Basis of Presentation

The Hartford Financial Services Group, Inc. is a holding company for insurance and financial services subsidiaries that provide investment products and life and property and casualty insurance to both individual and business customers in the United States (collectively, "The Hartford", the "Company", "we", or "our"). Also, The Hartford continues to administer business previously sold in Japan and the U.K.

The Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2012 and related disclosures in this Amendment No. 1 to the Quarterly Report on Form 10-Q have been restated. For further discussion, see Note 18 - Restatement of Notes to Condensed Consolidated Financial Statements.

On March 21, 2012, the Company announced the completion of its businesses and strategy evaluation. As a result of this review, the Company announced that it will focus on its Property and Casualty, Group Benefits and Mutual Fund businesses, place its existing Individual Annuity business into runoff and pursue sales or other strategic alternatives for the Individual Life and Retirement Plans businesses and Woodbury Financial Services, Inc. ("Woodbury Financial Services", "WFS"), an indirect wholly-owned subsidiary.

On April 26, 2012, the Company announced it had entered into an agreement to sell its U.S. individual annuity new business capabilities to a third party. A purchase and sale agreement was entered into with Forethought Financial Group in mid-June 2012 and the transaction closed on December 31, 2012. Effective May 1, 2012, all new U.S. annuity policies sold by the Company are reinsured to Forethought Life Insurance Company. The Company will cease the sale of such annuity policies and the reinsurance agreement will terminate as to new business in the second quarter of 2013. The reinsurance agreement has no impact on in-force policies issued on or before April 27, 2012.

On July 31, 2012, the Company entered into a definitive agreement to sell Woodbury Financial Services to AIG Advisor Group, Inc. ("AIG Advisor Group"), a subsidiary of American International Group, Inc. The transaction closed on November 30, 2012. The WFS broker-dealer business is included in the Corporate reporting category.

On September 4, 2012, the Company announced it had entered into a definitive agreement to sell its Retirement Plans business to Massachusetts Mutual Life Insurance Company ("MassMutual") for a cash ceding commission of $400, subject to a downward adjustment at closing of up to $51 based upon net flows adjusted for retirement plan discontinuances. The sale, which is structured as a reinsurance transaction closed on January 1, 2013. As part of the agreement, the Company will continue to sell retirement plans during a transition period, and MassMutual will assume all expenses and risk for these sales through the reinsurance agreement.

On September 27, 2012, the Company announced it had entered into a definitive agreement to sell its Individual Life insurance business to The Prudential Insurance Company of America ("Prudential"), a subsidiary of Prudential Financial, Inc. for cash consideration of $615 consisting primarily of a ceding commission. The sale, which is structured as a reinsurance transaction, closed on January 2, 2013. As part of the agreement, the Company will continue to sell life insurance products and riders during a transition period, and Prudential will assume all expenses and risk for these sales through a reinsurance agreement. For further discussion, see Note 18 - Restatement of Notes to Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), which differ materially from the accounting practices prescribed by various insurance regulatory authorities. These Condensed Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in The Hartford’s 2011 Form 10-K Annual Report. The results of operations for the interim periods should not be considered indicative of the results to be expected for the full year.

The accompanying Condensed Consolidated Financial Statements and Notes as of September 30, 2012, and for the three and nine months ended September 30, 2012 and 2011 are unaudited. These financial statements reflect all adjustments (generally consisting only of normal accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods.

1. Basis of Presentation and Accounting Policies (continued)

On January 1, 2012, the Company retrospectively adopted Accounting Standards Update (“ASU”) No. 2010-26, Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts which clarifies the definition of policy acquisition costs that are eligible for deferral. Previously reported financial information has been revised to reflect the effect of the Company’s adoption of this accounting standard. As a result of this accounting change, total stockholders’ equity as of January 1, 2011, decreased by approximately $1.6 billion, after-tax from $20.3 billion, as previously reported, to $18.7 billion due to a reduction of the Company’s deferred acquisition cost asset ("DAC") balance related to certain costs that do not meet the provisions of the revised standard.

The effect of adoption of this accounting standard on the Company’s Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Operations was as follows:



	December 31, 2011
	As previously reported		Effect of change			As currently reported
Deferred policy acquisition costs and present value of future profits	$	8,744	$	(2,188	)	$	6,556
Deferred income taxes, net	$	1,398	$	733		$	2,131
Other liabilities	$	8,443	$	(31	)	$	8,412
Retained earnings	$	12,519	$	(1,518	)	$	11,001
Accumulated other comprehensive income, net of tax	$	1,157	$	94		$	1,251
Total stockholders’ equity	$	22,910	$	(1,424	)	$	21,486



	Three Months Ended September 30, 2011
	As previously reported			Effect of change			As currently reported
Amortization of deferred policy acquisition costs and present value of future profits	$	1,320		$	(315	)	$	1,005
Insurance operating costs and other expenses	$	1,059		$	228		$	1,287
Income (loss) from continuing operations before income taxes	$	(104	)	$	87		$	(17	)
Income tax expense (benefit)	$	(101	)	$	27		$	(74	)
Net income	$	—		$	60		$	60
Net income (loss) available to common shareholders	$	(10	)	$	60		$	50
Income (loss) from continuing operations, net of tax, available to common shareholders per common share:
Basic	$	(0.03	)	$	0.14		$	0.11
Diluted	$	(0.03	)	$	0.13		$	0.10
Net income (loss) available to common shareholders per common share:
Basic	$	(0.02	)	$	0.13		$	0.11
Diluted	$	(0.02	)	$	0.13		$	0.11

1. Basis of Presentation and Accounting Policies (continued)



	Nine Months Ended September 30, 2011
	As previously reported			Effect of change			As currently reported
Amortization of deferred policy acquisition costs and present value of future profits	$	2,819		$	(772	)	$	2,047
Insurance operating costs and other expenses	$	3,403		$	690		$	4,093
Income from continuing operations before income taxes	$	138		$	82		$	220
Income tax expense (benefit)	$	(312	)	$	23		$	(289	)
Net income	$	535		$	59		$	594
Net income available to common shareholders	$	504		$	59		$	563
Income from continuing operations, net of tax, available to common shareholders per common share:
Basic	$	0.94		$	0.13		$	1.07
Diluted	$	0.87		$	0.12		$	0.99
Net income available to common shareholders per common share:
Basic	$	1.13		$	0.14		$	1.27
Diluted	$	1.05		$	0.12		$	1.17

Consolidation

The Condensed Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., companies in which the Company directly or indirectly has a controlling financial interest and those variable interest entities (“VIEs”) in which the Company is required to consolidate. Entities in which the Company has significant influence over the operating and financing decisions but are not required to consolidate are reported using the equity method. Material intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated. For further discussions on VIEs see Note 5 of the Notes to Condensed Consolidated Financial Statements.

Discontinued Operations

The results of operations of a component of the Company that either has been disposed of or is classified as held-for-sale are reported in discontinued operations if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the Company as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the disposal transaction.

The Company is presenting the operations of certain businesses that meet the criteria for reporting as discontinued operations. Amounts for prior periods have been retrospectively reclassified. See Note 12 of the Notes to Condensed Consolidated Financial Statements for information on the specific subsidiaries and related impacts.

Use of Estimates

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

The most significant estimates include those used in determining property and casualty insurance product reserves, net of reinsurance; estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and other universal life-type contracts; evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on investments; living benefits required to be fair valued; goodwill impairment; valuation of investments and derivative instruments; pension and other postretirement benefit obligations; valuation allowance on deferred tax assets; and contingencies relating to corporate litigation and regulatory matters. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the Condensed Consolidated Financial Statements.

1. Basis of Presentation and Accounting Policies (continued)

Mutual Funds

The Company maintains a retail mutual fund operation whereby the Company provides investment management, administrative and distribution services to The Hartford Mutual Funds, Inc. and The Hartford Mutual Funds II, Inc. (collectively, “mutual funds”). These mutual funds are registered with the Securities and Exchange Commission (“SEC”) under 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 Condensed Consolidated Financial Statements since they are not assets, liabilities and operations of the Company.

Reclassifications

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

Income Taxes

A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision for income taxes is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Tax expense (benefit) at U.S. Federal statutory rate	$	(8	)	$	(6	)	$	(94	)	$	77
Tax-exempt interest	(35		)	(37		)	(106		)	(112		)
Dividends-received deduction	(28		)	(42		)	(91		)	(169		)
Valuation allowance	(3		)	6			(17		)	(83		)
Other	37			5			27			(2		)
Income tax benefit	$	(37	)	$	(74	)	$	(281	)	$	(289	)

The current year separate account dividends-received deduction (“DRD”) is estimated based on information from the prior year-end, adjusted for current year equity market performance and other appropriate factors, including estimated levels of corporate dividend payments and level of policy owner equity account balances. The actual current year DRD can vary from estimates based on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of distribution from these mutual funds, amounts of short-term capital gains at the mutual fund level and the Company’s taxable income before the DRD. The Company evaluates its DRD computations on a quarterly basis.

The Company’s unrecognized tax benefits were unchanged during the three and nine months ended September 30, 2012, remaining at $48 as of September 30, 2012. This entire amount, if it were recognized, would affect the effective tax rate in the period it is released.

The Internal Revenue Service (“IRS”) routinely audits the Company's federal income tax returns. Audits have concluded for all years through 2006. The audit of the years 2007—2009 commenced during 2010 and is expected to conclude in 2013. In addition, for the nine months ended September 30, 2011, the Company recorded a tax benefit of $52 as a result of a resolution of a tax matter with the IRS for the computation of DRD for years 1998, 2000 and 2001.

The Company has recorded a deferred tax asset valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. The deferred tax asset valuation allowance, which related predominantly to foreign net operating losses, was $67 as of September 30, 2012 and $84 as of December 31, 2011. In evaluating the need for a valuation allowance, management considers many factors, including: future taxable temporary differences reversals, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in open carry back years, and other tax planning strategies. Based on the availability of additional tax planning strategies identified during the nine months ended September 30, 2011, the Company released $86, or 100%, of the valuation allowance associated with realized capital losses.

For federal income tax purposes, the tax law distinguishes between assets that are treated as ordinary versus capital in nature. The Company’s September 30, 2012 $1.4 billion net deferred tax asset includes $2.9 billion of assets relating to items treated as ordinary and a $1.5 billion net deferred tax liability for items classified as capital. The $1.5 billion for capital items is comprised of $665 of gross deferred tax assets related to realized capital losses and $2.1 billion of gross deferred tax liabilities related to net unrealized capital gains.