The Hartford Financial Services Group

The Hartford Financial Services Group I.Introduction Founded in 1810, The Hartford Financial Services Group, Inc. (NYSE: HIG) is one of the largest investment and insurance companies based in the United States, with offices in Japan, Brazil, Ireland, England, and the United States. With nearly 30,000 employees and $2.3 billion in income in 2005, The Hartford was ranked 78th on the 2006 Fortune 100 list. The Hartford is a leading provider of investment products – annuities, mutual funds, college savings plans – as well as life insurance, group and employee benefits, automobile and homeowners' insurance, and business insurance. The Hartford serves millions of customers worldwide – including individuals, institutions, and businesses – through independent agents and brokers, financial institutions, and online. About 11,000 independent agencies and more than 100,000 registered broker/dealers sell The Hartford's trusted products. After nearly 200 years in business, The Hartford is known for its financial strength and stability, superior customer service, and continued operational excellence. The Hartford Financial Services Group recognizes the clear consensus within the scientific community that climate change is of real and increasing concern. As an insurer, investor, employer, property owner and responsible corporate citizen, The Hartford is committed to understanding, managing and mitigating the risks associated with global climate change. In July 2007, The Hartford convened a standing committee on climate change, composed of executives with a wide range of responsibilities and perspectives, including enterprise risk management, applied research & product development, actuarial and underwriting, corporate finance, workplace restheirces, law and government affairs. The committee has been tasked by Senior Management with examining the risks and opportunities presented by climate change, assessing The Hartford's current approach to climate change, and assisting in the development of climate change-related strategies going forward. The following discussion examines The Hartford's current views concerning the science of climate change, public policy and legislation, the effect climate change may have on their company and steps The Hartford is taking in response to climate change. This statement, in conjunction with The Hartford's recent submission to the Carbon Disclosure Project, represents an early but important step in The Hartford's efforts to address the growing challenge of global climate change. II. Mission & Values 1.Mission They help their customers create a secure and prosperous future by anticipating their needs and providing superior financial solutions.  2.Values Customer forcus They listen to their customers and deliver innovative solutions and extraordinary service.They prize their partnerships and relationships. Diversity Inclusion They attract, reward and retain the best talent, and they show respect for all individuals and their ideas and experiences.  Financial Discipline They create superior shareholder value through profitable growth and responsible risk management. Integrity They do the right thing by holding theirselves to the highest standards of ethical conduct. Teamwork They work together as high performing teams to achieve functional excellence and superior business results. Winning Spirit They are action-oriented and take ownership in the success of their company. III. Target Even as climate change poses risk, increased knowledge and understanding of climate change may give rise to a number of opportunities for The Hartford. Greater understanding of the climate change mechanism will lead to more sensitive pricing capability, allowing The Hartford to more effectively match risk to price. In addition, greater understanding and public recognition of climate change may both (a) increase the demand for their insurance products and the willingness to meet their pricing terms and conditions and (b) create opportunities for The Hartford to bring a wider variety of insurance products to market to meet customer needs. As additional information is developed pointing to increased frequency and severity of weather-related catastrophes, we expect to see more public policy attention paid to such risk mitigation techniques as better land use planning, improved building codes and more rigid enforcement combined with eliminating subsidies and other incentives that promote development in areas most exposed to natural disasters. The Hartford sees an opportunity in establishing itself as a recognized leader in the assessment and management of climate change-related risks. As a variety of sectors seek to respond to the challenges and opportunities of climate change - for example, through the generation of renewable energy or through the provision of climate-related risk mitigation services - The Hartford may also benefit from these investment opportunities. Finally, The Hartford sees opportunity in establishing itself as an employer and insurer of choice by demonstrating its commitment to responsible energy use and management and GHG reduction. The Hartford values its reputation as a responsible corporate citizen and will strive to preserve and enhance that reputation in the area of environmental stewardship. IV. Strategy Although The Hartford is not a significant direct emitter of greenhouse gases [GHGs], The Hartford recognizes that the reduction of GHG emissions must be the responsibility of all global citizens, individual and corporate. The Hartford takes that responsibility seriously, and the reduction of GHG emissions is an objective for The Hartford's operations management team. The Hartford believes that responsible and innovative approaches to energy efficiency will help to reduce operational costs over the long term and - most importantly - establish The Hartford as an insurer and employer of choice. Current and existing efforts to promote energy efficiency include the following: The Hartford is presently participating in the EPA Energy Star program, designed to help reduce energy usage in commercial and residential buildings. The Hartford's "Building 100" in Southington, CT, is one of seven Energy Star Office Buildings in Connecticut. The Hartford is taking into account LEED energy efficiency standards in the construction of a new office building located in Windsor, CT. The Windsor building will incorporate "daylight harvesting" systems, high efficiency HVAC, insulated glass, minimization of water usage, as well as efficient layout and gradation. The Hartford is an EPA Climate Leader. Taking the benchmark developed for the CDP (Carbon Disclosure Project) as a starting point, The Hartford is working to develop a strategic plan for ongoing GHG reduction. The Hartford has engaged an outside consultant to assist with the ongoing efforts to increase energy efficiency in all Hartford buildings and operations, and as part of its participation in the EPA's Climate Leaders program, The Hartford is considering the adoption of a 5- to 10-year goal for GHG reduction.  In addition to managing its own GHG emissions, which are relatively small as indicated above, The Hartford further recognizes the role that all public companies may play as advocates for sound and responsible public policy. The Hartford has acted as a public advocate through its membership in the American Insurance Association (AIA).  Through AIA, we advocate for risk-based pricing, growth management and climate adaptation. We believe that the insurance mechanism can play a vital role in making informed land use decisions if the mechanism is allowed to function.  Proper pricing will send appropriate risk signals to the most vulnerable areas. Beyond pricing, we work with AIA to advocate for land use planning and building codes that reflect risk exposure. Through AIA we continue to press for increased use of public transport and other non-motor vehicle transportation that will play a role in reducing greenhouse gas emissions. V. Plan Throughout its nearly 200 year history, The Hartford has successfully supported critical business activities during earthquakes, fires, hurricanes and other natural and man-made disasters. The company believes that effective planning is key to reducing the effect of any disaster and we dedicate significant restheirces to business continuity planning and testing. The Hartford has business continuity plans for all of its businesses. As part of these plans, the following tactics will support the safety of their employees and the continuation of their business in the event of a disruption: An emergency communication plan that ensures that their customers, business partners, and employees receive emergency information and instructions via a variety of stheirces, including toll-free phone numbers, websites, and external media, if necessary. The identification and training of critical business and technology teams to manage the continuity and recovery processes across the company. Technology and systems design that support the recovery processes for critical business functions. Redundant processing capacity and the potential to relocate business support to designated recovery locations. As a premier insurance and financial services company, The Hartford takes its commitment to its stakeholders very seriously and participates in industry-level discussions regarding business continuity planning under the auspices of industry organizations. Participation in these forums increases their ability to recognize and manage business disruption risks and coordinate recovery efforts across the financial services industry. Although we have taken significant steps to develop and implement sound business recovery plans, we cannot guarantee that systems will always be available or recoverable after a disaster or significant business disruption. However, we believe that their planning for such events is robust and consistent with the best practices established within the industry. VI. Tactics 1.Career Development Philosophy: Employees, with the support of management and the organization, will develop, maintain and enhance skills and competencies in alignment with strategic business plans, in order to provide for both the individual's and the company's success. At The Hartford, we understand that the success of their company depends on their people. We are committed to career development and continuous learning in order to help their employees grow both professionally and personally. We enctheirage, and expect, their employees to take charge of their careers by utilizing the many development tools and opportunities including: Degree Development Program: tuition reimbursement for college degrees and job-related ctheirsework Professional Designation Program: reimbursement, bonuses, on-site testing, and study groups for achieving professional designations Customizable web-based training and eLearning programs Leadership Development Programs Corporate University: various instructor-led, distance learning, application training and on-line offerings Training on core competencies such as communications skills and time management Workshops, classes and individual counseling to help employees plan and develop their career Training on core competencies such as communications skills and time management Workshops, classes and individual counseling to help employees plan and develop their career Microsoft office product training in the classroom and desktop tutorials A lending library of books, videos and audio tapes on career development, core competency and leadership development topics Access to internal job postings 2. The Hartford Employment The Hartford uses the non-GAAP financial measure core earnings as an important measure of the company's operating performance. The Hartford believes that the measure core earnings provides investors with a valuable measure of the performance of the Company's ongoing businesses because it reveals trends in their insurance and financial services businesses that may be obscured by the net effect of certain realized capital gains and losses. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of their business. Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the effects of deferred policy acquisition costs) that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to their insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives and net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Core earnings is also used by management to assess their operating performance and is one of the measures considered in determining incentive compensation for their managers. Net income is the most directly comparable GAAP measure. Core earnings should not be considered as a substitute for net income and does not reflect the overall profitability of their business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income and core earnings when reviewing the company's performance. VII. Do 1. Producer Compensation The Hartford sells its traditional insurance products and services through insurance agents and brokers, commonly referred to as "producers." These producers are generally not their employees. Producers also include firms that they engage to sell their traditional insurance products, such as broker/dealers. The Hartford compensates producers for the sale and service of its products. A producer may receive one or more of the below payments, depending on the producer's business relationship with them. Compensation arrangements pertaining to their variable insurance and non-insurance products are more particularly described in their prospectuses. Base Commission. Producers are generally paid a base commission for the sale and service of new and renewal policies placed with them. The base commission is usually a fixed percentage of the policy premium. The percentage may vary depending on certain factors such as the type of product, risk classification, producer size, state where the risk is located or services provided to the policyholder. Contingent Commission. Certain producers may participate in contingent commission programs we offer. Eligibility for, and the amount of, contingent commission depends upon a producer's ability to meet certain production, growth, profitability or other quality and performance objectives established by them. Contingent commission is not offered for all products and lines of business. For example, contingent commission is not offered in their terminal/maturity funding group annuity line of business. Other Payments, Benefits and Compensation. Certain producers may receive other payments, benefits and compensation from them, which may also depend on the producer meeting production and other performance objectives established by them. These other payments, benefits and compensation may include: Individual Producer Incentive Awards They may provide individual producers and licensed customer service representatives employed by an agency with incentives for placing business with them. These incentives may be in the form of cash or non-cash awards based on the number of policies written or other performance objectives established by them. Awards of this type are not available for all products and lines of business. For example, these individual producer awards are not made in connection with the sale of variable products. Marketing and Other Support They may pay for or subsidize a producer's marketing efforts and other business goals. These payments may include, but are not limited to, items such as continuing education, training expenses, lead generation services, advertising assistance, sales and business meetings or other services that help the producer promote them and their products. Other Benefits They may provide certain producers with other benefits, including, but not limited to, entertainment, tickets to sporting events, travel, gifts, branded merchandise, and attendance at corporate-sponsored programs, including accommodations, meals and gratuities. Service Fees They may enter into relationships with producers to receive services in addition to those typically provided by a producer. In these instances, it may be appropriate for them to pay service fees to the producer. These fees may include, but are not limited to, specific administrative service fees. Advances and Loans In certain circumstances, they may advance commission or incentive payments to a producer or make a loan to a producer. These advances and loans may be made interest free or at a below-market interest rate and repayment may be offset against future earned compensation or forgiven based on achievement of production or other performance objectives established by them. Interest on Premiums Collected Interest earned on premiums collected by producers and placed on deposit before having to be paid to them are generally retained by the producer, as permitted by law. 2.Surplus Lines Insurance Brokers and Employees They may distribute certain products and services through surplus lines insurance brokers. These individuals and firms generally are compensated in the same manner as producers, described above. They also have employees who may sell insurance. In addition to their regular salary, these employees may receive additional cash or non-cash compensation based on the number of policies sold or other performance objectives established by them. Note: They may also pay compensation, including endorsement fees, royalty fees and administrative service fees, to associations and other entities that endorse The Hartford and promote the sale of their products and services. Some producers may charge their customers a fee on their own account related to services they provide to customers.  Any such fee would not be part of the premium we charge or collect, would not be charged on their behalf, and may be in addition to receiving compensation from them.  VIII. Conclusion The Hartford Financial Services Group is an evaluator, underwriter and manager of risk. The evaluation of risk is fundamental to The Hartford's ability (a) to ensure that the price of their insurance products reflect the true cost of risk, providing appropriate signals and incentives to policyholders to manage their overall risk exposure (and hence the risk exposure to society), and (b) to ensure that The Hartford delivers strong risk-adjusted returns, while at all times being prepared to honor their obligations to policyholders should widespread claims occur. Consequently, The Hartford will continuously seek to advance its understanding of climate change as a risk factor that may influence the frequency and severity of natural disasters and other weather-related losses. While The Hartford approaches the issue of climate change, first and foremost, as an underwriter and manager of risk, The Hartford also views climate change from a variety of additional perspectives - not only as insurer, but as investor, employer, property owner and responsible corporate citizen. In responding to the challenge of climate change, therefore, The Hartford embraces the following three commitments: First, The Hartford wi