	of	$337	and	$275,	respectively,	was	included	in	fixed	maturities	in	the	consolidated	balance	sheets.

The	classification	and	carrying	amount	of	the	loaned	securities	associated	with	the	lending	program	and	the	collateral	pledged	at	December	31,	2004	and	2003	were	as follows:

| Loaned	Securities	and	Collateral	Pledged | 2004 | 2003 |
| :--- | :--- | :--- |
| ABS | $46 | $47 |
| CMOs | 1 | — |
| CMBS | 223 | 198 |
| Corporate | 1,001 | 639 |
| Government/Government\tAgencies |  |  |
| Foreign | 42 | 20 |
| United\tStates | 570 | 497 |
| Total | $1,883 | $1,401 |

As	of	December	31,	2004	and	2003,	the	Company	had	accepted	collateral	relating	to	the	securities	lending	program	and	collateral	arrangements	consisting	of	cash,	U.S. Government,	and	U.S.	Government	agency	securities	with	a	fair	value	of	$1.7	billion	and	$1.4	billion,	respectively.	At	December	31,	2004	and	2003,	cash	collateral	of $1.6	billion	and	$1.2	billion,	respectively,	was	invested	and	recorded	in	the	consolidated	balance	sheets	in	fixed	maturities	with	a	corresponding	amount	recorded	in	other liabilities.	The	Company	is	only	permitted	by	contract	to	sell	or	repledge	the	noncash	collateral	in	the	event	of	a	default	by	the	counterparty	and	none	of	the	collateral	has been	sold	or	repledged	at	December	31,	2004	and	2003.	As	of	December	31,	2004	and	2003,	all	collateral	accepted	was	held	in	separate	custodial	accounts.

# 5.	Fair	Value	of	Financial	Instruments

SFAS	No.	107,	"Disclosures	about	Fair	Value	of	Financial	Instruments",	requires	disclosure	of	fair	value	information	of	financial	instruments.

For	certain	financial	instruments	where	quoted	market	prices	are	not	available,	other	independent	valuation	techniques	and	assumptions	are	used.	Because	considerable judgment	is	used,	these	estimates	are	not	necessarily	indicative	of	amounts	that	could	be	realized	in	a	current	market	exchange.	SFAS	No.	107	excludes	certain	financial instruments	from	disclosure,	including	insurance	contracts,	other	than	financial	guarantees	and	investment	contracts.

The	Hartford	uses	the	following	methods	and	assumptions	in	estimating	the	fair	value	of	each	class	of	financial	instrument.	Fair	value	for	fixed	maturities	and	marketable equity	securities	approximates	those	quotations	published	by	applicable	stock	exchanges	or	received	from	other	reliable	sources.

For	policy	loans,	carrying	amounts	approximate	fair	value.

For	mortgage	loans,	fair	values	were	estimated	using	discounted	cash	flow	calculations	based	on	current	incremental	lending	rates	for	similar	type	loans.

Fair	value	of	limited	partnerships	and	trusts	is	based	on	external	market	valuations	from	partnership	and	trust	management.

Derivative	instruments	are	reported	at	fair	value	based	upon	internally	established	valuations	that	are	consistent	with	external	valuation	models,	quotations	furnished	by dealers	in	such	instrument	or	market	quotations.

Other	policyholder	funds	and	benefits	payable	fair	value	information	is	determined	by	estimating	future	cash	flows,	discounted	at	the	current	market	rate.	For	further discussion	of	other	policyholder	funds	and	derivatives,	see	Note	1.

For	commercial	paper,	carrying	amounts	approximate	fair	value.

Fair	value	for	long-term	debt	is	based	on	market	quotations	from	independent	third	party	pricing	services.

The	carrying	amounts	and	fair	values	of	The	Hartford's	financial	instruments	at	December	31,	2004	and	2003	were	as	follows:

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
| Assets | Carrying\nAmount | Fair\nValue | Carrying\nAmount | Fair\nValue |
| Fixed\tmaturities | $75,100 | $75,100 | $61,263 | $61,263 |
| Equity\tsecurities | 14,466 | 14,466 | 565 | 565 |
| Policy\tloans | 2,662 | 2,662 | 2,512 | 2,512 |
| Limited\tpartnerships\t[1] | 433 | 433 | 345 | 345 |
| Mortgage\tloans\t[1] | 1,174 | 1,194 | 792 | 792 |
| Other\tinvestments\t[2] | 573 | 573 | 370 | 370 |
| Liabilities |  |  |  |  |
| Other\tpolicyholder\tfunds\tand\tbenefits\tpayable\t[3] | $9,249 | $9,081 | $7,659 | $7,893 |
| Commercial\tpaper\t[4] | 372 | 372 | 850 | 850 |
| Long-term\tdebt\t[5] | 4,557 | 5,141 | 4,810 | 5,378 |
| Derivative\trelated\tliabilities\t[6] | 590 | 590 | 303 | 303 |

# [1] Included	in	other	investments	in	the	consolidated	balance	sheets.

[3] Excludes	group	accident	and	health	and	universal	life	insurance	contracts,	including	corporate	owned	life	insurance.

[4] Included	in	short-term	debt	in	the	consolidated	balance	sheets.

[5] Includes	current	maturities	of	long-term	debt.

# [6] Included	in	other	liabilities	in	the	consolidated	balance	sheets.

The	Hartford	cedes	insurance	to	other	insurers	in	order	to	limit	its	maximum	losses	and	to	diversify	its	exposures.	Such	transfers	do	not	relieve	The	Hartford	of	its	primary liability	under	policies	it	wrote	and,	as	such,	failure	of	reinsurers	to	honor	their	obligations	could	result	in	losses	to	The	Hartford.	The	Hartford	also	assumes	reinsurance from	other	insurers.	The	Hartford	also	is	a	member	of	and	participates	in	several	reinsurance	pools	and	associations.	The	Hartford	evaluates	the	financial	condition	of	its reinsurers	and	monitors	concentrations	of	credit	risk.	Virtually	all	of	The	Hartford's	property	and	casualty	reinsurance	is	placed	with	reinsurers	that	meet	strict	financial criteria	established	by	a	credit	committee.	As	of	December	31,	2004	and	2003,	The	Hartford	had	no	reinsurance-related	concentrations	of	credit	risk	greater	than	10%	of	the Company's	stockholders'	equity.

# 6.	Reinsurance	(continued)

In	accordance	with	normal	industry	practice,	Life	is	involved	in	both	the	cession	and	assumption	of	insurance	with	other	insurance	and	reinsurance	companies.	As	of December	31,	2004,	the	largest	amount	of	life	insurance	retained	on	any	one	life	by	any	one	of	the	life	operations	was	approximately	$2.9.	In	addition,	the	Company reinsures	the	majority	of	minimum	death	benefit	guarantees	as	well	as	the	guaranteed	withdrawal	benefits	on	contracts	issued	prior	to	July	2003	offered	in	connection	with its	variable	annuity	contracts.

Life	insurance	fees,	earned	premiums	and	other	were	comprised	of	the	following:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Gross\tfee\tincome,\tearned\tpremiums\tand\tother | $7,004 | $6,247 | $5,634 |
| Reinsurance\tassumed | 811 | 195 | 180 |
| Reinsurance\tceded | (498) | (465) | (420) |
| Net\tfee\tincome,\tearned\tpremiums\tand\tother | $7,317 | $5,977 | $5,394 |

Life	reinsures	certain	of	its	risks	to	other	reinsurers	under	yearly	renewable	term,	coinsurance,	and	modified	coinsurance	arrangements.	Yearly	renewable	term	and coinsurance	arrangements	result	in	passing	a	portion	of	the	risk	to	the	reinsurer.	Generally,	the	reinsurer	receives	a	proportionate	amount	of	the	premiums	less	an	allowance for	commissions	and	expenses	and	is	liable	for	a	corresponding	proportionate	amount	of	all	benefit	payments.	Modified	coinsurance	is	similar	to	coinsurance	except	that	the cash	and	investments	that	support	the	liabilities	for	contract	benefits	are	not	transferred	to	the	assuming	company,	and	settlements	are	made	on	a	net	basis	between	the companies.

Life	also	purchases	reinsurance	covering	the	death	benefit	guarantees	on	a	portion	of	its	variable	annuity	business.	On	March	16,	2003,	a	final	decision	and	award	was issued	in	the	previously	disclosed	arbitration	between	subsidiaries	of	the	Company	and	one	of	their	primary	reinsurers	relating	to	policies	with	death	benefits	written	from 1994	to	1999.	(For	further	discussion	of	this	arbitration,	see	Note	12.)

The	cost	of	reinsurance	related	to	long-duration	contracts	is	accounted	for	over	the	life	of	the	underlying	reinsured	policies	using	assumptions	consistent	with	those	used	to account	for	the	underlying	policies.	Life	insurance	recoveries	on	ceded	reinsurance	contracts,	which	reduce	death	and	other	benefits,	were	$478,	$541	and	$484	for	the years	ended	December	31,	2004,	2003	and	2002,	respectively.	Life	also	assumes	reinsurance	from	other	insurers.

# Property	and	Casualty

The	effect	of	reinsurance	on	property	and	casualty	premiums	written	and	earned	was	as	follows:

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| Premiums\tWritten | 2004 | 2003 | 2002 |
| Direct | $11,267 | $10,393 | $8,985 |
| Assumed | 231 | 688 | 850 |
| Ceded | (1,604) | (2,016) | (1,251) |
| Net | $9,894 | $9,065 | $8,584 |
| Premiums\tEarned |  |  |  |
| Direct | $10,961 | $9,919 | $8,404 |
| Assumed | 218 | 731 | 872 |
| Ceded | (1,685) | (1,845) | (1,162) |
| Net | $9,494 | $8,805 | $8,114 |

Reinsurance	cessions,	which	reduce	claims	and	claim	adjustment	expenses	incurred,	were	$929,	$2.0	billion	and	$988	for	the	years	ended	December	31,	2004,	2003	and 2002,	respectively.

The	Hartford	records	a	receivable	for	reinsured	benefits	paid	and	the	portion	of	insurance	liabilities	that	are	reinsured,	net	of	a	valuation	allowance,	if	necessary.	The amounts	recoverable	from	reinsurers	are	estimated	based	on	assumptions	that	are	consistent	with	those	used	in	establishing	the	reserves	related	to	the	underlying	reinsured contracts.	Management	believes	the	recoverables	are	appropriately	established;	however,	in	the	event	that	future	circumstances	and	information	require	The	Hartford	to change	its	estimate	of	needed	loss	reserves,	the	amount	of	reinsurance	recoverables	may	also	require	adjustments.

As	of	December	31,	2004	and	2003,	the	allowance	for	uncollectible	reinsurance	totaled	$374	and	$381,	respectively.

# Reinsurance	Recapture

On	June	30,	2003,	the	Company	recaptured	a	block	of	business	previously	reinsured	with	an	unaffiliated	reinsurer.	Under	this	treaty,	HLI	reinsured	a	portion	of	the	GMDB feature	associated	with	certain	of	its	annuity	contracts.	As	consideration	for	recapturing	the	business	and	final	settlement	under	the	treaty,	the	Company	has	received	assets valued	at	approximately	$32	and	one	million	warrants	exercisable	for	the	unaffiliated	company's	stock.	This	amount	represents	to	the	Company	an	advance	collection	of	its future	recoveries	under	the	reinsurance	agreement	and	will	be	recognized	as	future	losses	are	incurred.	Prospectively,	as	a	result	of	the	recapture,	HLI	will	be	responsible	for all	of	the	remaining	and	ongoing	risks	associated	with	the	GMDB's	related	to	this	block	of	business.	The	recapture	increased	the	net	amount	at	risk	retained	by	the Company,	which	is	included	in	the	net	amount	at	risk	discussed	in	Note	9.	On	January	1,	2004,	upon	adoption	of	the	SOP,	the	$32	was	included	in	the	Company's	GMDB reserve	calculation	as	part	of	the	net	reserve	benefit	ratio	and	as	a	claim	recovery	to	date.

Changes	in	deferred	policy	acquisition	costs	and	present	value	of	future	profits	are	as	follows:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Balance,\tJanuary\t1 | $6,624 | $5,759 | $5,573 |
| Capitalization | 1,968 | 1,626 | 1,160 |
| Amortization\t–\tDeferred\tPolicy\tAcquisitions\tCosts\tand\tPresent\tValue\tof\tFuture\tProfits | (978) | (769) | (628) |
| Amortization\t–\tRealized\tCapital\tGains | (15) | 14 | 7 |
| Adjustments\tto\tunrealized\tgains\tand\tlosses\ton\tsecurities\tavailable-for-sale\tand\tother | (75) | (59) | (353) |
| Cumulative\teffect\tof\taccounting\tchange\t(SOP03-1) | (105) | — | — |
| Effect\tof\tcurrency\ttranslation | 72 | — | — |
| Acquisition\tof\tHartford\tLife\tGroup\tInsurance\tCompany\t[1] | (53) | 53 | — |
| Balance,\tDecember\t31 | $7,438 | $6,624 | $5,759 |

[1] For	the	year	ended	December	31,	2004,	reflects	the	purchase	price	adjustment	related	to	the	acquisition	of	Hartford	Life	Group	Insurance	Company.

Estimated	future	net	amortization	expense	of	present	value	of	future	profits	for	the	succeeding	five	years	is	as	follows:

Changes	in	deferred	policy	acquisition	costs	are	as	follows:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Balance,\tJanuary\t1 | $975 | $930 | $847 |
| Capitalization | 1,946 | 1,687 | 1,696 |
| Amortization\t–\tDeferred\tPolicy\tAcquisition\tCosts | (1,850) | (1,642) | (1,613) |
| Balance,\tDecember\t31 | $1,071 | $975 | $930 |

# 8.	Goodwill	and	Other	Intangible	Assets

The	carrying	amount	of	goodwill	as	of	December	31,	2004	and	2003	is	shown	below.

The	Company's	tests	of	its	goodwill	for	impairment	in	accordance	with	SFAS	No.	142	"Goodwill	and	Other	Intangible	Assets",	resulted	in	no	write-downs	for	the	years ended	December	31,	2004	and	2003.

The	following	table	shows	the	Company's	acquired	intangible	assets	that	continue	to	be	subject	to	amortization	and	aggregate	amortization	expense	net	of	interest accretion,	if	any.	Except	for	goodwill,	the	Company	has	no	intangible	assets	with	indefinite	useful	lives.

|  | 2004 | 2004 | 2003 | 2003 |
| :--- | :--- | :--- | :--- | :--- |
| Acquired\tIntangible\tAssets | Gross\tCarrying\nAmount | Accumulated\tNet\nAmortization | Gross\tCarrying\nAmount | Accumulated\tNet\nAmortization |
| Renewal\trights | $22 | $13 | $46 | $33 |
| Other | 13 | 4 | 11 | 1 |
| Total\tAcquired\tIntangible\tAssets | $35 | $17 | $57 | $34 |

Net	amortization	expense	for	each	year	ended	December	31,	2004,	2003	and	2002	was	$7.	In	2004,	the	Company	wrote	off	$24	of	fully-amortized	renewal	rights.	As	of December	31,	2004,	the	weighted	average	amortization	period	was	4.8	years	for	renewal	rights,	5.0	years	for	other	and	4.9	years	for	total	acquired	intangible	assets.

The	following	is	detail	of	the	net	acquired	intangible	asset	activity	for	the	years	ended	December	31,	2004,	2003	and	2002,	respectively.

| For	the	year	ended	December	31,	2004 | Renewal	Rights | Other | Total |
| :--- | :--- | :--- | :--- |
| Balance,\tbeginning\tof\tperiod | $13 | $10 | $23 |
| Acquisition\tof\tbusiness | — | 2 | 2 |
| Amortization,\tnet\tof\tthe\taccretion\tof\tinterest | (4) | (3) | (7) |
| Balance,\tending\tof\tperiod | $9 | $9 | $18 |
| For\tthe\tyear\tended\tDecember\t31,\t2003 |  |  |  |
| Balance,\tbeginning\tof\tperiod | $15 | $— | $15 |
| Acquisition\tof\tbusiness | 4 | 11 | 15 |
| Amortization,\tnet\tof\tthe\taccretion\tof\tinterest | (6) | (1) | (7) |
| Balance,\tending\tof\tperiod | $13 | $10 | $23 |
| For\tthe\tyear\tended\tDecember\t31,\t2002 |  |  |  |
| Balance,\tbeginning\tof\tperiod | $22 | $— | $22 |
| Acquisition\tof\tbusiness | — | — | — |
| Amortization,\tnet\tof\tthe\taccretion\tof\tinterest | (7) | — | (7) |
| Balance,\tending\tof\tperiod | $15 | $— | $15 |

Estimated	future	net	amortization	expense	for	the	succeeding	five	years	is	as	follows:

For	a	discussion	of	the	present	value	of	future	profits	that	continue	to	be	subject	to	amortization	and	aggregate	amortization	expense,	see	Note	7.

# 9.	Separate	Accounts,	Death	Benefits	and	Other	Insurance	Benefit	Features

The	Hartford	records	the	variable	portion	of	individual	variable	annuities,	401(k),	institutional,	governmental,	private	placement	life	and	variable	life	insurance	products within	separate	account	assets	and	liabilities,	which	are	reported	at	fair	value.	Separate	account	assets	are	segregated	from	other	investments.	Investment	income	and	gains and	losses	from	those	separate	account	assets,	which	accrue	directly	to,	and	whereby	investment	risk	is	borne	by	the	policyholder,	are	offset	by	the	related	liability	changes within	the	same	line	item	in	the	statement	of	income.	The	fees	earned	for	administrative	and	contract	holder	maintenance	services	performed	for	these	separate	accounts	are included	in	fee	income.	During	2004,	there	were	no	gains	or	losses	on	transfers	of	assets	from	the	general	account	to	the	separate	account.	The	Company	had	recorded certain	market	value	adjusted	("MVA")	fixed	annuity	products	and	modified	guarantee	life	insurance	(primarily	the	Company's	Compound	Rate	Contract	("CRC")	and associated	assets)	as	separate	account	assets	and	liabilities	through	December	31,	2003.	Notwithstanding	the	market	value	adjustment	feature	in	this	product,	all	of	the investment	performance	of	the	separate	account	assets	is	not	being	passed	to	the	contract	holder.	Therefore,	it	does	not	meet	the	conditions	for	separate	account	reporting under	SOP	03-1.	Separate	account	assets	and	liabilities	related	to	CRC	of	$11.7	billion	were	reclassified	to,	and	revalued	in,	the	general	account	upon	adoption	of	SOP	03- 1	on	January	1,	2004.

Prior	to	the	adoption	of	SOP	03-1,	the	Company	had	also	recorded	its	variable	annuity	products	offered	in	Japan	in	separate	account	assets	and	liabilities	through December	31,	2003.	These	assets	are	not	legally	insulated	from	general	creditors	and	therefore	did	not	meet	the	conditions	for	separate	account	reporting	under	SOP	03-1. On	January	1,	2004,	separate	account	assets	and	liabilities	in	Japan	of	$6.2	billion	were	reclassified	to	the	general	account	with	no	change	in	value.	The	investment	assets were	recorded	at	fair	value	in	a	trading	securities	portfolio.	As	of	December	31,	2004,	due	to	additional	sales	of	Japan	variable	annuity	products	and	positive	performance	of the	Japanese	equity	markets	these	assets	had	increased	to	$14.1	billion.

Many	of	the	variable	annuity	contracts	issued	by	the	Company	offer	various	guaranteed	minimum	death,	withdrawal	and	income	benefits.	Guaranteed	minimum	death	and income	benefits	are	offered	in	various	forms	as	described	in	the	footnotes	to	the	table	below.	The	Company	currently	reinsures	a	significant	portion	of	the	death	benefit guarantees	associated	with	its	in-force	block	of	business.	Upon	adoption	of	SOP	03-1,	the	Company	recorded	a	liability	for	GMDB	and	guaranteed	minimum	income benefits	("GMIB")	offered	only	in	Japan	sold	with	variable	annuity	products	of	$225	and	a	related	GMDB	reinsurance	recoverable	asset	of	$108.	As	of	December	31,	2004, the	liability	from	GMDB	sold	with	annuity	products	offered	in	the	United	States	and	GMDB/GMIB	sold	with	annuity	products	offered	in	Japan	was	$174	and	$28, respectively.	The	reinsurance	recoverable	asset,	related	to	the	U.S.	GMDB	was	$64	as	of	December	31,	2004.	During	2004,	the	Company	incurred	guaranteed	death benefits	on	U.S.	products	and	death	and	income	benefits	on	Japanese	products	of	$123	and	$21,	and	paid	guaranteed	death	benefits	on	U.S.	products	and	death	and	income benefits	on	Japanese	products	of	$166	and	$1,	respectively.	Guaranteed	minimum	death	benefits	on	U.S.	products	and	death	and	income	benefits	on	Japanese	products	paid during	2003	were	$289	and	$4,	respectively.	Guaranteed	minimum	death	benefits	paid	during	2002	were	$265.

The	net	GMDB	and	GMIB	liability	is	established	by	estimating	the	expected	value	of	net	reinsurance	costs	and	death	and	income	benefits	in	excess	of	the	projected	account balance.	The	excess	death	and	income	benefits	and	net	reinsurance	costs	are	recognized	ratably	over	the	accumulation	period	based	on	total	expected	assessments.	The GMDB	and	GMIB	liabilities	are	recorded	in	Future	Policy	Benefits	on	the	Company's	balance	sheet.	Changes	in	the	GMDB	and	GMIB	liability	are	recorded	in	Benefits, Claims	and	Claims	Adjustment	Expenses	in	the	Company's	statement	of	operations.	The	Company	regularly	evaluates	estimates	used	and	adjusts	the	additional	liability balances,	with	a	related	charge	or	credit	to	benefit	expense,	if	actual	experience	or	other	evidence	suggests	that	earlier	assumptions	should	be	revised.

The	determination	of	the	GMDB	and	GMIB	liabilities	and	related	GMDB	reinsurance	recoverable	is	based	on	models	that	involve	a	range	of	scenarios	and	assumptions, including	those	regarding	expected	market	rates	of	return	and	volatility,	contract	surrender	rates	and	mortality	experience.	The	following	assumptions	were	used	to determine	the	GMDB	and	GMIB	liabilities	as	of	December	31,	2004:

•		250	stochastically	generated	investment	performance	scenarios

•		Returns,	representing	the	Company's	long-term	assumptions,	varied	by	asset	class	with	a	low	of	3%	for	cash,	a	high	of	11%	for	aggressive	equities,	and	a	weighted average	of	9%.

•		Volatilities	also	varied	by	asset	class	with	a	low	of	1%	for	cash,	a	high	of	15%	for	aggressive	equities,	and	a	weighted	average	of	12%

•		80%	of	the	1983	GAM	mortality	table	was	used	for	mortality	assumptions

•		Lapse	rates	by	calendar	year	vary	from	a	low	of	8%	to	a	high	of	14%,	with	an	average	of	12%

# 9.	Separate	Accounts,	Death	Benefits	and	Other	Insurance	Benefit	Features	(continued)

# Japan	GMDB	and	GMIB:

•		Returns,	representing	the	Company's	long-term	assumptions,	varied	by	asset	class	with	a	low	of	3.3%	for	Japan	bonds,	a	high	of	8.5%	for	foreign	equities	and	a weighted	average	of	6%

•		Volatilities	also	varied	by	asset	class	with	a	low	of	8.9%	for	Japan	bonds,	a	high	of	18.4%	for	foreign	equities	and	a	weighted	average	of	14.2%

•		70%	of	the	1996	Japan	Standard	Mortality	Table	was	used	for	mortality	assumptions

•		Average	discount	rate	of	3.0%

The	following	table	provides	details	concerning	GMDB	and	GMIB	exposure:

# Breakdown	of	Variable	Annuity	Account	Value	by	GMDB/GMIB	Type

| Maximum	anniversary	value	(MAV)	[1] | Account<br>Value | Net	Amount<br>at	Risk | Retained<br>Net	Amount<br>at	Risk | Weighted	Average<br>Attained	Age	of<br>Annuitant |
| :--- | :--- | :--- | :--- | :--- |
| MAV\tonly | $61,675 | $6,568 | $683 | 63 |
| With\t5%\trollup\t[2] | 4,204 | 575 | 104 | 62 |
| With\tEarnings\tProtection\tBenefit\tRider\t(EPB)\t[3] | 4,849 | 228 | 67 | 59 |
| With\t5%\trollup\t&amp;\tEPB | 1,499 | 124 | 21 | 61 |
| Total\tMAV | 72,227 | 7,495 | 875 | 63 |
| Asset\tProtection\tBenefit\t(APB)\t[4] | 17,173 | 5 | 4 | 61 |
| Ratchet\t[5]\t(5\tyears) | 40 | 2 | — | 65 |
| Reset\t[6]\t(5-7\tyears) | 8,262 | 640 | 640 | 60 |
| Return\tof\tPremium\t[7]\t/Other | 8,548 | 18 | 18 | 60 |
| Subtotal\tU.S.\tGuaranteed\tMinimum\tDeath\tBenefits | 106,250 | 8,160 | 1,537 | 63 |
| Japan\tGuaranteed\tMinimum\tDeath\tand\tIncome\tBenefit\t[8] | 14,129 | 99 | 99 | 67 |
| Total | $ 120,379 | $8,259 | $1,636 | 63 |

[1] MAV:	the	death	benefit	is	the	greatest	of	current	account	value,	net	premiums	paid	and	the	highest	account	value	on	any	anniversary	before	age	80	(adjusted	for withdrawals).

[2] Rollup:	the	death	benefit	is	the	greatest	of	the	MAV,	current	account	value,	net	premium	paid	and	premiums	(adjusted	for	withdrawals)	accumulated	at	generally 5%	simple	interest	up	to	the	earlier	of	age	80	or	100%	of	adjusted	premiums.

[3] EPB:	The	death	benefit	is	the	greatest	of	the	MAV,	current	account	value,	or	contract	value	plus	a	percentage	of	the	contract's	growth.	The	contract's	growth	is account	value	less	premiums	net	of	withdrawals,	subject	to	a	cap	of	200%	of	premiums	net	of	withdrawals.

[4] APB:	the	death	benefit	is	the	greater	of	current	account	value	or	MAV,	not	to	exceed	current	account	value	plus	25%	times	the	greater	of	net	premiums	and	MAV (each	adjusted	for	premiums	in	the	past	12	months).

[5] Ratchet:	the	death	benefit	is	the	greatest	of	current	account	value,	net	premiums	paid	and	the	highest	account	value	on	any	specified	anniversary	before	age	85 (adjusted	for	withdrawals).

[6] Reset:	the	death	benefit	is	the	greatest	of	current	account	value,	net	premiums	paid	and	the	most	recent	five	to	seven	year	anniversary	account	value	before	age	80 (adjusted	for	withdrawals).

[7] Return	of	premium:	the	death	benefit	is	the	greater	of	current	account	value	and	net	premiums	paid.

[8] Death	benefits	include	a	Return	of	Premium	and	MAV	(before	age	75)	as	described	above	and	income	benefits	include	a	guarantee	to	return	initial	investment, adjusted	for	earnings	liquidity,	through	a	fixed	annuity,	after	a	minimum	deferral	period	of	10,	15,	or	20	years.

The	Company	offers	certain	variable	annuity	products	with	a	GMWB	rider.	The	GMWB	provides	the	policyholder	with	a	guaranteed	remaining	balance	("GRB")	if	the account	value	is	reduced	to	zero	through	a	combination	of	market	declines	and	withdrawals.	The	GRB	is	generally	equal	to	premiums	less	withdrawals.	However,	annual withdrawals	that	exceed	a	specified	percentage	of	the	premiums	paid	may	reduce	the	GRB	by	an	amount	greater	than	the	withdrawals	and	may	also	impact	the	guaranteed annual	withdrawal	amount	that	subsequently	applies	after	the	excess	annual	withdrawals	occur.	In	certain	contracts,	the	policyholder	also	has	the	option,	after	a	specified time	period,	to	reset	the	GRB	to	the	then-current	account	value,	if	greater.	The	GMWB	represents	an	embedded	derivative	liability	in	the	variable	annuity	contract	that	is required	to	be	reported	separately	from	the	host	variable	annuity	contract.	It	is	carried	at	fair	value	and	reported	in	other	policyholder	funds.	The	fair	value	of	the	GMWB obligations	are	calculated	based	on	actuarial	assumptions	related	to	the	projected	cash	flows,	including	benefits	and	related	contract	charges,	over	the	lives	of	the	contracts, incorporating	expectations	concerning	policyholder	behavior.	Because	of	the	dynamic	and	complex	nature	of	these	cash	flows,	stochastic	techniques	under	a	variety	of market	return	scenarios	and	other	best	estimate	assumptions	are	used.	Estimating	cash	flows	involves	numerous	estimates	and	subjective	judgments	including	those regarding	expected	market	rates	of	return,	market	volatility,	correlations	of	market	returns	and	discount	rates.

As	of	December	31,	2004	and	December	31,	2003,	the	embedded	derivative	asset	recorded	for	GMWB,	before	reinsurance	or	hedging,	was	$129	and	$115,	respectively. During	2004	and	2003,	the	change	in	value	of	the	GMWB,	before	reinsurance	and

hedging,	reported	in	realized	gains	was	$33	and	$165	was	incurred,	respectively.	There	were	no	payments	made	for	the	GMWB	during	2004,	2003	or	2002.

As	of	December	31,	2004	and	December	31,	2003,	$18.1	billion,	or	61%,	and	$6.2	billion,	or	36%,	respectively,	of	account	value	representing	substantially	all	of	the contracts	written	after	July	2003,	with	the	GMWB	feature	was	unreinsured.	In	order	to	minimize	the	volatility	associated	with	the	unreinsured	GMWB	liabilities,	the Company	has	established	an	alternative	risk	management	strategy.	In	2003,	the	Company	began	hedging	its	unreinsured	GMWB	exposure	using	interest	rate	futures,	and Standard	and	Poor's	("S&P")	500	and	NASDAQ	index	options	and	futures	contracts.	During	2004,	the	Company	began	using	Europe,	Australasia	and	Far	East	("EAFE") Index	swaps	to	hedge	GMWB	exposure	to	international	equity	markets.	The	GRB	as	of	December	31,	2004	and	2003	was	$32.7	billion	and	$15.5	billion,	respectively.

Account	balances	of	contracts	with	guarantees	were	invested	in	variable	separate	accounts	as	follows:

As	of	December	31,	2004,	approximately	16%	of	the	equity	securities	above	were	invested	in	fixed	income	securities	through	these	funds	and	approximately	84%	were invested	in	equity	securities.

The	Individual	Life	segment	sells	universal	life-type	contracts	with	and	without	certain	secondary	guarantees,	such	as	a	guarantee	that	the	policy	will	not	lapse,	even	if	the account	value	is	reduced	to	zero,	as	long	as	the	policyholder	makes	scheduled	premium	payments.	The	cumulative	effect	on	net	income	upon	recording	additional	liabilities for	universal	life-type	contracts	and	the	related	secondary	guarantees,	in	accordance	with	SOP	03-1,	was	not	material.	As	of	December	31,	2004,	the	liability	for	secondary guarantees	as	well	as	the	amounts	incurred	and	paid	during	the	year	was	immaterial.

# 10.	Sales	Inducements

The	Company	currently	offers	enhanced	crediting	rates	or	bonus	payments	to	contract	holders	on	certain	of	its	individual	and	group	annuity	products.	Through December	31,	2003,	the	expense	associated	with	offering	certain	of	these	bonuses	was	deferred	and	amortized	over	the	contingent	deferred	sales	charge	period.	Others	were expensed	as	incurred.	Effective	January	1,	2004,	upon	the	Company's	adoption	of	SOP	03-1,	the	expense	associated	with	offering	a	bonus	is	deferred	and	amortized	over the	life	of	the	related	contract	in	a	pattern	consistent	with	the	amortization	of	deferred	policy	acquisition	costs.	Also,	effective	January	1,	2004,	amortization	expense associated	with	expenses	previously	deferred	is	recorded	over	the	remaining	life	of	the	contract	rather	than	over	the	contingent	deferred	sales	charge	period.

Changes	in	deferred	sales	inducement	activity	were	as	follows	for	the	year	ended	December	31,	2004:

# 11.	Reserves	for	Claims	and	Claim	Adjustment	Expenses

As	described	in	Note	1,	The	Hartford	establishes	reserves	for	claims	and	claim	adjustment	expenses	on	reported	and	unreported	claims.	These	reserve	estimates	are	based on	known	facts	and	interpretations	of	circumstances,	and	consideration	of	various	internal	factors	including	The	Hartford's	experience	with	similar	cases,	historical	trends involving	claim	payment	patterns,	loss	payments,	pending	levels	of	unpaid	claims,	loss	control	programs	and	product	mix.	In	addition,	the	reserve	estimates	are	influenced by	consideration	of	various	external	factors	including	court	decisions,	economic	conditions	and	public	attitudes.	The	effects	of	inflation	are	implicitly	considered	in	the reserving	process.

The	establishment	of	appropriate	reserves,	including	reserves	for	catastrophes	and	asbestos	and	environmental	claims,	is	inherently	uncertain.	The	Hartford	regularly updates	its	reserve	estimates	as	new	information	becomes	available	and	events	unfold	that	may	have	an	impact	on	unsettled	claims.	Changes	in	prior	year	reserve estimates,	which	may	be	material,	are	reflected	in	the	results	of	operations	in	the	period	such	changes	are	determined	to	be	necessary.	For	further	discussion	of	asbestos	and environmental	claims,	see	Note	12.

# 11.	Reserves	for	Claims	and	Claim	Adjustment	Expenses	(continued)

The	following	table	displays	the	development	of	the	claim	reserves	(included	in	reserve	for	future	policy	benefits	and	unpaid	claims	and	claim	adjustment	expenses	in	the Consolidated	Balance	Sheets)	resulting	primarily	from	group	disability	products.

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Beginning\tclaim\treserves-gross | $4,480 | $2,914 | $2,764 |
| PGAAP\tadjustment | 20 | — | — |
| Reinsurance\trecoverables | 250 | 275 | 264 |
| Beginning\tclaim\treserves-net | 4,210 | 2,639 | 2,500 |
| Incurred\texpenses\trelated\tto |  |  |  |
| Current\tyear | 1,864 | 1,149 | 1,164 |
| Prior\tyears | (73) | (10) | 31 |
| Total\tincurred | 1,791 | 1,139 | 1,195 |
| Paid\texpenses\trelated\tto |  |  |  |
| Current\tyear | 564 | 376 | 396 |
| Prior\tyears | 1,020 | 669 | 660 |
| Total\tpaid | 1,584 | 1,045 | 1,056 |
| Ending\tclaim\treserves-net | 4,417 | 2,733 | 2,639 |
| Acquisition\tof\tclaim\treserves | — | 1,497 | — |
| Reinsurance\trecoverables | 297 | 250 | 275 |
| Ending\tclaim\treserves-gross | $4,714 | $4,480 | $2,914 |

During	2004,	incurred	and	paid	expenses	increased	from	2003	due	to	the	acquisition	of	CNA.	Incurred	expenses	related	to	prior	years,	for	the	year	ended	December	31, 2004,	were	due	to	favorable	claims	experience.

The	liability	for	future	policy	benefits	and	unpaid	claims	and	claim	adjustment	expenses	is	comprised	of	the	following:

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Group\tDisability\tand\tAccident\tand\tOther\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses | $4,714 | $4,480 |
| Group\tLife\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses | 885 | 893 |
| Individual\tLife\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses | 88 | 89 |
| Future\tPolicy\tBenefits | 6,559 | 5,940 |
| Future\tPolicy\tBenefits\tand\tUnpaid\tClaim\tand\tClaim\tAdjustment\tExpenses | $12,246 | $11,402 |

The	liability	for	future	policy	benefits	and	unpaid	claims	and	claim	adjustment	expenses	by	segment/product	is	as	follows:

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Life |  |  |
| Retail |  |  |
| Individual\tannuity\t–\tvariable | $174 | $— |
| Individual\tannuity\t—\tfixed | 582 | 435 |
| 401(k) | 54 | 55 |
| Other | 5 | — |
| Total\tRetail | 815 | 490 |
| Institutional |  |  |
| Structured\tsettlements | 2,502 | 2,117 |
| Institutional\tannuities | 2,025 | 1,892 |
| Governmental | 333 | 354 |
| PPLI | 269 | 291 |
| Total\tInstitutional | 5,129 | 4,654 |
| Individual\tLife |  |  |
| Variable\tuniversal\tlife | 21 | 21 |
| Universal\tlife/other\tinterest\tsensitive | 87 | 75 |
| Term\tinsurance\tand\tother | 480 | 485 |
| Total\tIndividual\tLife | 588 | 581 |
| Group\tBenefits |  |  |
| Group\tdisability | 4,162 | 3,971 |
| Group\tlife\tand\taccident | 1,334 | 1,441 |
| Other | 188 | 184 |
| Total\tGroup\tBenefits | 5,684 | 5,596 |
| Other | 34 | 90 |
| Total\tLife | 12,250 | 11,411 |
| Corporate | (4) | (9) |
| Total | $12,246 | $11,402 |

The	liability	for	other	policyholder	funds	and	benefits	payable	by	segment/product	is	as	follows:

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Life |  |  |
| Retail |  |  |
| Individual\tannuity\t–\tvariable\t[1] | $7,452 | $8,230 |
| Individual\tannuity\t–\tfixed\t[1] | 10,952 | 510 |
| 401(k) | 1,075 | 1,015 |
| Other | 22 | 24 |
| Total\tRetail | 19,501 | 9,779 |
| Institutional |  |  |
| Structured\tsettlements | 1,503 | 1,168 |
| Stable\tvalue/Funding\tagreements | 1,468 | 1,312 |
| GICs | 3,174 | 3,361 |
| Governmental | 3,715 | 3,465 |
| Leveraged\tPPLI\t[1] | 2,791 | 2,638 |
| Other | 800 | 126 |
| Total\tInstitutional | 13,451 | 12,070 |
| Individual\tLife |  |  |
| Variable\tuniversal\tlife | 425 | 373 |
| Universal\tlife/other\tinterest\tsensitive | 4,059 | 3,407 |
| Other | 192 | 192 |
| Total\tIndividual\tLife | 4,676 | 3,972 |
| Group\tBenefits |  |  |
| Group\tlife\tand\taccident | 558 | 391 |
| Total\tGroup\tBenefits | 558 | 391 |
| Other\t[1] | 14,647 | (26) |
| Total\tLife | 52,833 | 26,186 |
| Corporate | — | (1) |
| Total | $52,833 | $26,185 |

[1] With	the	adoption	of	SOP	03-01	certain	annuity	products	were	reclassified	from	the	separate	account	to	the	general	account.	This	change	in	accounting	resulted	in an	increase	of	$17.4	billion	in	the	liability	for	other	policy	holder	funds	and	benefits	payable	in	2004.

A	reconciliation	of	liabilities	for	property	and	casualty	unpaid	claims	and	claim	adjustment	expenses	follows:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Beginning\tliabilities\tfor\tproperty\tand\tcasualty\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses-gross | $21,715 | $17,091 | $17,036 |
| Reinsurance\tand\tother\trecoverables | 5,497 | 3,950 | 4,176 |
| Beginning\tliabilities\tfor\tproperty\tand\tcasualty\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses-net | 16,218 | 13,141 | 12,860 |
| Add\tprovision\tfor\tproperty\t&amp;\tcasualty\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses |  |  |  |
| Current\tyear | 6,590 | 6,102 | 5,577 |
| Prior\tyears | 414 | 2,824 | 293 |
| Total\tprovision\tfor\tproperty\tand\tcasualty\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses | 7,004 | 8,926 | 5,870 |
| Less\tpayments |  |  |  |
| Current\tyear | 2,616 | 2,369 | 2,257 |
| Prior\tyears | 4,415 | 3,480 | 3,332 |
| Total\tpayments | 7,031 | 5,849 | 5,589 |
| Ending\tliabilities\tfor\tproperty\tand\tcasualty\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses-net | 16,191 | 16,218 | 13,141 |
| Reinsurance\tand\tother\trecoverables | 5,138 | 5,497 | 3,950 |
| Ending\tliabilities\tfor\tproperty\tand\tcasualty\tunpaid\tclaims\tand\tclaim\tadjustment\texpenses-gross | $21,329 | $21,715 | $17,091 |

Examples	of	current	trends	include	increases	in	medical	cost	inflation	rates,	changes	in	internal	claim	practices,	changes	in	the	legislative	and	regulatory	environment	over workers'	compensation	claims,	evolving	exposures	to	claims	asserted	against	religious	institutions	and	other	organizations	relating	to	molestation	or	abuse	and	other	mass torts.	In	the	case	of	the	reserves	for	asbestos	exposures,	factors	contributing	to	the	high	degree	of	uncertainty	include	inadequate	development	patterns,	plaintiffs'	expanding theories	of	liability,	the	risks	inherent	in	major	litigation,	and	inconsistent	emerging	legal	doctrines.	In	the	case	of	the	reserves	for	environmental	exposures,	factors contributing	to	the	high	degree	of	uncertainty	include	expanding	theories	of	liabilities	and	damages;	the	risks	inherent	in	major	litigation;	inconsistent	decisions	concerning the	existence	and	scope	of	coverage	for	environmental	claims;	and	uncertainty	as	to	the	monetary	amount	being	sought	by	the	claimant	from	the	insured.

The	prior	year	provision	of	$414	in	2004	is	primarily	due	to	a	number	of	net	reserve	increases	to	reflect	current	trends,	partially	offset	by	a	reduction	in	September	11 reserves.	The	reserve	increases	in	2004	include	reserve	strengthening	for	construction	defect	claims,	assumed	casualty	reinsurance	and	environmental	claims	as	well	as	a reduction	in	the	reinsurance	recoverable	asset	on	older,	long-term	casualty	liabilities.	The	prior	year	provision	in	2003	is	primarily	due	to	reserve	strengthening	of $2.6	billion	based	on	a	ground	up	study	of	asbestos	reserves.	The	ground	up	study	confirmed	the	Company's	view	of	the	existence	of	a	substantial	long-term	deterioration in	the	asbestos	litigation	environment.	In	2002,	the	prior	year	provision	of	$293	is	primarily	due	to	reserve	strengthening	of	non-standard	auto	claims	and	strengthening	of workers'	compensation	loss	reserves	on	a	few	large	accounts.

# 12.	Commitments	and	Contingencies

# Litigation

# 12.	Commitments	and	Contingencies	(continued)

The	MacArthur	Litigation	–	Hartford	Accident	and	Indemnity	Company	("Hartford	A&I"),	a	subsidiary	of	the	Company,	issued	primary	general	liability	policies	to	Mac Arthur	Company	and	its	subsidiary,	Western	MacArthur	Company,	both	former	regional	distributors	of	asbestos	products	(collectively	or	individually,	"MacArthur"), during	the	period	1967	to	1976.	In	1987,	Hartford	A&I	notified	MacArthur	that	its	available	limits	for	asbestos	bodily	injury	claims	under	these	policies	had	been exhausted,	and	MacArthur	ceased	submitting	claims	to	Hartford	A&I	under	these	policies.	Thirteen	years	later,	MacArthur	filed	an	action	against	Hartford	A&I	seeking	for the	first	time	additional	coverage	for	asbestos	bodily	injury	claims	under	the	Hartford	A&I	primary	policies	on	the	theory	that	Hartford	A&I	had	not	exhausted	limits MacArthur	alleged	to	be	available	for	non-products	liability.	Following	the	voluntary	dismissal	of	MacArthur's	original	action,	the	coverage	litigation	proceeded	in	the Superior	Court	in	Alameda	County,	California.	MacArthur	sought	a	declaration	of	coverage	and	damages,	alleging	that	its	liability	for	liquidated	but	unpaid	asbestos	bodily injury	claims	was	$2.5	billion,	of	which	more	than	$1.8	billion	consisted	of	unpaid	judgments,	and	that	it	had	substantial	additional	liability	for	unliquidated	and	future claims.

Bancorp	Services,	LLC	–	In	the	third	quarter	of	2003,	Hartford	Life	Insurance	Company	and	its	affiliate	International	Corporate	Marketing	Group,	LLC	settled	their intellectual	property	dispute	with	Bancorp	Services,	LLC	("Bancorp").	The	dispute	concerned,	among	other	things,	Bancorp's	claims	for	alleged	patent	infringement, breach	of	a	confidentiality	agreement,	and	misappropriation	of	trade	secrets	related	to	certain	stable	value	corporate-owned	life	insurance	products.	The	settlement	provided that	The	Hartford	would	pay	a	minimum	of	$70	and	a	maximum	of	$80,	depending	on	the	outcome	of	the	patent	appeal,	to	resolve	all	disputes	between	the	parties.	The settlement	resulted	in	the	recording	of	an	additional	charge	of	$40,	after-tax,	in	the	third	quarter	of	2003,	reflecting	the	maximum	amount	payable	under	the	settlement,	and in	November	of	2003,	The	Hartford	paid	the	initial	$70	of	the	settlement.	On	March	1,	2004,	the	Federal	Circuit	Court	of	Appeals	decided	the	patent	appeal	adversely	to The	Hartford,	and	on	March	22,	2004,	The	Hartford	paid	Bancorp	an	additional	$10	in	full	and	final	satisfaction	of	its	obligations	under	the	settlement.	Because	the	charge taken	in	the	third	quarter	of	2003	reflected	the	maximum	amount	payable	under	the	settlement,	the	amount	paid	in	the	first	quarter	of	2004	had	no	effect	on	the	Company's results	of	operations.

Reinsurance	Arbitration	–	On	March	16,	2003,	a	final	decision	and	award	was	issued	in	the	previously	disclosed	reinsurance	arbitration	between	subsidiaries	of	The Hartford	and	one	of	their	primary	reinsurers	relating	to	policies	with	guaranteed	death	benefits	written	from	1994	to	1999.	The	arbitration	involved	alleged	breaches	under the	reinsurance	treaties.	Under	the	terms	of	the	final	decision	and	award,	the	reinsurer's	reinsurance	obligations	to	The	Hartford's	subsidiaries	were	unchanged	and	not limited	or	reduced	in	any	manner.	The	award	was	confirmed	by	the	Connecticut	Superior	Court	on	May	5,	2003.

With	regard	to	both	environmental	and	particularly	asbestos	claims,	significant	uncertainty	limits	the	ability	of	insurers	and	reinsurers	to	estimate	the	ultimate	reserves necessary	for	unpaid	losses	and	related	expenses.	Traditional	actuarial	reserving	techniques	cannot	reasonably	estimate	the	ultimate	cost	of	these	claims,	particularly	during periods	where	theories	of	law	are	in	flux.	The	degree	of

variability	of	reserve	estimates	for	these	exposures	is	significantly	greater	than	for	other	more	traditional	exposures.	In	particular,	The	Hartford	believes	there	is	a	high degree	of	uncertainty	inherent	in	the	estimation	of	asbestos	loss	reserves.

The	reporting	pattern	for	assumed	reinsurance	claims	is	much	longer	than	for	direct	claims.	In	many	instances,	it	takes	months	or	years	to	determine	that	the	policyholder's own	obligations	have	been	met	and	how	the	reinsurance	in	question	may	apply	to	such	claims.	The	delay	in	reporting	reinsurance	claims	and	exposures	adds	to	the uncertainty	in	estimating	the	related	reserves.

As	of	December	31,	2004	and	December	31,	2003,	the	Company	reported	$2.5	billion	and	$3.8	billion	of	net	asbestos	reserves	and	$394	and	$408	of	net	environmental reserves,	respectively.	The	Company	believes	that	its	current	asbestos	and	environmental	reserves	are	appropriate.	However,	analyses	of	future	developments	could	cause The	Hartford	to	change	its	estimates	and	ranges	of	its	asbestos	and	environmental	reserves,	and	the	effect	of	these	changes	could	be	material	to	the	Company's	consolidated operating	results,	financial	condition,	and	liquidity.

There	continues	to	be	significant	federal	and	state	regulatory	activity	relating	to	financial	services	companies,	particularly	mutual	funds	companies.	These	regulatory inquiries	have	focused	on	a	number	of	mutual	fund	issues,	including	market	timing	and	late	trading,	revenue	sharing	and	directed	brokerage,	fees,	transfer	agents	and	other fund	service	providers,	and	other	mutual-fund	related	issues.	The	Company	has	received	requests	for	information	and	subpoenas	from	the	SEC,	subpoenas	from	the	New York	Attorney	General's	Office,	requests	for	information	from	the	Connecticut	Securities	and	Investments	Division	of	the	Department	of	Banking,	and	requests	for information	from	the	New	York	Department	of	Insurance,	in	each	case	requesting	documentation	and	other	information	regarding	various	mutual	fund	regulatory	issues.

# Lease	Commitments

On	June	30,	2003,	the	Company	entered	into	a	sale-leaseback	of	certain	furniture	and	fixtures	with	a	net	book	value	of	$40.	The	sale-leaseback	resulted	in	a	gain	of	$15, which	was	deferred	and	will	be	amortized	into	earnings	over	the	initial	lease	term	of	three	years.	The	lease	qualifies	as	an	operating	lease	for	accounting	purposes.	At	the end	of	the	initial	lease	term,	the	Company	has	the	option	to	purchase	the	leased	assets,	renew	the	lease	for	two	one-year	periods	or	return	the	leased	assets	to	the	lessor.	If the	Company	elects	to	return	the	assets	to	the	lessor	at	the	end	of	the	initial	lease	term,	the	assets	will	be	sold,	and	the	Company	has	guaranteed	a	residual	value	on	the furniture	and	fixtures	of	$20.	If	the	fair	value	of	the	furniture	and	fixtures	were	to	decline	below	the	residual	value,	the	Company	would	have	to	make	up	the	difference under	the	residual	value	guarantee.	Under	the	sale-leaseback,	the	Company	must	maintain	a	minimum	level	of	consolidated	statutory	surplus	and	risk	based	capital	ratios. In	addition,	the	Company	must	not	exceed	a	maximum	ratio	of	debt	to	capitalization.	As	of	December	31,	2004,	the	Company	was	in	compliance	with	all	such	covenants.

As	of	December	31,	2004	and	2003,	no	liability	was	recorded	for	this	guarantee,	as	the	expected	fair	value	of	the	furniture	and	fixtures	at	the	end	of	the	initial	lease	term was	greater	than	the	residual	value	guarantee.

# Tax	Matters

The	Company's	federal	income	tax	returns	are	routinely	audited	by	the	Internal	Revenue	Service	("IRS).	During	the	third	quarter	of	2004,	the	IRS	completed	its examination	of	the	1998-2001	tax	years,	and	the	IRS	and	the	Company	agreed	upon	all	adjustments.	As	a	result,	during	the	third	quarter	of	2004	the	Company	booked	a $216	tax	benefit	to	reflect	the	impact	of	the	audit	settlement	on	tax	years	covered	by	the	examination	as	well	as	all	other	tax	years	prior	to	2004.	The	benefit	relates primarily	to	the	separate	account	DRD	and	interest.	During	the	fourth	quarter	of	2004,	the	IRS	issued	a	Revenue	Agent's	Report,	reflecting	the	adjustments	computed	and agreed	upon	in	the	prior	quarter	with	respect	to	the	Company's	federal	taxes	for	the	years	under	examination.	No	additional	tax	adjustments	were	recorded,	as	the	results reflected	in	the	Report	were	included	in	the	tax	benefit	recorded	in	the	third	quarter.	The	IRS	is	expected	to	begin	its	audit	of	the	2002-2004	tax	years	in	2005.	Management believes	that	adequate	provision	has	been	made	in	the	financial	statements	for	any	potential	assessments	that	may	result	from	future	tax	examinations	and	other	tax-related matters	for	all	open	tax	years.

# Unfunded	Commitments

At	December	31,	2004,	The	Hartford	has	outstanding	commitments	totaling	$629,	of	which	$330	is	committed	to	fund	limited	partnership	investments.	These	capital commitments	can	be	called	by	the	partnership	during	the	commitment	period	(on	average	2	to	5	years)	to	fund	working	capital	needs	or	purchase	new	investments.	Once the	commitment	period	expires,	the	Company	is	under	no	obligation	to	fund	the	remaining	unfunded	commitment	but	may	elect	to	do	so.	The	remaining	$299	of outstanding	commitments	are	primarily	related	to	various	funding	obligations	associated	with	investments	in	mortgage	and	construction	loans.	These	have	a	commitment period	of	one	month	to	3	years.

The	provision	(benefit)	for	income	taxes	consists	of	the	following:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Income\tTax\tExpense\t(Benefit) |  |  |  |
| Current\t—\tU.S.\tFederal | $(24) | $(120) | $136 |
| International | 5 | 5 | 3 |
| Total\tcurrent | $(19) | $(115) | $139 |
| Deferred\t—\tU.S.\tFederal | $404 | $(344) | $(70) |
| International | — | — | (1) |
| Total\tdeferred | $404 | $(344) | $(71) |
| Total\tincome\ttax\texpense\t(benefit) | $385 | $(459) | $68 |

# 13.	Income	Tax	(continued)

Deferred	tax	assets	(liabilities)	include	the	following	as	of	December	31:

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Deferred\tTax\tAssets |  |  |
| Tax\tdiscount\ton\tloss\treserves | $678 | $696 |
| Tax\tbasis\tdeferred\tpolicy\tacquisition\tcosts\tand\treserves | 648 | 678 |
| Unearned\tpremium\treserve\tand\tother\tunderwriting\trelated\treserves | 440 | 400 |
| Investment-related\titems | — | 25 |
| Employee\tbenefits | 294 | 293 |
| Minimum\ttax\tcredit | 342 | 253 |
| NOL\tcarryover | 791 | 942 |
| Other | 128 | 139 |
| Total\tDeferred\tTax\tAssets | 3,321 | 3,426 |
| Deferred\tTax\tLiabilities |  |  |
| Financial\tstatement\tdeferred\tpolicy\tacquisition\tcosts\tand\treserves | (1,409) | (1,305) |
| Investment-related\titems | (114) | — |
| Net\tunrealized\tgain\ton\tinvestments | (1,207) | (1,121) |
| Other\tdepreciable\t&amp;\tamortizable\tassets | (115) | (88) |
| Other | (57) | (67) |
| Total\tDeferred\tTax\tLiabilities | (2,902) | (2,581) |
| Total | $419 | $845 |

In	management's	judgment,	the	net	deferred	tax	asset	will	more	likely	than	not	be	realized	as	reductions	of	future	taxes	paid.	Accordingly,	no	valuation	allowance	has	been recorded.	Included	in	the	deferred	tax	asset	is	the	expected	tax	benefit	attributable	to	net	operating	losses	of	$2.3	billion,	consisting	of	U.S.	losses	of	$1.8	billion,	which expire	in	2023,	and	foreign	losses	of	$0.5	billion,	which	expire	from	2006-2012.

Prior	to	the	Tax	Reform	Act	of	1984,	the	Life	Insurance	Company	Income	Tax	Act	of	1959	permitted	the	deferral	from	taxation	of	a	portion	of	statutory	income	under certain	circumstances.	In	these	situations,	the	deferred	income	was	accumulated	in	a	"Policyholders'	Surplus	Account"	and	would	be	taxable	only	under	conditions	which management	considered	to	be	remote;	therefore,	no	federal	income	taxes	have	been	provided	on	the	balance	in	this	account,	which	for	tax	return	purposes	was	$104	as	of December	31,	2004.	The	American	Jobs	Creation	Act	of	2004,	which	was	enacted	in	October	2004,	allows	distributions	to	be	made	from	the	Policyholders'	Surplus Account	free	of	tax	in	2005	and	2006.	The	Company	anticipates,	based	on	currently	available	information,	that	it	will	distribute	the	entire	balance	in	the	account,	thereby permanently	eliminating	the	potential	tax	of	$37.

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

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2002 |
| Tax\tprovision\tat\tU.S.\tFederal\tstatutory\trate | $883 | $(193) | $374 |
| Tax-exempt\tinterest | (145) | (151) | (155) |
| Dividends\treceived\tdeduction | (136) | (92) | (70) |
| Sale\tof\tinternational\tsubsidiaries | — | — | (8) |
| Internal\tRevenue\tService\taudit\tsettlement\t(see\tNote\t12) | (216) | — | (77) |
| Tax\tadjustment\t–\tHLI\t(see\tNote\t12) | — | (30) | — |
| Other | (1) | 7 | 4 |
| Provision\t(benefit)\tfor\tincome\ttax | $385 | $(459) | $68 |

The	following	table	presents	short-term	and	long-term	debt	by	issuance	as	of	December	31,	2004	and	2003.

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Short-Term\tDebt |  |  |
| Commercial\tpaper | $372 | $850 |
| Current\tmaturities\tof\tlong-term\tdebt | 249 | 200 |
| Total\tShort-Term\tDebt | $621 | $1,050 |
| Long\t–Term\tDebt\t[1] |  |  |
| Senior\tNotes\tand\tDebentures |  |  |
| 7.75%\tNotes,\tdue\t2005 | — | 249 |
| 2.375%\tNotes,\tdue\t2006 | 248 | 252 |
| 7.1%\tNotes,\tdue\t2007 | 198 | 198 |
| 4.7%\tNotes,\tdue\t2007 | 300 | 300 |
| 6.375%\tNotes,\tdue\t2008 | 200 | 200 |
| 4.1%\tEquity\tUnits\tNotes,\tdue\t2008 | 330 | 330 |
| 2.56%\tEquity\tUnits\tNotes,\tdue\t2008 | 690 | 690 |
| 7.9%\tNotes,\tdue\t2010 | 275 | 275 |
| 4.625%\tNotes,\tdue\t2013 | 319 | 319 |
| 4.75%\tNotes,\tdue\t2014 | 199 | — |
| 7.3%\tNotes,\tdue\t2015 | 200 | 200 |
| 7.65%\tNotes,\tdue\t2027 | 248 | 248 |
| 7.375%\tNotes,\tdue\t2031 | 397 | 397 |
| Total\tSenior\tNotes\tand\tDebentures | $3,604 | $3,658 |
| Junior\tSubordinated\tDebentures |  |  |
| \t\t7.20%\tNotes,\tdue\t2038\t—\t245 |  |  |
| 7.20%\tNotes,\tdue\t2038 | — | 245 |
| 7.625%\tNotes,\tdue\t2050 | 200 | 200 |
| 7.45%\tNotes,\tdue\t2050 | 504 | 507 |
| Total\tJunior\tSubordinated\tDebentures | 704 | 952 |
| Total\tLong-Term\tDebt | $4,308 | $4,610 |

[1] The	Hartford's	long-term	debt	securities	are	issued	by	either	The	Hartford	Financial	Services	Group,	Inc.	("HFSG")	or	HLI	and	are	unsecured	obligations	of	HFSG or	HLI	and	rank	on	a	parity	with	all	other	unsecured	and	unsubordinated	indebtedness	of	HFSG	or	HLI.

During	the	year	ended	December	31,	2004,	the	Company	repaid	$477	of	commercial	paper	utilizing	the	proceeds	from	its	common	stock	offering	and	internal	sources.	For further	discussion	of	the	common	stock	offering,	see	Note	15.

On	March	15,	2004,	HLI	redeemed	$250	of	its	7.2%	junior	subordinated	debentures	underlying	the	trust	preferred	securities	issued	by	Hartford	Life	Capital	I.

On	May	23,	2003,	The	Hartford	issued	2.375%	senior	notes	due	June	1,	2006	and	received	net	proceeds	of	$249.	Interest	on	the	notes	is	payable	semi-annually	on	June	1 and	December	1,	commencing	on	December	1,	2003.

# Long-Term	Debt	Maturities

The	following	table	reflects	the	Company's	long-term	debt	maturities	as	follows:

# Equity	Units	Offerings

On	May	23,	2003,	The	Hartford	issued	12.0	million	7%	equity	units	at	a	price	of	fifty	dollars	per	unit	and	received	net	proceeds	of	$582.	Subsequently,	on	May	30,	2003, The	Hartford	issued	an	additional	1.8	million	7%	equity	units	at	a	price	of	fifty	dollars	per	unit	and	received	net	proceeds	of	$87.

# 14.	Debt	(continued)

Each	equity	unit	offered	initially	consists	of	a	corporate	unit	with	a	stated	amount	of	fifty	dollars	per	unit.	Each	corporate	unit	consists	of	one	purchase	contract	for	the	sale of	a	certain	number	of	shares	of	the	Company's	stock	and	a	5%	ownership	interest	in	one	thousand	dollars	principal	amount	of	senior	notes	due	August	16,	2008.

The	corporate	unit	may	be	converted	by	the	holder	into	a	treasury	unit	consisting	of	the	purchase	contract	and	a	5%	undivided	beneficial	interest	in	a	zero-coupon	U.S. Treasury	security	with	a	principal	amount	of	one	thousand	dollars	that	matures	on	August	15,	2006.	The	holder	of	an	equity	unit	owns	the	underlying	senior	notes	or treasury	securities	but	has	pledged	the	senior	notes	or	treasury	securities	to	the	Company	to	secure	the	holder's	obligations	under	the	purchase	contract.

The	purchase	contract	obligates	the	holder	to	purchase,	and	obligates	The	Hartford	to	sell,	on	August	16,	2006,	for	fifty	dollars,	a	variable	number	of	newly	issued	common shares	of	The	Hartford.	The	number	of	The	Hartford's	shares	to	be	issued	will	be	determined	at	the	time	the	purchase	contracts	are	settled	based	upon	the	then	current applicable	market	value	of	The	Hartford's	common	stock.	If	the	applicable	market	value	of	The	Hartford's	common	stock	is	equal	to	or	less	than	$45.50,	then	the	Company will	deliver	1.0989	shares	to	the	holder	of	the	equity	unit,	or	an	aggregate	of	15.2	million	shares.	If	the	applicable	market	value	of	The	Hartford's	common	stock	is	greater than	$45.50	but	less	than	$56.875,	then	the	Company	will	deliver	the	number	of	shares	equal	to	fifty	dollars	divided	by	the	then	current	applicable	market	value	of	The Hartford's	common	stock	to	the	holder.	Finally,	if	the	applicable	market	value	of	The	Hartford's	common	stock	is	equal	to	or	greater	than	$56.875,	then	the	Company	will deliver	0.8791	shares	to	the	holder,	or	an	aggregate	of	12.1	million	shares.	Accordingly,	upon	settlement	of	the	purchase	contracts	on	August	16,	2006,	The	Hartford	will receive	proceeds	of	approximately	$690	and	will	deliver	between	12.1	million	and	15.2	million	common	shares	in	the	aggregate.	The	proceeds	will	be	credited	to stockholders'	equity	and	allocated	between	the	common	stock	and	additional	paid-in	capital	accounts.	The	Hartford	will	make	quarterly	contract	adjustment	payments	to	the equity	unit	holders	at	a	rate	of	4.44%	of	the	stated	amount	per	year	until	the	purchase	contract	is	settled.

Each	corporate	unit	also	includes	a	5%	ownership	interest	in	one	thousand	dollars	principal	amount	of	senior	notes	that	will	mature	on	August	16,	2008.	The	aggregate maturity	value	of	the	senior	notes	is	$690.	The	notes	are	pledged	by	the	holders	to	secure	their	obligations	under	the	purchase	contracts.	The	Hartford	will	make	quarterly interest	payments	to	the	holders	of	the	notes	initially	at	an	annual	rate	of	2.56%.	On	May	11,	2006,	the	notes	will	be	remarketed.	At	that	time,	The	Hartford's	remarketing agent	will	have	the	ability	to	reset	the	interest	rate	on	the	notes	in	order	to	generate	sufficient	remarketing	proceeds	to	satisfy	the	holder's	obligation	under	the	purchase contract.	If	the	initial	remarketing	is	unsuccessful,	the	remarketing	agent	will	attempt	to	remarket	the	notes,	as	necessary,	on	June	13,	2006,	July	12,	2006	and	August	11, 2006.	If	all	remarketing	attempts	are	unsuccessful,	the	Company	will	exercise	its	rights	as	a	secured	party	to	obtain	and	extinguish	the	notes.

The	total	distributions	payable	on	the	equity	units	are	at	an	annual	rate	of	7%,	consisting	of	interest	(2.56%)	and	contract	adjustment	payments	(4.44%).	The	corporate	units are	listed	on	the	New	York	Stock	Exchange	under	the	symbol	"HIG	PrD".

The	equity	units	have	been	reflected	in	the	diluted	earnings	per	share	calculation	using	the	treasury	stock	method.	Under	the	treasury	stock	method,	the	number	of	shares	of common	stock	used	in	calculating	diluted	earnings	per	share	is	increased	by	the	excess,	if	any,	of	the	number	of	shares	issuable	upon	settlement	of	the	purchase	contracts, over	the	number	of	shares	that	could	be	purchased	by	The	Hartford	in	the	market	using	the	proceeds	received	upon	settlement.	The	number	of	issuable	shares	is	based	on	the average	marketprice	for	the	last	20	trading	days	of	the	period.	The	number	of	shares	purchased	is	based	on	the	average	market	price	during	the	entire	period.	For	each	of	the periods	in	the	year	ended	December	31,	2004,	the	equity	units	had	a	dilutive	effect	on	the	diluted	earnings	per	share	calculation.	For	the	period	from	the	date	of	issuance through	December	31,	2003,	the	equity	units	did	not	impact	the	diluted	earnings	(loss)	per	share	calculation.

On	September	13,	2002,	The	Hartford	issued	6.6	million	6%	equity	units	at	a	price	of	fifty	dollars	per	unit	and	received	net	proceeds	of	$319.	Each	equity	unit	offered initially	consists	of	a	corporate	unit	with	a	stated	amount	of	fifty	dollars	per	unit.	Each	corporate	unit	consists	of	one	purchase	contract	for	the	sale	of	a	certain	number	of shares	of	the	Company's	stock	and	fifty	dollars	principal	amount	of	senior	notes	due	November	16,	2008.

The	corporate	unit	may	be	converted	by	the	holder	into	a	treasury	unit	consisting	of	the	purchase	contract	and	a	5%	undivided	beneficial	interest	in	a	zero-coupon	U.S. Treasury	security	with	a	principal	amount	of	one	thousand	dollars	that	matures	on	November	15,	2006.	The	holder	of	an	equity	unit	owns	the	underlying	senior	notes	or treasury	portfolio	but	has	pledged	the	senior	notes	or	treasury	portfolio	to	the	Company	to	secure	the	holder's	obligations	under	the	purchase	contract.

The	purchase	contract	obligates	the	holder	to	purchase,	and	obligates	The	Hartford	to	sell,	on	November	16,	2006,	for	fifty	dollars,	a	variable	number	of	newly	issued common	shares	of	The	Hartford.	The	number	of	The	Hartford's	shares	to	be	issued	will	be	determined	at	the	time	the	purchase	contracts	are	settled	based	upon	the	then current	applicable	market	value	of	The	Hartford's	common	stock.	If	the	applicable	market	value	of	The	Hartford's	common	stock	is	equal	to	or	less	than	$47.25,	then	the Company	will	deliver	1.0582	shares	to	the	holder	of	the	equity	unit,	or	an	aggregate	of	7.0	million	shares.	If	the	applicable	market	value	of	The	Hartford's	common	stock	is greater	than	$47.25	but	less	than	$57.645,	then	the	Company	will	deliver	the	number	of	shares	equal	to	fifty	dollars	divided	by	the	then	current	applicable	market	value	of The	Hartford's	common	stock	to	the	holder.	Finally,	if	the

applicable	market	value	of	The	Hartford's	common	stock	is	equal	to	or	greater	than	$57.645,	then	the	Company	will	deliver	0.8674	shares	to	the	holder,	or	an	aggregate	of 5.7	million	shares.	Accordingly,	upon	settlement	of	the	purchase	contracts	on	November	16,	2006,	The	Hartford	will	receive	proceeds	of	approximately	$330	and	will deliver	between	5.7	million	and	7.0	million	common	shares	in	the	aggregate.	The	proceeds	will	be	credited	to	stockholders'	equity	and	allocated	between	the	common	stock and	additional	paid-in	capital	accounts.	The	Hartford	will	make	quarterly	contract	adjustment	payments	to	the	equity	unit	holders	at	a	rate	of	1.90%	of	the	stated	amount	per year	until	the	purchase	contract	is	settled.

Each	corporate	unit	also	includes	fifty	dollars	principal	amount	of	senior	notes	that	will	mature	on	November	16,	2008.	The	aggregate	maturity	value	of	the	senior	notes	is $330.	The	notes	are	pledged	by	the	holders	to	secure	their	obligations	under	the	purchase	contracts.	The	Hartford	will	make	quarterly	interest	payments	to	the	holders	of	the notes	initially	at	an	annual	rate	of	4.10%.	On	August	11,	2006,	the	notes	will	be	remarketed.	At	that	time,	The	Hartford's	remarketing	agent	will	have	the	ability	to	reset	the interest	rate	on	the	notes	in	order	to	generate	sufficient	remarketing	proceeds	to	satisfy	the	holder's	obligation	under	the	purchase	contract.	In	the	event	of	an	unsuccessful remarketing,	the	Company	will	exercise	its	rights	as	a	secured	party	to	obtain	and	extinguish	the	notes.

The	total	distributions	payable	on	the	equity	units	are	at	an	annual	rate	of	6.0%,	consisting	of	interest	(4.10%)	and	contract	adjustment	payments	(1.90%).	The	corporate units	are	listed	on	the	New	York	Stock	Exchange	under	the	symbol	"HIG	PrA".

The	equity	units	are	reflected	in	the	diluted	earnings	per	share	calculation	using	the	treasury	stock	method,	which	would	be	used	for	the	equity	units	at	any	time	before	the issuance	of	the	shares	of	The	Hartford's	common	stock	upon	the	settlement	of	the	purchase	contracts.	Under	the	treasury	stock	method,	the	number	of	shares	of	common stock	used	in	calculating	diluted	earnings	per	share	is	increased	by	the	excess,	if	any,	of	the	number	of	shares	issuable	upon	settlement	of	the	purchase	contracts	over	the number	of	shares	that	could	be	purchased	by	The	Hartford	in	the	market,	at	the	average	market	price	during	the	period,	using	the	proceeds	received	upon	settlement.	The Company	anticipates	that	there	will	be	no	dilutive	effect	on	its	earnings	per	share	related	to	the	equity	units,	except	during	periods	when	the	average	market	price	of	a	share of	the	Company's	common	stock	is	above	the	threshold	appreciation	price	of	$57.645.	Because	the	average	market	price	of	The	Hartford's	common	stock	during	the	period from	the	date	of	issuance	through	December	31,	2002	and	for	the	year	ended	December	2003,	was	below	this	threshold	appreciation	price,	the	shares	issuable	under	the purchase	contract	component	of	the	equity	units	have	not	been	included	in	the	diluted	earnings	(loss)	per	share	calculations.

Shelf	Registrations	On	December	3,	2003,	The	Hartford's	shelf	registration	statement	(Registration	No.	333-108067)	for	the	potential	offering	and	sale	of	debt	and	equity securities	in	an	aggregate	amount	of	up	to	$3.0	billion	was	declared	effective	by	the	SEC.	The	Registration	Statement	allows	for	the	following	types	of	securities	to	be offered:	(i)	debt	securities,	preferred	stock,	common	stock,	depositary	shares,	warrants,	stock	purchase	contracts,	stock	purchase	units	and	junior	subordinated	deferrable interest	debentures	of	the	Company,	and	(ii)	preferred	securities	of	any	of	one	or	more	capital	trusts	organized	by	The	Hartford	("The	Hartford	Trusts").	The	Company	may enter	into	guarantees	with	respect	to	the	preferred	securities	of	any	of	The	Hartford	Trusts.	As	of	December	31,	2004,	the	Company	had	$2.4	billion	remaining	on	its	shelf.

On	May	15,	2001,	HLI	filed	with	the	Securities	and	Exchange	Commission	("SEC")	a	shelf	registration	statement	for	the	potential	offering	and	sale	of	up	to	$1.0	billion	in debt	and	preferred	securities.	The	registration	statement	was	declared	effective	on	May	29,	2001.	As	of	December	31,	2004,	the	Company	had	$1.0	billion	remaining	on	its shelf.

Under	the	two	revolving	credit	agreements,	the	Company	must	maintain	a	minimum	level	of	consolidated	statutory	surplus	and	risk	based	capital	ratios.	In	addition,	the Company	must	not	exceed	a	maximum	ratio	of	debt	to	capitalization.	Quarterly,	the	Company	certifies	compliance	with	each	financial	covenant.	At	December	31,	2004	and 2003,	the	Company	was	in	compliance	with	all	such	covenants.

# Junior	Subordinated	Debentures

The	Hartford	and	its	subsidiary,	HLI,	have	formed	statutory	business	trusts,	which	exist	for	the	exclusive	purposes	of	(i)	issuing	Trust	Securities	representing	undivided beneficial	interests	in	the	assets	of	the	Trust;	(ii)	investing	the	gross	proceeds	of	the	Trust	Securities	in	Junior	Subordinated	Deferrable	Interest	Debentures	("Junior Subordinated	Debentures")	of	The	Hartford	or	HLI;	and	(iii)	engaging	in	only	those	activities	necessary	or	incidental	thereto.	Prior	to	the	adoption	of	FIN	46R,	the	trust preferred	securities	were	reported	as	mandatory	redeemable	preferred	securities	of	subsidiary	trusts.	In	accordance	with	the	adoption	of	FIN	46R,	the	Company	has deconsolidated	the	trust	preferred	securities.	For	further	discussion	of	the	adoption	of	FIN	46R,	see	Note	1.

The	financial	structure	of	Hartford	Capital	III,	and	Hartford	Life	Capital	II	and	I,	as	of	December	31,	2004	and	2003,	were	as	follows:

[1] For	each	of	the	respective	debentures,	The	Hartford	or	HLI,	has	the	right	at	any	time,	and	from	time	to	time,	to	defer	payments	of	interest	on	the	Junior	Subordinated Debentures	for	a	period	not	exceeding	20	consecutive	quarters	up	to	the	debentures'	maturity	date.	During	any	such	period,	interest	will	continue	to	accrue	and	The Hartford	or	HLI	may	not	declare	or	pay	any	cash	dividends	or	distributions	on,	or	purchase,	The	Hartford's	or	HLI's	capital	stock	nor	make	any	principal,	interest	or premium	payments	on	or	repurchase	any	debt	securities	that	rank	equally	with	or	junior	to	the	Junior	Subordinated	Debentures.	The	Hartford	or	HLI	will	have	the right	at	any	time	to	dissolve	the	Trust	and	cause	the	Junior	Subordinated	Debentures	to	be	distributed	to	the	holders	of	the	Preferred	Securities.

[2] The	Hartford	Junior	Subordinated	Debentures	are	unsecured	and	rank	junior	and	subordinate	in	right	of	payment	to	all	senior	debt	of	The	Hartford	and	are effectively	subordinated	to	all	existing	and	future	liabilities	of	its	subsidiaries.

[3] The	Hartford	has	guaranteed,	on	a	subordinated	basis,	all	of	the	Hartford	Capital	III	obligations	under	the	Hartford	Series	C	Preferred	Securities,	including	to	pay the	redemption	price	and	any	accumulated	and	unpaid	distributions	to	the	extent	of	available	funds	and	upon	dissolution,	winding	up	or	liquidation,	but	only	to	the extent	that	Hartford	Capital	III	has	funds	to	make	such	payments.

[4] The	securities	for	Hartford	Life	Capital	I	were	redeemed	on	March	15,	2004.

# Interest	Expense

The	following	table	presents	interest	expense	incurred	for	2004,	2003	and	2002,	respectively.

|  | For	the	years	ended	December	31, | For	the	years	ended	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2002 |
| Short-term\tdebt | $6 | $5 | $6 |
| Long-term\tdebt\t[1] | 245 | 266 | 259 |
| Total\tinterest\texpense | $251 | $271 | $265 |

[1]	Includes	junior	subordinated	debentures.

# Common	Stock

In	September	2004,	the	Company's	Board	of	Directors	authorized	the	Company	to	repurchase	up	to	$1	billion	of	its	securities.	The	Company's	repurchase	authorization permits	purchases	of	common	stock	and	equity	units,	which	may	be	in	the	open	market	or

# 15.	Stockholders'	Equity	(continued)

through	privately	negotiated	transactions.	The	Company	also	may	enter	into	derivative	transactions	to	facilitate	future	repurchases	of	common	stock	and	equity	units.	As	of December	31,	2004,	the	Company	has	made	no	repurchases	under	this	program.

On	January	22,	2004,	The	Hartford	issued	approximately	6.3	million	shares	of	common	stock	pursuant	to	an	underwritten	offering	at	a	price	to	the	public	of	$63.25	per share	and	received	net	proceeds	of	$388.	Subsequently,	on	January	30,	2004,	The	Hartford	issued	approximately	377	thousand	shares	of	common	stock	pursuant	to	an underwritten	offering	at	a	price	to	the	public	of	$63.25	per	share	and	received	net	proceeds	of	$23.	The	Company	used	the	proceeds	from	these	issuances	to	repay	$411	of commercial	paper	issued	in	connection	with	the	acquisition	of	the	group	life	and	accident,	and	short-term	and	long-term	disability	businesses	of	CNA	Financial Corporation.	(For	further	discussion	of	this	acquisition,	see	Note	20.)

On	May	23,	2003,	The	Hartford	issued	approximately	24.2	million	shares	of	common	stock	pursuant	to	an	underwritten	offering	at	a	price	to	the	public	of	$45.50	per	share and	received	net	proceeds	of	$1.1	billion.	Subsequently,	on	May	30,	2003,	The	Hartford	issued	approximately	2.2	million	shares	of	common	stock	at	a	price	to	the	public	of $45.50	per	share	and	received	net	proceeds	of	$97.

On	May	23,	2003	and	May	30,	2003,	The	Hartford	issued	12.0	million	7%	equity	units	and	1.8	million	7%	equity	units,	respectively.	Each	equity	unit	contains	a	purchase contract	obligating	the	holder	to	purchase	and	The	Hartford	to	sell,	a	variable	number	of	newly	issued	shares	of	The	Hartford's	common	stock.	Upon	settlement	of	the purchase	contracts	on	August	16,	2006,	The	Hartford	will	receive	proceeds	of	approximately	$690	and	will	deliver	between	12.1	million	and	15.2	million	shares	in	the aggregate.	For	further	discussion	of	the	equity	units	issuance,	see	Note	14	above.

# Preferred	Stock

The	Company	has	50,000,000	shares	of	preferred	stock	authorized,	none	of	which	have	been	issued.	In	1995,	the	Company	approved	The	Hartford	Stockholder	Rights Plan,	pursuant	to	which	a	nonvoting	right	attaches	to	each	share	of	common	stock.	Upon	the	occurrence	of	certain	triggering	events,	the	right	will	permit	each	shareholder to	purchase	a	fraction	of	a	share	of	the	Series	A	Participating	Cumulative	Preferred	Stock	(the	"Series	A	Preferred	Stock")	of	The	Hartford.	There	are	300,000	authorized shares	of	Series	A	Preferred	Stock.	No	shares	were	issued	or	outstanding	at	December	31,	2004	or	2003.

# Statutory	Results

The	domestic	insurance	subsidiaries	of	HFSG	prepare	their	statutory	financial	statements	in	accordance	with	accounting	practices	prescribed	or	permitted	by	the	applicable state	insurance	department	which	vary	with	GAAP.	Prescribed	statutory	accounting	practices	include	publications	of	the	National	Association	of	Insurance	Commissioners ("NAIC"),	as	well	as	state	laws,	regulations	and	general	administrative	rules.	The	differences	between	statutory	financial	statements	and	financial	statements	prepared	in accordance	with	GAAP	vary	between	domestic	and	foreign	jurisdictions.	The	principal	differences	are	that	statutory	financial	statements	do	not	reflect	deferred	policy acquisition	costs	and	limit	deferred	income	taxes,	and	for	statutory	reporting,	bonds	are	generally	carried	at	amortized	cost	and	reinsurance	assets	and	liabilities	are presented	net	of	reinsurance.	The	Company's	use	of	permitted	statutory	accounting	practices	does	not	have	a	significant	impact	on	statutory	surplus.

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Statutory\tNet\tIncome\t(Loss) |  |  |  |
| Life\toperations | $1,048 | $1,026 | $(137) |
| Property\t&amp;\tCasualty\toperations | 356 | (163) | 4,779 |
| Total | $1,404 | $863 | $4,642 |

|  | As	of	December	31,<br>2004 | 2003 |
| :--- | :--- | :--- |
| Statutory\tSurplus |  |  |
| Life\toperations | $5,119 | $4,470 |
| Property\t&amp;\tCasualty\toperations | 6,337 | 5,819 |
| Total | $11,456 | $10,289 |

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

company	laws	of	the	other	jurisdictions	in	which	The	Hartford's	insurance	subsidiaries	are	incorporated	(or	deemed	commercially	domiciled)	generally	contain	similar (although	in	certain	instances	somewhat	more	restrictive)	limitations	on	the	payment	of	dividends.	As	of	December	31,	2004,	the	maximum	amount	of	statutory	dividends which	may	be	paid	to	HFSG	from	its	insurance	subsidiaries	in	2005,	without	prior	approval,	is	$1.9	billion.

# 16.	Accumulated	Other	Comprehensive	Income,	Net	of	Tax

Comprehensive	income	is	defined	as	all	changes	in	stockholders'	equity,	except	those	arising	from	transactions	with	stockholders.	Comprehensive	income	includes	net income	(loss)	and	other	comprehensive	income	(loss),	which	for	the	Company	consists	of	changes	in	unrealized	appreciation	or	depreciation	of	available-for-sale investments	carried	at	market	value,	changes	in	gains	or	losses	on	cash-flow	hedging	instruments,	changes	in	foreign	currency	translation	gains	or	losses	and	changes	in	the Company's	minimum	pension	liability.

The	components	of	AOCI	were	as	follows:

| For	the	year	ended	December	31,	2004 | Unrealized<br>Gain	on<br>Securities | Net	Gain	(Loss)<br>on	Cash-Flow<br>Hedging<br>Instruments | Currency<br>Cumulative<br>Translation<br>Adjustments | Minimum<br>Pension<br>Liability<br>Adjustment | Accumulated<br>Other<br>Comprehensive<br>Income	(Loss) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Balance,\tbeginning\tof\tyear | $1,764 | $(42) | $(101) | $(375) | $1,246 |
| Unrealized\tgain\ton\tsecurities\t[1]\t[2] | 106 | — | — | — | 106 |
| Foreign\tcurrency\ttranslation\tadjustments\t[1] | — | — | 59 | — | 59 |
| Net\tgain\ton\tcash-flow\thedging\tinstruments\t[1]\t[3] | — | (173) | — | — | (173) |
| Minimum\tpension\tliability\tadjustment\t[1] | — | — | — | (105) | (105) |
| Cumulative\teffect\tof\taccounting\tchange\t[4] | 292 | — | — | — | 292 |
| Balance,\tend\tof\tyear | $2,162 | $(215) | $(42) | $(480) | $1,425 |
| For\tthe\tyear\tended\tDecember\t31,\t2003 |  |  |  |  |  |
| Balance,\tbeginning\tof\tyear | $1,444 | $128 | $(95) | $(383) | $1,094 |
| Unrealized\tgain\ton\tsecurities\t[1]\t[2] | 320 | — | — | — | 320 |
| Foreign\tcurrency\ttranslation\tadjustments\t[1] | — | — | (6) | — | (6) |
| Net\tloss\ton\tcash-flow\thedging\tinstruments\t[1]\t[3] | — | (170) | — | — | (170) |
| Minimum\tpension\tliability\tadjustment\t[1] | — | — | — | 8 | 8 |
| Balance,\tend\tof\tyear | $1,764 | $(42) | $(101) | $(375) | $1,246 |
| For\tthe\tyear\tended\tDecember\t31,\t2002 |  |  |  |  |  |
| Balance,\tbeginning\tof\tyear | $606 | $63 | $(116) | $(19) | $534 |
| Unrealized\tgain\ton\tsecurities\t[1]\t[2] | 838 | — | — | — | 838 |
| Foreign\tcurrency\ttranslation\tadjustments\t[1] | — | — | 21 | — | 21 |
| Net\tgain\ton\tcash-flow\thedging\tinstruments\t[1]\t[3] | — | 65 | — | — | 65 |
| Minimum\tpension\tliability\tadjustment\t[1] | — | — | — | (364) | (364) |
| Balance,\tend\tof\tyear | $1,444 | $128 | $(95) | $(383) | $1,094 |

respectively.	Foreign	currency	cumulative	translation	adjustments	are	net	of	tax	of	$32,	$(3)	and	$11	for	the	years	ended	December	31,	2004,	2003	and	2002,

[4] Cumulative	effect	of	accounting	change	related	to	the	Company's	adoption	of	SOP	03-1	is	net	of	tax	of	$157	for	the	year	ended	December	31,	2004.

# 17.	Pension	Plans	and	Postretirement	Health	Care	and	Life	Insurance	Benefit	Plans

The	Company	maintains	a	U.S.	qualified	defined	benefit	pension	plan	("the	Plan")	that	covers	substantially	all	employees.	U.S.	employees	of	the	Company	and	certain affiliates	hired	prior	to	January	1,	2001	and	who	have	rendered	5	or	more	years	of	service	are	entitled	to	annual	pension	benefits,	beginning	at	normal	retirement	age	(65), equal	to	2%	of	their	final	average	pay	per	year	multiplied	by	the	number	of	years	of	credited	service	up	to	a	maximum	of	60%	of	the	average,	less	1	2/3%	of	primary	Social Security	per	year	of	credited	service,	up	to	a	maximum	of	50%.	Final	average	pay	represents	the	average	of	any	of	their	60	highest	paid	calendar	months	during	the	last	120 calendar	months	of	credited	service	preceding	termination	or	retirement.

# 17.	Pension	Plans	and	Postretirement	Health	Care	and	Life	Insurance	Benefit	Plans	(continued)

Effective	for	all	employees	who	joined	the	Company	on	or	after	January	1,	2001,	a	new	component	or	formula	was	applied	under	the	Plan	referred	to	as	the	"cash	balance formula".	Under	the	cash	balance	formula,	a	notional	account	is	established	for	each	employee	that	is	credited	with	a	percentage	of	the	employee's	pay	for	each	pay	period, based	on	the	employee's	age	and	whether	or	not	the	employee's	pay	has	exceeded	the	Social	Security	taxable	wage	base	at	the	time	crediting	occurs.	Interest	is	also credited	on	employee	cash	balance	accounts.	Once	they	become	vested,	employees	can	elect	to	receive	the	value	of	their	plan	benefit	(the	accumulated	sum	of	their	annual plan	allocations	with	interest)	in	a	single	cash	payment	when	they	leave	the	Company.	In	September	2003,	the	Company	announced	its	approval	to	amend	the	Plan	to implement,	as	of	January	1,	2009,	the	cash	balance	formula	for	the	purposes	of	calculating	future	pension	benefits	for	services	rendered	on	or	after	January	1,	2009,	for	all employees	hired	before	January	1,	2001.	These	amounts	are	in	addition	to	amounts	earned	through	December	31,	2008	under	the	traditional	final	average	pay	formula. Employees	hired	on	or	after	January	1,	2001	are	currently	covered	under	the	same	cash	balance	formula.	Under	certain	conditions,	as	described	in	the	Plan	document,	the Plan	permits	early	retirement	at	ages	50-64	with	a	reduced	benefit.	Employees	may	elect	to	receive	their	pension	benefits	in	the	form	of	a	life	annuity	or	joint	and	survivor annuity.	Employees	covered	under	the	cash	balance	formula	may	elect	a	lump-sum	distribution.	If	employees	terminate	before	rendering	5	years	of	service,	they	forfeit	the right	to	receive	the	portion	of	their	accumulated	plan	benefits	attributable	to	the	Company's	contributions.

The	Company	also	maintains	unfunded	excess	plans	to	provide	benefits	in	excess	of	amounts	permitted	to	be	paid	to	participants	of	the	Plan	under	the	provisions	of	the Internal	Revenue	Code.	Additionally,	the	Company	has	entered	into	individual	retirement	agreements	with	certain	current	and	retired	directors	providing	for	unfunded supplemental	pension	benefits.

The	Hartford	provides	certain	health	care	and	life	insurance	benefits	for	eligible	retired	employees.	The	Hartford's	contribution	for	health	care	benefits	will	depend	upon	the retiree's	date	of	retirement	and	years	of	service.	In	addition,	the	plan	has	a	defined	dollar	cap	for	certain	retirees	which	limits	average	Company	contributions.	The	Hartford has	prefunded	a	portion	of	the	health	care	obligations	through	trust	funds	where	such	prefunding	can	be	accomplished	on	a	tax	effective	basis.	Effective	January	1,	2002, retiree	medical,	retiree	dental	and	retiree	life	insurance	benefits	were	eliminated	for	employees	with	original	hire	dates	with	the	Company	on	or	after	January	1,	2002.

In	May	2004,	the	FASB	issued	FSP	FAS	No.	106-2,	"Accounting	and	Disclosure	Requirements	Related	to	the	Medicare	Prescription	Drug,	Improvement	and Modernization	Act	of	2003"	("FSP	106-2"),	which	provides	guidance	on	accounting	for	the	effects	of	the	Medicare	Prescription	Drug,	Improvement	and	Modernization	Act of	2003	("the	Act").	The	Act	introduces	(1)	a	prescription	drug	benefit	under	Medicare	and	(2)	a	federal	subsidy	to	sponsors	of	retiree	health	care	benefit	plans	that	provide a	benefit	that	is	at	least	"actuarially	equivalent"	to	Medicare	Part	D.	The	FASB	concluded	that	the	subsidy	should	be	treated	as	an	actuarial	gain	pursuant	to	SFAS	No.	106, "Employers'	Accounting	for	Postretirement	Benefits	Other	Than	Pensions".	FSP	106-2	is	effective	for	the	first	interim	period	or	annual	period	beginning	after	June	15, 2004.	Since	the	effects	of	the	Act	were	not	considered	a	significant	event,	the	effects	of	the	Act	were	incorporated	in	the	next	measurement	of	plan	assets	and	obligations, December	31,	2004.	The	Company	believes	that	it	will	be	entitled	to	the	subsidy.	Therefore,	the	Company	adopted	FSP	106-2	as	of	December	31,	2004.	The	adoption	of FSP	106-2	did	not	have	a	material	effect	on	either	the	Company's	accumulated	postretirement	benefit	obligation	or	its	consolidated	financial	condition	or	results	of operations.

# Obligations	and	Funded	Status

The	following	tables	set	forth	a	reconciliation	of	beginning	and	ending	balances	of	the	benefit	obligation	and	fair	value	of	plan	assets	as	well	as	the	funded	status	of	The Hartford's	defined	benefit	pension	and	postretirement	health	care	and	life	insurance	benefit	plans	for	the	years	ended	December	31,	2004	and	2003.	International	plans represent	an	immaterial	percentage	of	total	pension	assets,	liabilities	and	expense	and,	for	reporting	purposes,	are	combined	with	domestic	plans.	The	Company	uses	a measurement	date	of	December	31	for	its	pension	and	other	postretirement	benefit	plans.

|  | Pension	Benefits | Pension	Benefits | Other	Postretirement	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- | :--- | :--- |
| Change\tin\tBenefit\tObligation | 2004 | 2003 | 2004 | 2003 |
| Benefit\tobligation\t–\tbeginning\tof\tyear | $2,734 | $2,588 | $477 | $434 |
| Service\tcost\t(excluding\texpenses) | 96 | 101 | 12 | 12 |
| Interest\tcost | 170 | 167 | 28 | 28 |
| Plan\tparticipants'\tcontributions | — | — | 8 | 6 |
| Amendments | — | (168) | — | — |
| Actuarial\t(gain)\tloss | 68 | 48 | (28) | 5 |
| Acquisition | — | — | 6 | — |
| Change\tin\tassumption: |  |  |  |  |
| Discount\trate | 219 | 100 | 32 | 22 |
| Benefits\tpaid | (130) | (113) | (35) | (30) |
| Other\t/\tForeign\texchange\tadjustment | 5 | 11 | — | — |
| Benefit\tobligation\t–\tend\tof\tyear | $3,162 | $2,734 | $500 | $477 |

| Change	in	Plan	Assets | Pension	Benefits | Pension	Benefits | Other	Postretirement	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- | :--- | :--- |
| Fair\tvalue\tof\tplan\tassets\t–\tbeginning\tof\tyear | $2,015 | $1,487 | $100 | $96 |
| Actual\treturn\ton\tplan\tassets | 289 | 334 | 6 | 7 |
| Employer\tcontribution | 317 | 306 | — | — |
| Benefits\tpaid | (124) | (107) | — | (3) |
| Expenses\tpaid | (4) | (4) | — | — |
| Other\t/\tForeign\texchange\tadjustment | 3 | (1) | — | — |
| Fair\tvalue\tof\tplan\tassets\t–\tend\tof\tyear | $2,496 | $2,015 | $106 | $100 |

|  | Pension	Benefits | Pension	Benefits | Other	Postretirement	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2004 | 2003 |
| Funded\tstatus | $(666) | $(719) | $(394) | $(377) |
| Unrecognized\ttransition\tobligation | — | — | 2 | 2 |
| Unrecognized\tnet\tactuarial\tloss | 1,065 | 915 | 125 | 123 |
| Unrecognized\tprior\tservice\tcost | (134) | (148) | (56) | (85) |
| Net\tamount\trecognized | $265 | $48 | $(323) | $(337) |

Amounts	recognized	in	the	consolidated	balance	sheets	consist	of:

|  | Pension	Benefits | Pension	Benefits | Other	Postretirement	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2004 | 2003 |
| Accrued\tbenefit\tliability | $(473) | $(529) | $(323) | $(337) |
| Accumulated\tother\tcomprehensive\tincome | 738 | 577 | — | — |
| Net\tamount\trecognized | $265 | $48 | $(323) | $(337) |

Effective	January	1,	2009,	participants	covered	under	the	traditional	final-average-pay	formula	will	accrue	benefits	under	the	cash	balance	formula	for	service	rendered after	that	date.	As	a	result	of	this	change,	the	Plan	benefit	obligations	decreased	approximately	$168.

The	funded	status	of	the	Company's	defined	benefit	pension	and	other	postretirement	plans	is	dependent	upon	many	factors,	including	returns	on	invested	assets	and	the level	of	market	interest	rates.	Declines	in	long-term	interest	rates	have	had	a	negative	impact	on	the	funded	status	of	the	plans.	As	a	result,	the	Company	has	recorded	a change	in	minimum	pension	liability	as	of	December	31,	2004	and	2003	as	presented	below:

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| Accumulated\tbenefit\tobligation | $2,969 | $2,544 |
| Fair\tvalue\tof\tplan\tassets | 2,496 | 2,015 |
| Unfunded\taccumulated\tbenefit\tobligation | 473 | 529 |
| Net\tamount\trecognized | 265 | 48 |
| Minimum\tpension\tliability,\tend\tof\tyear | 738 | 577 |
| Minimum\tpension\tliability,\tbeginning\tof\tyear | 577 | 590 |
| Increase\t/\t(decrease)\tin\tminimum\tpension\tliability\tincluded\tin\tother\tcomprehensive\tincome,\tbefore-tax | $161 | $(13) |
| Increase\t/\t(decrease)\tin\tminimum\tpension\tliability\tincluded\tin\tother\tcomprehensive\tincome,\tafter-tax | $105 | $(8) |

# Components	of	Net	Periodic	Benefit	Cost

Total	net	periodic	benefit	cost	for	the	years	ended	December	31,	2004,	2003	and	2002	include	the	following	components:

|  | Pension	Benefits | Pension	Benefits | Pension	Benefits | Other	Postretirement	Benefits | Other	Postretirement	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2002 | 2004 | 2003 | 2002 |
| Service\tcost | $101 | $105 | $84 | $12 | $12 | $9 |
| Interest\tcost | 171 | 167 | 156 | 28 | 27 | 27 |
| Expected\treturn\ton\tplan\tassets | (201) | (184) | (183) | (8) | (8) | (9) |
| Amortization\tof\tprior\tservice\tcost | (13) | 6 | 6 | (23) | (24) | (24) |
| Amortization\tof\tunrecognized\tnet\tlosses | 46 | 26 | 4 | 4 | 4 | 2 |
| Net\tperiodic\tbenefit\tcost | $104 | $120 | $67 | $13 | $11 | $5 |

# Assumptions

Weighted	average	assumptions	used	in	calculating	the	benefit	obligations	and	the	net	amount	recognized	for	the	plans	per	year	were	as	follows:

|  | As	of	December	31, |  |
| :--- | :--- | :--- |
|  | 2004 | 2003 |
| Discount\trate | 5.75% | 6.25% |
| Rate\tof\tincrease\tin\tcompensation\tlevels | 4.00% | 4.00% |

Weighted	average	assumptions	used	in	calculating	the	net	periodic	benefit	cost	for	the	plans	were	as	follows:

|  |  | Twelve	Months	Ended |  |
| :--- | :--- | :--- | :--- |
|  |  | December\t31, |  |
|  | 2004 | 2003 | 2002 |
| Discount\trate | 6.25% | 6.50% | 7.50% |
| Expected\tlong-term\trate\tof\treturn\ton\tplan\tassets | 8.50% | 9.00% | 9.75% |
| Rate\tof\tincrease\tin\tcompensation\tlevels | 4.00% | 4.00% | 4.25% |

In	determining	the	discount	rate	assumption,	the	Company	utilizes	current	market	information	provided	by	its	plan	actuaries,	including	a	discounted	cash	flow	analysis	of the	Company's	pension	and	other	postretirement	obligations	and	general	movements	in	the	current	market	environment.	The	Company	determines	the	long-term	rate	of return	assumption	for	the	pension	and	other	postretirement	asset	portfolios	based	on	analysis	of	the	portfolios'	historical	rates	of	return	balanced	with	future	long-term return	expectations.	Based	on	its	long-term	outlook	with	respect	to	the	markets,	the	Company	maintained	its	long-term	rate	of	return	assumption	at	8.50%	as	of December	31,	2004.

Assumed	health	care	cost	trend	rates	were	as	follows:

|  |  | As	of	December	31, |  |
| :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2002 |
| Health\tcare\tcost\ttrend\trate | 10.00% | 9.00% | 9.00% |
| Rate\tto\twhich\tthe\tcost\ttrend\trate\tis\tassumed\tto\tdecline\t(the\tultimate\ttrend\trate) | 4.50% | 5.00% | 5.00% |
| Year\tthat\tthe\trate\treaches\tthe\tultimate\ttrend\trate | 2011 | 2008 | 2007 |

Assumed	health	care	cost	trends	have	an	effect	on	the	amounts	reported	for	the	postretirement	health	care	and	life	insurance	benefit	plan.	Increasing/decreasing	the	health care	trend	rates	by	one	percent	would	have	the	effect	of	increasing/decreasing	the	benefit	obligation	as	of	December	31,	2004	by	$12	and	the	annual	net	periodic	expense for	the	year	then	ended	by	$1.

# Plan	Assets

The	Company's	defined	benefit	pension	plan	weighted	average	asset	allocation	at	December	31,	2004	and	2003,	and	target	allocation	for	2005	by	asset	category	are	as follows:

| Equity	securities | 67% | 61% | 50%	-	70% |
| :--- | :--- | :--- | :--- |
| Debt\tsecurities | 31% | 39% | 30%\t-\t50% |
| Real\testate | —% | —% | 2%\tmaximum |
| Other | 2% | —% | 5%\tmaximum |
| Total | 100% | 100% |  |

There	was	no	Company	common	stock	included	in	the	Plan's	assets	as	of	December	31,	2004	and	2003.

The	Company's	other	postretirement	benefit	plans'	weighted	average	asset	allocation	at	December	31,	2004	and	2003,	and	target	allocation	for	2005	by	asset	category	are	as follows:

|  | Plan	Assets	Fair	Value	at	December	31, | Plan	Assets	Fair	Value	at	December	31, | Plan	Assets	Fair	Value	at	December	31, | Allocation |
| :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2003 |  | 2005 |
| Equity\tsecurities | 24% |  | 23% | 20%\t-\t45% |
| Debt\tsecurities | 76% |  | 77% | 55%\t-\t80% |
| Total | 100% |  | 100% |  |

There	was	no	Company	common	stock	included	in	the	Other	Postretirement	Benefit	Plan	assets	as	of	December	31,	2004	and	2003.

The	overall	goal	of	the	Plan	is	to	maximize	total	investment	returns	to	provide	sufficient	funding	for	present	and	anticipated	future	benefit	obligations	within	the	constraints of	a	prudent	level	of	portfolio	risk	and	diversification.	Investment	decisions	are	approved	by	the	Company's	Pension	Fund	Trust	and	Investment	Committee.	The	Company believes	that	the	asset	allocation	decision	will	be	the	single	most	important	factor	determining	the	long-term	performance	of	the	Plan.

Divergent	market	performance	among	different	asset	classes	may,	from	time	to	time,	cause	the	asset	allocation	to	deviate	from	the	desired	asset	allocation	ranges.	The	asset allocation	mix	is	reviewed	on	a	periodic	basis.	If	it	is	determined	that	an	asset	allocation	mix	rebalancing	is	required,	future	portfolio	additions	and	withdrawals	will	be used,	as	necessary,	to	bring	the	allocation	within	tactical	ranges.

In	order	to	minimize	risk,	the	Plan	maintains	a	listing	of	permissible	and	prohibited	investments.	In	addition,	the	Plan	has	certain	concentration	limits	and	investment quality	requirements	imposed	on	permissible	investment	options.	The	Company	employs	a	duration	overlay	program	to	adjust	the	duration	of	the	fixed	income	component in	the	plan	assets	to	better	match	the	duration	of	the	benefit	obligation.	The	portfolio	will	invest	primarily	in	U.S.	Treasury	notes	and	bond	futures	contracts	to	maintain	the duration	within	+/-	0.75	year	of	target	duration.

# Cash	Flows

The	following	table	illustrates	the	Company's	prior	and	anticipated	2005	contributions.

| Employer	Contributions | Pension	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- |
| 2003 | $306 | $— |
| 2004 | $317 | $— |
| 2005\t(best\testimate) | $200 | $— |

Employer	contributions	in	2004	were	made	in	cash	and	do	not	include	contributions	of	the	Company's	common	stock.

# Benefit	Payments

The	following	table	sets	forth	amounts	of	benefits	expected	to	be	paid	over	the	next	ten	years	from	the	Company's	pension	and	postretirement	plans	as	of	December	31, 2004:

|  | Pension	Benefits | Other	Postretirement	Benefits |
| :--- | :--- | :--- |
| 2005 | $125 | $30 |
| 2006 | 132 | 31 |
| 2007 | 143 | 31 |
| 2008 | 154 | 33 |
| 2009 | 166 | 34 |
| 2010-2014 | 1,052 | 193 |
| Total | $1,772 | $352 |

# 18.	Stock	Compensation	Plans

On	May	18,	2000,	the	shareholders	of	The	Hartford	approved	The	Hartford	Incentive	Stock	Plan	(the	"2000	Plan"),	which	replaced	The	Hartford	1995	Incentive	Stock	Plan (the	"1995	Plan").	The	terms	of	the	2000	Plan	were	substantially	similar	to	the	terms	of	the	1995	Plan	except	that	the	1995	Plan	had	an	annual	award	limit	and	a	higher maximum	award	limit.

Under	the	2000	Plan,	awards	may	be	granted	in	the	form	of	non-qualified	or	incentive	stock	options	qualifying	under	Section	422A	of	the	Internal	Revenue	Code, performance	shares	or	restricted	stock,	or	any	combination	of	the	foregoing.	In	addition,	stock	appreciation	rights	may	be	granted	in	connection	with	all	or	part	of	any	stock options	granted	under	the	2000	Plan.	In	December	2004,	the	2000	Plan	was	amended	to	allow	for	grants	of	restricted	stock	units	effective	as	of	January	1,	2005.	The aggregate	number	of	shares	of	stock,	which	may	be	awarded,	is	subject	to	a	maximum	limit	of	17,211,837	shares	applicable	to	all	awards	for	the	ten-year	duration	of	the 2000	Plan.

All	options	granted	have	an	exercise	price	equal	to	the	market	price	of	the	Company's	common	stock	on	the	date	of	grant,	and	an	option's	maximum	term	is	ten	years	and two	days.	Certain	options	become	exercisable	over	a	three	year	period	commencing	one	year	from	the	date	of	grant,	while	certain	other	options	become	exercisable	upon the	attainment	of	specified	market	price	appreciation	of	the	Company's	common	shares.	For	any	year,	no	individual	employee	may	receive	an	award	of	options	for	more than	1,000,000	shares.	As	of	December	31,	2004,	The	Hartford	had	not	issued	any	incentive	stock	options	under	the	2000	Plan.

Performance	awards	of	common	stock	granted	under	the	2000	Plan	become	payable	upon	the	attainment	of	specific	performance	goals	achieved	over	a	period	of	not	less than	one	nor	more	than	five	years,	and	the	restricted	stock	granted	is	subject	to	a	restriction	period.	On	a	cumulative	basis,	no	more	than	20%	of	the	aggregate	number	of shares	which	may	be	awarded	under	the	2000	Plan	are	available	for	performance	shares	and	restricted	stock	awards.	Also,	the	maximum	award	of	performance	shares	for any	individual	employee	in	any	year	is	200,000	shares.	In	2004,	2003	and	2002,	the	Company	granted	shares	of	common	stock	of	315,452,	333,712	and	40,852	with weighted	average	prices	of	$64.93,	$38.13	and	$62.28,	respectively,	related	to	performance	share	and	restricted	stock	awards.

In	1996,	the	Company	established	The	Hartford	Employee	Stock	Purchase	Plan	("ESPP").	Under	this	plan,	eligible	employees	of	The	Hartford	may	purchase	common stock	of	the	Company	at	a	15%	discount	from	the	lower	of	the	closing	market	price	at	the	beginning	or	end	of	the	quarterly	offering	period.	The	Company	may	sell	up	to 5,400,000	shares	of	stock	to	eligible	employees	under	the	ESPP.	In	2004,	2003	and	2002,	345,262,	443,467	and	408,304	shares	were	sold,	respectively.	The	per	share weighted	average	fair	value	of	the	discount	under	the	ESPP	was	$9.31,	$11.96,	and	$11.70	in	2004,	2003	and	2002,	respectively.	Additionally,	during	1997,	The	Hartford established	employee	stock	purchase	plans	for	certain	employees	of	the	Company's	international	subsidiaries.	Under	these	plans,	participants	may	purchase	common	stock of	The	Hartford	at	a	fixed	price	at	the	end	of	a	three-year	period.	The	activity	under	these	programs	is	not	material.

# 18.	Stock	Compensation	Plans	(continued)

Effective	January	1,	2003,	the	Company	adopted	the	fair	value	recognition	provisions	of	accounting	for	stock-based	compensation	awards	granted	or	modified	after January	1,	2003.	All	stock-based	awards	granted	or	modified	prior	to	January	1,	2003,	continue	to	be	valued	using	the	intrinsic	value-based	provisions	set	forth	in	APB Opinion	No.	25	and	related	interpretations.	(See	Note	1	for	discussion	of	accounting	for	stock	compensation	plans.)	A	summary	of	the	status	of	non-qualified	options included	in	the	Company's	incentive	stock	plan	as	of	December	31,	2004,	2003	and	2002	and	changes	during	the	years	ended	December	31,	2004,	2003	and	2002	is presented	below:

|  | 2004 | 2004 | 2003 | 2003 | 2002 | 2002 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (Shares\tin\tthousands) | Shares | Weighted\tAverage\nExercise\tPrice | Shares | Weighted\tAverage\nExercise\tPrice | Shares | Weighted\tAverage\nExercise\tPrice |
| Outstanding\tat\tbeg.\tof\tyear | 21,218 | $48.69 | 20,172 | $49.66 | 18,937 | $45.29 |
| Granted | 1,730 | 65.88 | 2,904 | 37.54 | 3,800 | 65.56 |
| Exercised | (3,577) | 39.78 | (1,225) | 33.89 | (2,060) | 37.32 |
| Forfeited | (418) | 56.63 | (514) | 56.76 | (382) | 57.56 |
| Expired | (98) | 56.60 | (119) | 57.24 | (123) | 46.88 |
| Outstanding\tat\tend\tof\tyear | 18,855 | 51.73 | 21,218 | 48.69 | 20,172 | 49.66 |
| Exercisable\tat\tend\tof\tyear | 13,727 | 49.47 | 14,661 | 46.02 | 12,099 | 43.47 |
| Weighted\taverage\tfair\tvalue\tof\toptions\tgranted | $20.74 |  | $15.46 |  | $25.20 |  |

The	following	table	summarizes	information	about	stock	options	outstanding	and	exercisable	(shares	in	thousands)	at	December	31,	2004:

|  | Options	Outstanding | Options	Outstanding | Options	Outstanding | Options	Exercisable | Options	Exercisable |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Range\tof\nExercise\tPrices | Number\tOutstanding\nat\tDecember\t31,\n2004 | Weighted\tAverage\nRemaining\nContractual\tLife\n(Years) | Weighted\tAverage\nExercise\tPrice | Number\nExercisable\tat\nDecember\t31,\t2004 | Weighted\nAverage\nExercise\tPrice |
| $\t\t15.31\t–\t22.97 | 76 | 0.3 | $21.61 | 76 | $21.61 |
| \t\t\t\t22.97\t–\t30.63 | 277 | 1.1 | 26.02 | 277 | 26.02 |
| \t\t\t\t30.63\t–\t38.28 | 4,685 | 6.0 | 35.85 | 3,366 | 35.25 |
| \t\t\t\t38.28\t–\t45.94 | 2,776 | 3.6 | 43.41 | 2,749 | 43.41 |
| \t\t\t\t45.94\t–\t53.59 | 1,670 | 3.4 | 48.34 | 1,642 | 48.33 |
| \t\t\t\t53.59\t–\t61.25 | 928 | 4.7 | 57.49 | 832 | 57.41 |
| \t\t\t\t61.25\t–\t68.91 | 8,409 | 6.8 | 64.40 | 4,751 | 63.69 |
| \t\t\t\t68.91\t–\t76.56 | 34 | 6.0 | 71.99 | 34 | 72.04 |
| $\t\t15.31\t–\t76.56 | 18,855 | 5.6 | $51.73 | 13,727 | $49.47 |

# 19.	Investment	and	Savings	Plan

Substantially	all	U.S.	employees	are	eligible	to	participate	in	The	Hartford's	Investment	and	Savings	Plan	under	which	designated	contributions	may	be	invested	in common	stock	of	The	Hartford	or	certain	other	investments.	These	contributions	are	matched,	up	to	3%	of	compensation,	by	the	Company.	In	addition,	the	Company allocates	at	least	0.5%	of	base	salary	to	the	plan	for	each	eligible	employee.	In	2004,	the	Company	allocated	1.5%	of	base	salary	to	the	plan	for	eligible	employees	who received	compensation	of	less	than	ninety	thousand	dollars	during	the	prior	year.	The	cost	to	The	Hartford	for	this	plan	was	approximately	$50,	$36	and	$34	for	2004,	2003 and	2002,	respectively.

# 20.	Acquisitions

During	the	second	quarter	of	2004,	the	Company	finalized	its	December	31,	2003,	acquisition	of	CNA	Financial	Corporation's	group	life	and	accident,	and	short-term	and long-term	businesses.	The	acquisition	was	consummated	to	increase	the	scale	of	the	Company's	group	life	and	disability	operations	and	to	expand	and	enhance	the distribution	and	delivery	of	those	products	and	related	services.	The	final	purchase	price	was	$543.	Through	the	acquisition,	assets,	comprised	primarily	of	fixed	maturities and	short-term	investments,	increased	$2.6	billion	and	liabilities,	comprised	primarily	of	future	policy	benefits	and	unpaid	claims	and	claim	adjustments	expense	increased by	$2.0	billion.	The	Company	did	not	record	any	goodwill	or	other	intangibles,	including	present	value	of	future	profits	as	a	result	of	the	acquisition.	As	the	acquisition	was completed	on	December	31,	2003,	the	results	of	operations	of	the	acquired	business	are	included	in	the	Company's	statement	of	operations	for	the	year	ended	December	31, 2004.

|  | March	31, | March	31, | June	30, | June	30, | September	30, | September	30, | December	31, | December	31, |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 |
| Revenues | $5,732 | $4,331 | $5,444 | $4,682 | $5,416 | $4,947 | $6,101 | $4,773 |
| Benefits,\tclaims\tand\texpenses | $4,914 | $6,556 | $4,867 | $4,053 | $5,109 | $4,511 | $5,280 | $4,163 |
| Net\tincome\t(loss)\t[1] | $568 | $(1,395) | $433 | $507 | $494 | $343 | $620 | $454 |
| Basic\tearnings\t(loss)\tper\tshare\t[1] | $1.96 | $(5.46) | $1.48 | $1.89 | $1.68 | $1.21 | $2.11 | $1.60 |
| Diluted\tearnings\t(loss)\tper\tshare\t[1]\t[2] | $1.93 | $(5.46) | $1.46 | $1.88 | $1.66 | $1.20 | $2.08 | $1.59 |
| Weighted\taverage\tcommon\tshares\toutstanding | 289.9 | 255.4 | 292.3 | 268.8 | 293.2 | 282.5 | 293.8 | 283.0 |
| Weighted\taverage\tcommon\tshares\toutstanding\tand\tdilutive |  |  |  |  |  |  |  |  |
| potential\tcommon\tshares\t[2] | 294.9 | 255.4 | 297.5 | 270.2 | 297.5 | 284.8 | 298.1 | 285.6 |

[1]			Included	in	the	quarter	ended	March	31,	2003	is	an	after-tax	charge	of	$1,701	related	to	the	Company's	2003	asbestos	reserve	addition.	Included	in	the	quarter	ended June	30,	2003	are	after-tax	severance	charges	in	Property	&	Casualty	of	$27	and	$30	of	tax	benefits	in	Life	related	to	the	favorable	treatment	of	certain	tax	items arising	during	the	1996-2002	tax	years.	Included	in	the	quarter	ended	September	30,	2003	are	after-tax	expenses	of	$40	related	to	the	settlement	of	the	Bancorp Services,	LLC	litigation	dispute.	Included	in	the	quarter	ended	September	30,	2004	are	tax	benefits	of	$190	in	Life	and	$26	in	Property	and	Casualty	related	to	tax years	prior	to	2004.

[2]			As	a	result	of	the	net	loss	in	the	quarter	ended	March	31,	2003,	SFAS	No.	128	requires	the	Company	to	use	basic	weighted	average	shares	outstanding	in	the calculation	of	first	quarter	2003	diluted	earnings	per	share,	as	the	inclusion	of	options	of	0.7	would	have	been	antidilutive	to	the	earnings	per	share	calculation.	In	the absence	of	the	net	loss,	weighted	average	common	shares	outstanding	and	dilutive	potential	common	shares	would	have	totaled	256.1.

# SCHEDULE	I

# SUMMARY	OF	INVESTMENTS	—	OTHER	THAN	INVESTMENTS	IN	AFFILIATES

|  |  |  | Amount	at |
| :--- | :--- | :--- | :--- |
| (In\tmillions) |  |  | which\tshown\ton |
| Type\tof\tInvestment | Cost | Fair\tValue | Balance\tSheet |
| Fixed\tMaturities |  |  |  |
| Bonds\tand\tNotes |  |  |  |
| U.S.\tGovernment\tand\tGovernment\tagencies\tand\tauthorities\t(guaranteed\tand\tsponsored) | $1,116 | $1,132 | $1,132 |
|  | 3,983 | 4,017 | 4,017 |
| States,\tmunicipalities\tand\tpolitical\tsubdivisions | 10,589 | 11,337 | 11,337 |
| International\tgovernments | 1,648 | 1,796 | 1,796 |
| Public\tutilities | 3,361 | 3,650 | 3,650 |
| All\tother\tcorporate\tincluding\tinternational | 28,465 | 30,503 | 30,503 |
| All\tother\tcorporate\t–\tasset-backed | 18,761 | 19,226 | 19,226 |
| Short-term\tinvestments | 3,400 | 3,400 | 3,400 |
| Redeemable\tpreferred\tstock | 36 | 39 | 39 |
| Total\tfixed\tmaturities | 71,359 | 75,100 | 75,100 |
| Equity\tSecurities |  |  |  |
| Common\tstocks |  |  |  |
| Banks,\ttrusts\t&amp;\tinsurance\tcompanies | — | 1 | 1 |
| Industrial\tand\tmiscellaneous | 11,711 | 13,854 | 13,854 |
| Non-redeemable\tpreferred\tstocks | 600 | 611 | 611 |
| Total\tequity\tsecurities | 12,311 | 14,466 | 14,466 |
| Total\tfixed\tmaturities\tand\tequity\tsecurities | 83,670 | 89,566 | 89,566 |
| Real\tEstate | 2 | 2 | 2 |
| Other\tInvestments |  |  |  |
| Mortgage\tloans\ton\treal\testate | 1,174 | 1,194 | 1,174 |
| Policy\tloans | 2,662 | 2,662 | 2,662 |
| Investments\tin\tpartnerships\tand\ttrusts | 484 | 433 | 433 |
| Futures,\toptions\tand\tmiscellaneous | 604 | 571 | 571 |
| Total\tother\tinvestments | 4,924 | 4,860 | 4,840 |
| Total\tinvestments | $88,596 | $94,428 | $94,408 |

# SCHEDULE	II

# CONDENSED	FINANCIAL	INFORMATION	OF	THE	HARTFORD	FINANCIAL	SERVICES	GROUP,	INC.

# (Registrant)

| (In	millions) | As	of	December	31, | As	of	December	31, |
| :--- | :--- | :--- |
| Balance\tSheets | 2004 | 2003 |
| Assets |  |  |
| Receivable\tfrom\taffiliates | $— | $385 |
| Other\tassets | 451 | 332 |
| Investment\tin\taffiliates | 18,256 | 15,447 |
| Total\tassets | 18,707 | 16,164 |
| Liabilities\tand\tStockholders'\tEquity |  |  |
| Payable\tto\taffiliate | 48 | — |
| Short-term\tdebt | 372 | 850 |
| Long-term\tdebt | 3,514 | 3,319 |
| Other\tliabilities | 535 | 356 |
| Total\tliabilities | 4,469 | 4,525 |
| Total\tstockholders'\tequity | 14,238 | 11,639 |
| Total\tliabilities\tand\tstockholders'\tequity | $18,707 | $16,164 |

| (In	millions) | For	the	years	ended	December	31, | For	the	years	ended	December	31, | For	the	years	ended	December	31, |
| :--- | :--- | :--- | :--- |
| Statement\tof\tOperations | 2004 | 2003 | 2002 |
| Interest\texpense\t(net\tof\tinterest\tincome) | $161 | $155 | $155 |
| Other\texpenses | 19 | 17 | 5 |
| Loss\tbefore\tincome\ttaxes\tand\tearnings\tof\tsubsidiaries | (180) | (172) | (160) |
| Income\ttax\tbenefit | (62) | (60) | (56) |
| Loss\tbefore\tearnings\tof\tsubsidiaries | (118) | (112) | (104) |
| Earnings\tof\tsubsidiaries | 2,233 | 21 | 1,104 |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |

# CONDENSED	FINANCIAL	INFORMATION	OF

# THE	HARTFORD	FINANCIAL	SERVICES	GROUP,	INC.	(continued)

| (In	millions) | For	the	years	ended	December	31, | For	the	years	ended	December	31, | For	the	years	ended	December	31, |
| :--- | :--- | :--- | :--- |
| Condensed\tStatements\tof\tCash\tFlows | 2004 | 2003 | 2002 |
| Operating\tActivities |  |  |  |
| Net\tincome\t(loss) | $2,115 | $(91) | $1,000 |
| Undistributed\tearnings\tof\tsubsidiaries | (1,506) | 197 | (877) |
| Change\tin\tworking\tcapital | 183 | (231) | (128) |
| Cash\tprovided\tby\t(used\tfor)\toperating\tactivities | 792 | (125) | (5) |
| Investing\tActivities |  |  |  |
| Net\tsale\t(purchase)\tof\tshort-term\tinvestments | (111) | 60 | 6 |
| Capital\tcontributions\tto\tsubsidiaries | (646) | (2,135) | (498) |
| Cash\tused\tfor\tinvesting\tactivities | (757) | (2,075) | (492) |
| Financing\tActivities |  |  |  |
| Net\tincrease(decrease)\tin\tdebt | (280) | 1,270 | 333 |
| Issuance\tof\tcommon\tstock | 411 | 1,161 | 330 |
| Dividends\tpaid | (325) | (291) | (257) |
| Return\tof\tshares\tto\ttreasury\tstock\tunder\tincentive\tand\tstock\tcompensation\tplans | (2) | (1) | — |
| Proceeds\tfrom\tissuances\tof\tshares\tunder\tincentive\tand\tstock\tcompensation\tplans | 161 | 60 | 92 |
| Cash\tprovided\tby\t(used\tfor)\tfinancing\tactivities | (35) | 2,199 | 498 |
| Net\tchange\tin\tcash | — | (1) | 1 |
| Cash\t–\tbeginning\tof\tyear | — | 1 | — |
| Cash-end\tof\tyear | $— | $— | $1 |
| Supplemental\tDisclosure\tof\tCash\tFlow\tInformation |  |  |  |
| Net\tCash\tPaid\tDuring\tthe\tYear\tfor: |  |  |  |
| Interest | $154 | $123 | $148 |

# SCHEDULE	III

# SUPPLEMENTARY	INSURANCE	INFORMATION

# (In	millions)

| Segment	[1] | Deferred	Policy<br>Acquisition<br>Costs	[2] | Benefits,<br>Unpaid	Claims<br>and<br>Claim	Adjustment<br>Expenses | Unearned<br>Premiums | Other<br>Policyholder<br>Funds	and<br>Benefits<br>Payable |
| :--- | :--- | :--- | :--- | :--- |
| As\tof\tDecember\t31,\t2004 |  |  |  |  |
| Life |  |  |  |  |
| Retail | $4,564 | $815 | $\t$19,501 | $\t$19,501 |
| Institutional | 159 | 5,129 |  | 13,451 |
| Individual\tLife | 1,813 | 588 |  | 4,676 |
| Group\tBenefits | 70 | 5,684 |  | 558 |
| Other | 831 | 34 |  | 14,647 |
| Total\tLife | 7,437 | 12,250 | 50 | 52,833 |
| Property\t&amp;\tCasualty |  |  |  |  |
| Ongoing\tOperations |  |  |  |  |
| Business\tInsurance | 512 | 6,057 | 2,180 |  |
| Personal\tLines | 433 | 2,000 | 1,748 |  |
| Specialty\tCommercial | 128 | 5,519 | 773 |  |
| Total\tOngoing\tOperations | 1,073 | 13,576 | 4,701 |  |
| Other\tOperations | (2) | 7,753 | 62 |  |
| Total\tProperty\t&amp;\tCasualty | 1,071 | 21,329 | 4,763 | — |
| Corporate | 1 | (4) | (6) | — |
| Consolidated | $8,509 | $33,575 | $4,807 | $52,833 |
| As\tof\tDecember\t31,\t2003 |  |  |  |  |
| Life |  |  |  |  |
| Retail | $4,365 | $490 | $\t$9,779 | $\t$9,779 |
| Institutional | 105 | 4,654 |  | 12,070 |
| Individual\tLife | 1,700 | 581 |  | 3,972 |
| Group\tBenefits | 101 | 5,596 |  | 391 |
| Other | 352 | 90 |  | (26) |
| Total\tLife | 6,623 | 11,411 | 58 | 26,186 |
| Property\t&amp;\tCasualty |  |  |  |  |
| Ongoing\tOperations |  |  |  |  |
| Business\tInsurance | 463 | 5,296 | 1,861 |  |
| Personal\tLines | 398 | 1,733 | 1,636 |  |
| Specialty\tCommercial | 109 | 5,148 | 706 |  |
| Total\tOngoing\tOperations | 970 | 12,177 | 4,203 |  |
| Other\tOperations | 5 | 9,538 | 169 |  |
| Total\tProperty\t&amp;\tCasualty | 975 | 21,715 | 4,372 | — |
| Corporate | 1 | (9) | (7) | (1) |
| Consolidated | $7,599 | $33,117 | $4,423 | $26,185 |

| Segment	[1] | Earned<br>Premiums,<br>Fee	Income<br>and	Other | Net<br>Investment<br>Income | Benefits,<br>Claims<br>and	Claim<br>Adjustment<br>Expenses | Amortization<br>of	Deferred<br>Policy<br>Acquisition<br>Costs | Other<br>Expenses	[3] | Net	Written<br>Premiums |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31,\t2004 |  |  |  |  |  |  |
| Life |  |  |  |  |  |  |
| Retail | $2,105 | $1,077 | $1,120 | $661 | $742 | $ |
| Institutional | 778 | 1,061 | 1,513 | 37 | 127 |  |
| Individual\tLife | 746 | 302 | 480 | 180 | 164 |  |
| Group\tBenefits | 3,652 | 375 | 2,703 | 23 | 989 |  |
| Other | 36 | 1,079 | 814 | 77 | 123 |  |
| Total\tLife | 7,317 | 3,894 | 6,630 | 978 | 2,145 | N/A |
| Property\t&amp;\tCasualty |  |  |  |  |  |  |
| Ongoing\tOperations |  |  |  |  |  |  |
| Business\tInsurance | 4,298 |  | 2,633 | 1,058 |  | 4,575 |
| Personal\tLines | 3,568 |  | 2,512 | 530 |  | 3,557 |
| Specialty\tCommercial | 2,040 |  | 1,414 | 257 |  | 1,772 |
| Total\tOngoing\tOperations | 9,906 |  | 6,559 | 1,845 |  | 9,904 |
| Other\tOperations | 24 |  | 445 | 5 |  | (10) |
| Total\tProperty\t&amp;\tCasualty | 9,930 | 1,248 | 7,004 | 1,850 | 1,272 | 9,894 |
| Corporate | 8 | 20 | 6 | — | 285 | N/A |
| Consolidated | $17,255 | $5,162 | $13,640 | $2,828 | $3,702 | $9,894 |
| For\tthe\tyear\tended\tDecember\t31,\t2003 |  |  |  |  |  |  |
| Life |  |  |  |  |  |  |
| Retail | $1,672 | $494 | $568 | $509 | $602 | $ |
| Institutional | 1,103 | 995 | 1,749 | 34 | 212 |  |
| Individual\tLife | 727 | 256 | 436 | 176 | 161 |  |
| Group\tBenefits | 2,362 | 264 | 1,862 | 18 | 553 |  |
| Other | 113 | 32 | 1 | 32 | 79 |  |
| Total\tLife | 5,977 | 2,041 | 4,616 | 769 | 1,607 | N/A |
| Property\t&amp;\tCasualty |  |  |  |  |  |  |
| Ongoing\tOperations |  |  |  |  |  |  |
| Business\tInsurance | 3,695 |  | 2,340 | 913 |  | 3,957 |
| Personal\tLines | 3,304 |  | 2,318 | 386 |  | 3,272 |
| Specialty\tCommercial | 1,864 |  | 1,182 | 254 |  | 1,612 |
| Total\tOngoing\tOperations | 8,864 |  | 5,840 | 1,553 |  | 8,841 |
| Other\tOperations | 370 |  | 3,086 | 89 |  | 224 |
| Total\tProperty\t&amp;\tCasualty | 9,233 | 1,172 | 8,926 | 1,642 | 1,413 | 9,065 |
| Corporate | (3) | 20 | 6 | — | 304 | N/A |
| Consolidated | $15,207 | $3,233 | $13,548 | $2,411 | $3,324 | $9,065 |
| For\tthe\tyear\tended\tDecember\t31,\t2002 |  |  |  |  |  |  |
| Life |  |  |  |  |  |  |
| Retail | $1,567 | $368 | $486 | $436 | $568 | $ |
| Institutional | 777 | 977 | 1,369 | 8 | 224 |  |
| Individual\tLife | 697 | 262 | 443 | 160 | 159 |  |
| Group\tBenefits | 2,327 | 258 | 1,878 | 17 | 524 |  |
| Other | 26 | (16) | (18) | 7 | (5) |  |
| Total\tLife | 5,394 | 1,849 | 4,158 | 628 | 1,470 | N/A |
| Property\t&amp;\tCasualty |  |  |  |  |  |  |
| Ongoing\tOperations |  |  |  |  |  |  |
| Business\tInsurance | 3,126 |  | 1,962 | 779 |  | 3,412 |
| Personal\tLines | 3,107 |  | 2,319 | 415 |  | 3,050 |
| Specialty\tCommercial | 1,455 |  | 849 | 240 |  | 1,362 |
| Total\tOngoing\tOperations | 7,688 |  | 5,130 | 1,434 |  | 7,824 |
| Other\tOperations | 782 |  | 740 | 179 |  | 760 |
| Total\tProperty\t&amp;\tCasualty | 8,470 | 1,060 | 5,870 | 1,613 | 1,324 | 8,584 |
| Corporate | — | 20 | 6 | — | 280 | N/A |
| Consolidated | $13,864 | $2,929 | $10,034 | $2,241 | $3,074 | $8,584 |

[1] Segment	information	is	presented	in	a	manner	by	which	The	Hartford's	chief	operating	decision	maker	views	and	manages	the	business.

[2] Also	includes	present	value	of	future	profits.

[3] Includes	insurance	operating	costs,	interest	and	other	expenses.

Note: Certain	reclassifications	have	been	made	to	prior	year	financial	information	to	conform	to	current	year	presentation.

N/A	–	Not	applicable	to	life	insurance	pursuant	to	Regulation	S-X.

# SCHEDULE	IV

| (In	millions) | Gross<br>Amount | Ceded	to	Other<br>Companies | Assumed<br>From	Other<br>Companies | Net	Amount | Percentage<br>of	Amount<br>Assumed<br>to	Net |
| :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31,\t2004 |  |  |  |  |  |
| Life\tinsurance\tin\tforce | $ 778,134 | $300,627 | $75,050 | $552,557 | 14% |
| Insurance\trevenues |  |  |  |  |  |
| Property\tand\tcasualty\tinsurance | $10,961 | 1,685 | 218 | 9,494 | 2% |
| Life\tinsurance\tand\tannuities | 5,173 | 415 | 542 | 5,300 | 10% |
| Accident\tand\thealth\tinsurance | 1,831 | 83 | 269 | 2,017 | 13% |
| Total\tinsurance\trevenues | $17,965 | $2,183 | $1,029 | $16,811 | 6% |
| For\tthe\tyear\tended\tDecember\t31,\t2003 |  |  |  |  |  |
| Life\tinsurance\tin\tforce | $ 737,837 | $288,758 | $28,800 | $477,879 | 6% |
| Insurance\trevenues |  |  |  |  |  |
| Property\tand\tcasualty\tinsurance | $9,919 | $1,845 | $731 | $8,805 | 8% |
| Life\tinsurance\tand\tannuities | 4,762 | 364 | 122 | 4,520 | 3% |
| Accident\tand\thealth\tinsurance | 1,485 | 101 | 73 | 1,457 | 5% |
| Total\tinsurance\trevenues | $16,166 | $2,310 | $926 | $14,782 | 6% |
| For\tthe\tyear\tended\tDecember\t31,\t2002 |  |  |  |  |  |
| Life\tinsurance\tin\tforce | $ 664,368 | $210,446 | $30,502 | $484,424 | 6% |
| Insurance\trevenues |  |  |  |  |  |
| Property\tand\tcasualty\tinsurance | $8,404 | $1,162 | $872 | $8,114 | 11% |
| Life\tinsurance\tand\tannuities | 4,067 | 279 | 84 | 3,872 | 2% |
| Accident\tand\thealth\tinsurance | 1,567 | 141 | 96 | 1,522 | 6% |
| Total\tinsurance\trevenues | $14,038 | $1,582 | $1,052 | $13,508 | 8% |

# SCHEDULE	V

# VALUATION	AND	QUALIFYING	ACCOUNTS

| (In	millions) | Balance<br>January	1, | Charged	to	Costs<br>and	Expenses | Translation<br>Adjustment | Write-offs/<br>Payments/Other | Balance<br>December	31, |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2004 |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | $150 | $71 | $— | $(46) | $175 |
| Allowance\tfor\tuncollectible\treinsurance | 381 | 40 | — | (47) | 374 |
| Accumulated\tdepreciation\tof\tplant,\tproperty\tand\tequipment | 958 | 156 | — | (63) | 1,051 |
| 2003 |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | $121 | $110 | $— | $(81) | $150 |
| Allowance\tfor\tuncollectible\treinsurance | 211 | 263 | — | (93) | 381 |
| Accumulated\tdepreciation\tof\tplant,\tproperty\tand\tequipment | 1,037 | 167 | — | (246) | 958 |
| 2002 |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts | $112 | $96 | $(11) | $(76) | $121 |
| Allowance\tfor\tuncollectible\treinsurance | 158 | 67 | — | (14) | 211 |
| Accumulated\tdepreciation\tof\tplant,\tproperty\tand\tequipment | 917 | 149 | — | (29) | 1,037 |

# SCHEDULE	VI

# SUPPLEMENTAL	INFORMATION	CONCERNING	PROPERTY

# AND	CASUALTY	INSURANCE	OPERATIONS

|  |  |  |  | Paid	Claims	and |
| :--- | :--- | :--- | :--- | :--- |
|  | Discount | Claims\tand\tClaim\tAdjustment | Claims\tand\tClaim\tAdjustment | Claim |
|  | Deducted\tFrom | Expenses\tIncurred\tRelated\tto: | Expenses\tIncurred\tRelated\tto: | Adjustment |
| (In\tmillions) | Liabilities\t[1] | Current\tYear | Prior\tYear | Expenses |
| Years\tended\tDecember\t31, |  |  |  |  |
| 2004 | $556 | $6,590 | $414 | $7,031 |
| 2003 | $556 | $6,102 | $2,824 | $5,849 |
| 2002 | $575 | $5,577 | $293 | $5,589 |

[1] Reserves	for	permanently	disabled	claimants,	terminated	reinsurance	treaties	and	certain	reinsurance	contracts	have	been	discounted	using	the	weighted	average rate	of	return	The	Hartford	could	receive	on	risk-free	investments	of	4.8%,	4.9%	and	5.0%	for	2004,	2003	and	2002,	respectively.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized.

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant	and	in	the capacities	and	on	the	dates	indicated.

# FOR	THE	FISCAL	YEAR	ENDED	DECEMBER	31,	2004

# EXHIBITS	INDEX

The	exhibits	attached	to	this	Form	10-K	are	those	that	are	required	by	Item	601	of	Regulation	S-K.

# EXHIBITS	INDEX	(continued)

# Exhibit	No

*10.04 Employment	Agreement,	dated	as	of	March	20,	2001,	and	amended	as	of	February	18,	2004,	between	The	Hartford	and	Neal	S.	Wolin	(incorporated herein	by	reference	to	Exhibit	10.04	to	The	Hartford's	Form	10-Q	for	the	quarterly	period	ended	March	31,	2004).

10.20 First	Amendment,	dated	as	of	June	30,	2003,	to	the	Three-Year	Credit	Facility	among	The	Hartford,	Hartford	Life,	Inc.,	the	Lenders	party	thereto	and JPMorgan	Chase	Bank	and	Bank	of	America,	N.A.,	as	Co-Administrative	Agents	(incorporated	herein	by	reference	to	Exhibit	10.18	to	The	Hartford's Form	10-K	for	the	fiscal	year	ended	December	31,	2003).

12.01 Statement	Re:	Computation	of	Ratio	of	Earnings	to	Fixed	Charges.	†

21.01 Subsidiaries	of	The	Hartford	Financial	Services	Group,	Inc.	†

23.01 Consent	of	Deloitte	&	Touche	LLP	the	incorporation	by	reference	into	The	Hartford's	Registration	Statements	on	Forms	S-8	and	Forms	S-3	of	the report	of	Deloitte	&	Touche	LLP	contained	in	this	Form	10-K	regarding	the	audited	financial	statements	is	filed	herewith.	†

31.01 Certification	of	Ramani	Ayer	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act	of	2002.	†

31.02 Certification	of	David	M.	Johnson	pursuant	to	Section	302	of	the	Sarbanes-Oxley	Act	of	2002.	†

* Management	contract,	compensatory	plan	or	arrangement.

† Filed	with	the	Securities	and	Exchange	Commission	as	an	exhibit	to	this	report.



Question: what is the change in net income from cumulative effect of adoption?
Calculation:    cumulative_effect_of_adoption = 30 + 1
answer = cumulative_effect_of_adoption
Answer: 31