The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, commodity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies.

Strategies that Qualify for Hedge Accounting

Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 of these financial statements. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities. The hedge strategies by hedge accounting designation include:

Cash Flow Hedges

Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on floating-rate fixed maturity securities to fixed rates. In addition, during 2017, the Company entered into interest rate swaps to convert the variable interest payments on junior subordinated debt to fixed interest payments. For further information, see the Junior Subordinated Debentures section within Note 13 of these financial statements.

The Company also enters into forward starting swap agreements to hedge the interest rate exposure related to the future purchase of fixed-rate securities, primarily to hedge interest rate risk inherent in the assumptions used to price certain group benefits liabilities.

Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.

Non-qualifying Strategies

Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include hedging and replication strategies that utilize credit default swaps. In addition, hedges of interest rate, foreign currency and equity risk of certain fixed maturities and equities do not qualify for hedge accounting. The non-qualifying strategies include:

Credit Contracts

Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Interest Rate Swaps, Swaptions and Futures

The Company uses interest rate swaps, swaptions and futures to manage interest rate duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of December 31, 2017 and 2016, the notional amount of interest rate swaps in offsetting relationships was $7.3 billion and $7.9 billion, respectively.

Foreign Currency Swaps and Forwards

The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars. The Company also enters into foreign currency forwards to hedge non-U.S. dollar denominated cash and, previously, equity securities. In addition, the Company previously entered into foreign currency forwards to hedge currency impacts on changes in equity of the U.K. property and casualty run-off subsidiaries that were sold in May 2017. For further information on the disposition, see Note 2 of these financial statements.

Equity Index Options

The Company enters into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. The Company previously entered into total return swaps to hedge equity risk of specific common stock investments which were accounted for using fair value option in order to align the accounting treatment within net realized capital gains (losses). The Company has not held these total return swaps since January 2016.

Commodity Contracts

The Company previously used put options contracts on oil futures to partially offset potential losses related to certain fixed maturity securities that could be impacted by changes in oil prices. These options were terminated at the end of 2015.

Contingent Capital Facility Put Option

The Company previously entered into a put option agreement that provided the Company the right to require a third-party trust to purchase, at any time, The Hartford’s junior subordinated notes in a maximum aggregate principal amount of $500. On February 8, 2017, The Hartford exercised the put option resulting in the issuance of $500 in junior subordinated notes with proceeds received on February 15, 2017. Under the put option agreement, The Hartford had been paying premiums on a periodic basis and had agreed to reimburse the trust for certain fees and ordinary expenses. For further information on the put option agreement, see the Contingent Capital Facility section within Note 13 of these financial statements.

Derivative Balance Sheet Classification

For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivative fair value reported as liabilities after taking into account the master netting agreements was $100 and $112 as of December 31, 2017 and 2016, respectively. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk.

Derivative Balance Sheet Presentation



	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
Hedge Designation/ Derivative Type	Dec 31, 2017		Dec 31, 2016		Dec 31, 2017			Dec 31, 2016			Dec 31, 2017		Dec 31, 2016		Dec 31, 2017			Dec 31, 2016
Cash flow hedges
Interest rate swaps	$	2,190	$	1,646	$	—		$	(86	)	$	94	$	2	$	(94	)	$	(88	)
Foreign currency swaps	153		75		(13		)	1			—		1		(13		)	—
Total cash flow hedges	2,343		1,721		(13		)	(85		)	94		3		(107		)	(88		)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps and futures	7,986		8,969		(83		)	(479		)	340		15		(423		)	(494		)
Foreign exchange contracts
Foreign currency swaps and forwards	213		682		(1		)	32			—		34		(1		)	(2		)
Credit contracts
Credit derivatives that purchase credit protection	61		78		1			(1		)	1		—		—			(1		)
Credit derivatives that assume credit risk [1]	823		851		3			6			20		10		(17		)	(4		)
Credit derivatives in offsetting positions	1,046		2,311		2			—			13		23		(11		)	(23		)
Equity contracts
Equity index options	258		5		1			—			1		—		—			—
Other
Contingent capital facility put option	—		500		—			1			—		1		—			—
Total non-qualifying strategies	10,387		13,396		(77		)	(441		)	375		83		(452		)	(524		)
Total cash flow hedges and non-qualifying strategies	$	12,730	$	15,117	$	(90	)	$	(526	)	$	469	$	86	$	(559	)	$	(612	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	153	$	201	$	—		$	1		$	—	$	1	$	—		$	—
Other investments	9,957		10,888		10			(415		)	448		52		(438		)	(467		)
Other liabilities	2,620		4,028		(100		)	(112		)	21		33		(121		)	(145		)
Total derivatives	$	12,730	$	15,117	$	(90	)	$	(526	)	$	469	$	86	$	(559	)	$	(612	)


[1]	The derivative instruments related to this strategy are held for other investment purposes.

Offsetting of Derivative Assets/Liabilities

The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Consolidated Balance Sheets. Amounts offset include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.

Offsetting Derivative Assets and Liabilities



	(i)			(ii)			(iii) = (i) - (ii)						(iv)			(v) = (iii) - (iv)
							Net Amounts Presented in the Statement of Financial Position						Collateral Disallowed for Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Derivative Assets [1] (Liabilities) [2]			Accrued Interest and Cash Collateral (Received) [3] Pledged [2]			Financial Collateral (Received) Pledged [4]			Net Amount
As of December 31, 2017
Other investments	$	469		$	466		$	10		$	(7	)	$	1		$	2
Other liabilities	$	(559	)	$	(454	)	$	(100	)	$	(5	)	$	(96	)	$	(9	)
As of December 31, 2016
Other investments	$	85		$	82		$	(415	)	$	418		$	2		$	1
Other liabilities	$	(612	)	$	(488	)	$	(112	)	$	(12	)	$	(108	)	$	(16	)


[1]	Included in other investments in the Company's Consolidated Balance Sheets.


[2]	Included in other liabilities in the Company's Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.


[3]	Included in other investments in the Company's Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.


[4]	Excludes collateral associated with exchange-traded derivative instruments.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

Derivatives in Cash Flow Hedging Relationships



	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
	2017			2016		2015
Interest rate swaps	$	8		$	—	$	25
Foreign currency swaps	(14		)	1		—
Total	$	(6	)	$	1	$	25
	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	2017			2016		2015
Interest rate swaps
Net realized capital gain/(loss)	$	5		$	10	$	5
Net investment income	37			37		31
Total	$	42		$	47	$	36

During the years ended December 31, 2017, 2016, and 2015 the Company had no ineffectiveness recognized in income within net realized capital gains (losses).

As of December 31, 2017, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $86. 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 net investment 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 forecasted transactions, excluding interest payments on existing variable-rate financial instruments, is less than one year.

During the years ended December 31, 2017, 2016, and 2015, the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Non-qualifying Strategies

For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses).

Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)



	For the Year Ended December 31,
	2017			2016			2015
Foreign exchange contracts
Foreign currency swaps and forwards	(14		)	83			13
Other non-qualifying derivatives
Interest rate contracts
Interest rate swaps, swaptions and futures	(5		)	1			(8		)
Credit contracts
Credit derivatives that purchase credit protection	28			(17		)	5
Credit derivatives that assume credit risk	(7		)	28			(7		)
Equity contracts
Equity options	(7		)	(15		)	—
Commodity contracts
Commodity options	—			—			(4		)
Other
Contingent capital facility put option	(1		)	(6		)	(6		)
Total other non-qualifying derivatives	8			(9		)	(20		)
Total [1]	$	(6	)	$	74		$	(7	)


[1]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that are permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.

Credit Derivatives by Type



							Underlying Referenced Credit Obligation(s) [1]
	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
As of December 31, 2017
Single name credit default swaps
Investment grade risk exposure	$	130	$	3		5 years	Corporate Credit/ Foreign Gov.	A-	$	—	$	—
Below investment grade risk exposure	9		—			Less than 1 year	Corporate Credit	B	9		—
Basket credit default swaps [4]
Investment grade risk exposure	1,137		2			3 years	Corporate Credit	BBB+	454		(2		)
Below investment grade risk exposure	27		2			3 years	Corporate Credit	B+	27		—
Investment grade risk exposure	13		(1		)	5 years	CMBS Credit	A	3		—
Below investment grade risk exposure	30		(6		)	Less than 1 year	CMBS Credit	CCC	30		7
Total [5]	$	1,346	$	—					$	523	$	5
As of December 31, 2016
Single name credit default swaps
Investment grade risk exposure	$	81	$	—		4 years	Corporate Credit/ Foreign Gov.	A-	$	6	$	—
Below investment grade risk exposure	34		—			Less than 1 year	Corporate Credit	BBB-	34		—
Basket credit default swaps [4]
Investment grade risk exposure	1,572		17			2 years	Corporate Credit	A-	979		(8		)
Below investment grade risk exposure	28		2			4 years	Corporate Credit	BB-	28		(2		)
Investment grade risk exposure	139		(3		)	3 years	CMBS Credit	AA+	56		—
Below investment grade risk exposure	53		(13		)	1 year	CMBS Credit	CCC	53		13
Embedded credit derivatives
Investment grade risk exposure	100		100			Less than 1 year	Corporate Credit	A+	—		—
Total [5]	$	2,007	$	103					$	1,156	$	3


[1]	The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, Fitch and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used.


[2]	Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements, clearing house rules and applicable law which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.


[3]	The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.


[4]	Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.


[5]	Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 5 - Fair Value Measurements.

Derivative Collateral Arrangements

The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of December 31, 2017 and 2016, the Company pledged cash collateral associated with derivative instruments with a fair value of $1 and $489, respectively, for which the collateral receivable has been primarily included within other investments on the Company's Consolidated Balance Sheets. As of December 31, 2017 and 2016, the Company also pledged securities collateral associated with derivative instruments with a fair value of $101 and $240, respectively, which have been included in fixed maturities on the Consolidated Balance Sheets. The counterparties have the right to sell or re-pledge these securities.

As of December 31, 2017 and 2016, the Company accepted cash collateral associated with derivative instruments of $11 and $53, respectively, which was invested and recorded in the Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of December 31, 2017 and 2016 with a fair value of $2 and $2, respectively, none of which the Company has the ability to sell or repledge. As of December 31, 2017 and 2016, the Company had no repledged securities and did not sell any securities. In addition, as of December 31, 2017 and 2016, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.