Management’s Discussion and Analysis of Financial Condition and Results of Operations assumed and actual policyholder behavior and between the performance of the actively managed funds underlying the separate accounts and their respective indices.
While the Company actively manages this dynamic hedging program, increased U. S.  GAAP earnings volatility may result from factors including, but not limited to: policyholder behavior, capital markets, divergence between the performance of the underlying funds and the hedging indices, changes in hedging positions and the relative emphasis placed on various risk management objectives.
Macro Hedge Program The Company’s macro hedging program uses derivative instruments, such as options and futures on equities and interest rates, to provide protection against the statutory tail scenario risk arising from GMWB and GMDB liabilities on the Company’s statutory surplus.
These macro hedges cover some of the residual risks not otherwise covered by the dynamic hedging program.
Management assesses this residual risk under various scenarios in designing and executing the macro hedge program.
The macro hedge program will result in additional U. S.  GAAP earnings volatility as changes in the value of the macro hedge derivatives, which are designed to reduce statutory reserve and capital volatility, may not be closely aligned to changes in GAAP liabilities.
Variable Annuity Hedging Program Sensitivities The underlying guaranteed withdrawal benefit liabilities (excluding the life contingent portion of GMWB contracts) and hedge assets within the GMWB hedge and Macro hedge programs are carried at fair value.
The following table presents our estimates of the potential instantaneous impacts from sudden market stresses related to equity market prices, interest rates, and implied market volatilities.
The following sensitivities represent: (1) the net estimated difference between the change in the fair value of GMWB liabilities and the underlying hedge instruments and (2) the estimated change in fair value of the hedge instruments for the macro program, before the impacts of amortization of DAC and taxes.
As noted in the preceding discussion, certain hedge assets are used to hedge liabilities that are not carried at fair value and will not have a liability offset in the U. S.  GAAP sensitivity analysis.
All sensitivities are measured as of December 31, 2016 and are related to the fair value of liabilities and hedge instruments in place at that date for the Company’s variable annuity hedge programs.
The impacts presented in the table that follows are estimated individually and measured without consideration of any correlation among market risk factors.
## Table 0 ##
[1]	These sensitivities are based on the following key market levels as of December 31, 2016: 1) S&P of 2,239; 2) 10yr US swap rate of 2.38%; and 3) S&P 10yr volatility of 27.06%.
The preceding sensitivity analysis is an estimate and should not be used to predict the future financial performance of the Company’s variable annuity hedge programs.
The actual net changes in the fair value liability and the hedging assets illustrated in the preceding table may vary materially depending on a variety of factors which include but are not limited to: ?
The sensitivity analysis is only valid as of the measurement date and assumes instantaneous changes in the capital market factors and no ability to rebalance hedge positions prior to the market changes; ?
Changes to the underlying hedging program, policyholder behavior, and variation in underlying fund performance relative to the hedged index, which could materially impact the liability; and ?
The impact of elapsed time on liabilities or hedge assets, any non-parallel shifts in capital market factors, or correlated moves across the sensitivities.
Foreign Currency Exchange Risk Foreign currency exchange risk is the risk of financial loss due to changes in the relative value between currencies.
Sources of currency risk The Company has foreign currency exchange risk in non-U.
S.  dollar denominated investments, which primarily consist of fixed maturity and equity investments, foreign denominated cash, a yen denominated fixed payout annuity and changes in equity of a P&C run-off entity in the United Kingdom.
In addition, the Company’s Talcott Resolution segment formerly issued non-U.
S.  dollar denominated funding agreement liability contracts.
Impact Changes in relative values between currencies can create variability in cash flows and realized or unrealized gains and losses on changes in the fair value of assets and liabilities.
Based on the fair values of the Company’s non-U.
S.  dollar denominated securities and derivative instruments as of December 31, 2016 and 2015, management estimates that a hypothetical 10% unfavorable change in exchange rates would decrease the fair values by a before-tax total of $11 and $48, respectively, and as of December 31, 2016 excludes the impact of the assets that transferred to held for sale related to the U. K.  property and casualty run-off subsidiaries .
Actual results could differ materially due to the nature of the estimates and assumptions used in the analysis.
CAPITAL RESOURCES AND LIQUIDITY 100 www.
thehartford.
com 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 the contingent capital facility described above, as well as unfunded commitments to purchase investments in limited partnerships and other alternative investments, private placements, and mortgage loans as disclosed in Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements.
## Table 1 ##
[1]	The following points are significant to understanding the cash flows estimated for obligations (gross of reinsurance) under property and casualty contracts: ?
Reserves for Property & Casualty unpaid losses and loss adjustment expenses include IBNR and case reserves.
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 finally determined until the Company reaches a settlement with the claimant.
Final claim settlements may vary significantly from the present estimates, particularly since many claims will not be settled until well into the future.  ?
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 could 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.
In addition, the table does not include future cash flows related to the receipt of premiums that may be used, in part, to fund loss payments.  ?
Under U. S.  GAAP, the Company is only permitted to discount reserves for losses and loss adjustment expenses in cases where the payment pattern and ultimate loss costs are fixed and determinable on an individual claim basis.
For the Company, these include claim settlements with permanently disabled claimants.
As of December 31, 2016, the total property and casualty reserves in the above table are gross of a reserve discount of $483.
[2]	Estimated life, annuity and disability obligations (gross of reinsurance) include death and disability claims, policy surrenders, policyholder dividends and trail commissions offset by expected future deposits and premiums on in-force contracts.
Estimated life, annuity and disability obligations are based on mortality, morbidity and lapse assumptions comparable with the Company’s historical experience, modified for recent observed trends.
The Company has also assumed market growth and interest crediting consistent with other assumptions.
In contrast to this table, the majority of the Company’s obligations are recorded on the balance sheet at the current account values and do not incorporate an expectation of future market growth, interest crediting, or future deposits.
Therefore, the estimated obligations presented in this table significantly exceed the liabilities recorded in reserve for future policy benefits and unpaid losses and loss 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.
[3]	Includes future minimum lease payments on operating lease agreements.
See Note 14 - Commitments and Contingencies of Notes to Consolidated Financial Statements for additional discussion on lease commitments.
[4]	Includes contractual principal and interest payments.
See Note 13 - Debt of Notes to Consolidated Financial Statements for additional discussion of long-term debt obligations.
[5]	Includes $1.6 billion in commitments to purchase investments including approximately $1.2 billion of limited partnership and other alternative investments, $313 of private placements, and $95 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 reliably estimated.
The remaining commitments to purchase investments primarily represent payables for securities purchased which are reflected on the Company’s Consolidated Balance Sheets.
Also included in purchase obligations is $962 relating to contractual commitments to purchase various goods and services such as maintenance, human resources, and information technology in the normal course of business.
Purchase obligations exclude contracts that are cancelable without penalty or contracts that do not specify minimum levels of goods or services to be purchased.
[6]	Includes cash collateral of $387 which the Company has accepted in connection with the Company’s 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.
Also included in other long-term liabilities are net unrecognized tax benefits of $12, retained yen denominated fixed payout annuity liabilities of $540, and consumer notes of $21.
Consumer notes include principal payments and contractual interest for fixed rate notes and interest based on current rates for floating rate notes.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.  Notes to Consolidated Financial Statements (continued) 18.
Employee Benefit Plans (CONTINUED) Pension Plan Assets at Fair Value as of December 31, 2015
## Table 2 ##
[1] Includes ABS,municipal bonds, and CDOs.
[2] Excludes approximately $67 of investment payables net of investment receivables that are excluded from this disclosure requirement because they are trade receivables in the ordinary course of business where the carrying amount approximates fair value.
Also excludes approximately $27 of interest receivable.
[3] Represents investments that calculate net asset value per share or an equivalent measurement.
The tables below provide fair value level 3 roll-forwards for the Pension Plan Assets for which significant unobservable inputs (Level 3) are used in the fair value measurement on a recurring basis.
The Plan classifies the fair value of financial instruments within Level 3 if there are no observable markets for the instruments or, in the absence of active markets, if one or more of the significant inputs used to determine fair value are based on the Plan’s own assumptions.
Therefore, the gains and losses in the tables below include changes in fair value due to both observable and unobservable factors.2016 Pension Plan Asset Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
## Table 3 ##
[1] “Other” includes U. S.  Treasuries, Other fixed income and Large-cap domestic equities investments.
During the year ended December 31, 2016, transfers into and (out) of Level 3 are primarily attributable to the appearance of or lack thereof of market observable information and the re-evaluation of the observability of pricing inputs.
Other expense, net, decreased $6.2 million, or 50.0%, for the year ended December 31, 2004 compared to the year ended December 31, 2003.
The decrease was primarily due to a reductionin charges on disposal and transfer costs of fixed assets and facility closure costs of $3.3 million, reduced legal charges of $1.5 million, and a reduction in expenses of $1.4 million consisting of individually insignificant items.
Interest Expense and Income Taxes Interest expense decreased in2004by $92.2 million, or 75.7%, from 2003.
This decrease included $73.3 millionof expenses related to the Company’s debt refinancing, which was completed in July 2003.
The$73.3 million of expenses consisted of$55.9 millionpaid in premiums for the tender of the95?8% senior subordinated notes, and a $17.4 million non-cashcharge for the write-off of deferred financing fees related to the 95?8% notes and PCA’s original revolving credit facility.
Excluding the $73.3 million charge, interest expense was $18.9 million lower thanin 2003 as a result of lower interest rates attributable to the Company’s July 2003 refinancing and lower debt levels.
PCA’s effective tax rate was 38.0% for the year ended December 31, 2004 and 42.3% for the year ended December 31, 2003.
The higher tax rate in 2003 is due to stable permanent items over lower book income (loss).
For both years 2004 and 2003 tax rates are higher than the federal statutory rate of 35.0% due to state income taxes.
YearEnded December31, 2003 Compared to Year Ended December31, 2002The historical results of operations of PCA for the years ended December 31, 2003 and 2002 are set forth below:

['

GMWB	Macro
Equity Market Return	-20%	-10%	10%	-20%	-10%	10%
Potential Net Fair Value Impact	$-3	$1	$-5	$265	$112	$-80
Interest Rates	-50bps	-25bps	+25bps	-50bps	-25bps	+25bps
Potential Net Fair Value Impact	$-3	$-1	$-1	$6	$3	$-2
Implied Volatilities	10%	2%	-10%	10%	2%	-10%
Potential Net Fair Value Impact	$-69	$-14	$67	$136	$27	$-125

', '

Payments due by period
Total	Less than1 year	1-3years	3-5years	More than5 years
Property and casualty obligations [1]	$22,316	$5,071	$5,294	$2,579	$9,372
Life, annuity and disability obligations [2]	249,730	17,318	30,398	24,466	177,548
Operating lease obligations [3]	163	42	63	30	28
Long-term debt obligations [4]	10,501	726	1,270	942	7,563
Purchase obligations [5]	3,188	2,379	576	208	25
Other liabilities reflected on the balance sheet [6]	1,687	1,297	389	1	—
Total	$287,585	$26,833	$37,990	$28,226	$194,536

', '

Assets	Corporate	RMBS	Foreign government	Mortgage loans	Other [1]	Totals
Fair Value as of January 1, 2016	$19	$24	$5	$54	$5	$107
Realized gains (losses), net	—	—	—	—	1	1
Changes in unrealized gains (losses), net	—	—	—	-3	—	-3
Purchases	15	—	—	70	24	109
Settlements	—	-14	—	—	-1	-15
Sales	-10	—	-4	—	-9	-23
Transfers into Level 3	—	2	—	—	3	5
Transfers out of Level 3	-11	-2	—	—	-1	-14
Fair Value as of December 31, 2016	$13	$10	$1	$121	$22	$167

', '

Asset Category	Level 1	Level 2	Level 3	Total
Short-term investments:	$7	$274	$—	$281
Fixed Income Securities:
Corporate	—	922	19	941
RMBS	—	242	24	266
U.S. Treasuries	16	1,029	3	1,048
Foreign government	—	49	5	54
CMBS	—	183	—	183
Other fixed income [1]	—	105	1	106
Mortgage Loans	—	—	54	54
Equity Securities:
Large-cap domestic	500	11	1	512
International	298	87	—	385
Total pension plan assets at fair value [2]	$821	$2,902	$107	$3,830
Other Investments [3]:
Private Market Alternatives	$—	$—	$—	$20
Hedge funds	$—	$—	$—	$620
Total pension plan assets	$821	$2,902	$107	$4,470

']

Question: Which level is U.S. Treasuries of Fixed Income Securities the highest?
Answer: Level 2