At this time, I would like to welcome everyone to The Hartford Second Quarter 2009 Earnings Conference Call. (Operator Instructions). I would now like to turn the call over to Mr. Rick Costello, Senior Vice President of Investor Relations. Sir, you may begin your conference.

Good morning and thank you for joining us for today's second quarter 2009 financial results conference call. As you know, our earnings release, 10-Q and financial supplement were issued yesterday. To help you follow our discussion, a slide presentation is available on our website, at thehartford.com. Ramani Ayer, Chairman and CEO; and Liz Zlatkus, CFO, will provide prepared remarks this morning and we will conclude with a Q&A session. Also participating on today's call are Juan Andrade, President and COO of our P&C company; Greg McGreevey, Chief Investment Officer; John Walters, President and COO of our Life company; and Alan Kreczko, General Counsel. Turning to the presentation on slide two, please note that we will make certain statements during the call that should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about The Hartford's future results of operations. We caution investors that these forward-looking statements are not guarantees of future performance and actual results may differ materially. Investors should consider the important risks and uncertainties that may cause actual results to differ, including those discussed in our press release issued yesterday, our quarterly reports on Form 10-Q, our 2008 annual report on Form 10-K and other filings we make with the Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today's date. Today's discussion of The Hartford's financial performance includes financial measures that are not derived from Generally Accepted Accounting Principles or GAAP. Information regarding these non-GAAP and other financial measures, including reconciliations to the most directly comparable GAAP measures, is provided in the Investor Financial Supplement for the second quarter of 2009, in the press release we issued yesterday and in the Investor Relations section of The Hartford's website, at www.thehartford.com. Please turn to slide three, and I will hand the call over to The Hartford's Chairman and CEO, Ramani Ayer.

This past quarter was a critical one for The Hartford. We took a number of significant actions to set the company on the right path to deliver value for our shareholders. On the first quarter call, I told you that we were considering a number of actions relating to The Hartford's strategic direction. Now that those considerations have been completed and our strategic direction affirmed, I want to begin this morning with a brief overview of The Hartford's strategic path. Then we will cover our second quarter results and look at some important metrics that point to our being on the right track. As we said last quarter, The Hartford's Board of Directors working with management conducted a comprehensive strategic review of the company's business operations. The overriding goal throughout the process was to enhance shareholder value, while preserving our commitments to policyholders. By the end of the process, it had become clear that the best way to deliver long-term value as an organization was to return to our historical strengths as a US-focused insurance and financial services company. We're confident in the opportunities in front of us. We're going to focus on our strong portfolio of protection businesses, primarily property and casualty, group benefits and life insurance. We're also going to continue to invest in our strong wealth management and retirement businesses, including retirement plans, mutual funds and a restructured US annuities business. Our intent is to drive profitable growth from three key areas of opportunity; protecting individuals and families, protecting businesses and their employees; and managing wealth and retirement. First, protecting individuals and families through personal insurance and individual life insurance. With our 25-year history with AARP and our network of more than 8,000 independent agents, we are well positioned to continue to grow in automobile and homeowners…

I will begin on slide 10 with an overview of our holding company capital at the end of the second quarter. We began the second quarter with $1.3 billion of on balance sheet capital resources and we ended the quarter with $3.6 billion. The major contribution during the quarter was a $3.4 billion in CPP proceeds. The primary uses of holding company resources were a $500 million contribution to our life operations, the repayment of about $300 million in commercial paper and the contribution of about $200 million to the Federal Trust DRIP. When you take into account $2.4 billion in untapped capacity under our contingent capital and bank credit facilities, you can see that we ended the quarter with total resources of $6 billion. Please turn to slide 11 for a review of our statutory capital generation in the second quarter. P&C's statutory surplus increased about $300 million to $6.4 billion. This increase was primarily driven by statutory operating income as net investment related impacts were minimal for the quarter. In our life operations, we finished the second quarter with statutory surplus of $6.1 billion or a $500 million increase from the end of the first quarter. The improvement was driven by the $500 million capital contribution we made in late June. Investment related impacts were about $300 million and were roughly offset by operating income from our VA and other life businesses. To give you more color on VA, strong global equity markets reduced our aggregate statutory liabilities by almost $2 billion. Hedge assets declined by essentially the same amount, driven by higher equity markets, higher interest rates, lower volatility levels resulting in minimal net impact from reserve changes in hedging. Please turn to slide 12. Looking to yearend, we have the capital resources today to withstand both…

Before we turn to Q&A, I just want to summarize our second quarter results. One, our strategy is set and our capital position has been strengthened. Two, in property and casualty, we are competing smartly in a challenging market. Three, our second quarter results demonstrate that our franchise and distribution plan are intact. Fourth, in the life operations, we saw a stabilization in the second quarter and we're really taking the right actions to realign our expense base to our strategic direction going forward. With that, let's go to Q&A. Operator, you may now open the call to questions.

(Operator Instructions). Your first question comes from the line of Darin Arita with Deutsche Bank.

I had a question on page 12 with respect to the equity market sensitivity. The global VA impact at yearend '09 with the S&P at 700, that $2.1 billion, is that in addition to the $1.3 billion or is it an $800 million increase?

No, that is in addition.

It is in addition. Does that include the use of the onshore captive?

Yes, it does, except that the onshore captive actually helps us more on the upper equity market levels. It really doesn't have an impact on the lower equity market levels. We are assuming we implement the captive for 2009.

With respect to the captive, can you talk about your decision on why onshore versus offshore and what are the costs to setting this up?

Yes. Obviously, this has a lot of complexities as you try to determine the best result, everything from tax implications to how the rating agencies will look through things. So we felt the onshore captive was the best solution for us. In terms of the cost of setting it up, it's not significant. You have to put capital into the captive, but then that capital gets to be utilized in terms of calculating your overall capital requirement.

Your next question comes from the line of Josh Shanker with Citi.

I wanted to talk about the property casualty space. In terms of considering the competition, one of your competitors has posted their numbers and talked about a downsizing of the type of coverage being purchased. It doesn't necessarily show up in the numbers that you've have shown. Given that you are successful in competing for that small business, I'd like to talk a little bit about that competitive landscape.

Clearly, what we had seen in the first six months of the year is the impact of the recession primarily on small business, but also on individual consumers where you see that being reflected in top-line or at least in your premium retention numbers, as you see an increase in audit premiums, in cancellations and endorsement activity as small businesses consolidate operations, small businesses go bankrupt, reduce coverage, et cetera.

In terms of that situation, are you finding that you can retain more policies by offering more coverage at a better price or your brokers are volunteering to take down what's being offered? How do you compete with that?

I think you're seeing a couple of dynamics in the marketplace. The impact of the economy, what I mentioned earlier, is creating a tremendous amount of churn in the marketplace, meaning customers are looking for ways to reduce their premiums, and distributors are looking for ways to retain those accounts to maintain their revenue levels at the same time. We do see that as far as new flows are concerned. We do see flow of business as being up as we take advantage of the churn in the marketplace. That is a way that we react to that.

As Juan mentioned, the impact on renewals, obviously, because coverages are being paired back, deductibles increased, payrolls declining, it affects our retention premium year-on-year.

Can we just get an update in terms of the timing of the executive search and the process?

As we have indicated, the Board has a search committee. It is being directed by the Board and they are very pleased with the progress. When we have something substantive to share with you, we will be delighted to.

Your next question comes from the line of Randy Binner with FBR Capital Markets.

Following up on the slide 12 question that Darin had, is it possible to provide other sensitivity numbers other than S&P 700? What would that $2.1 billion be at S&P 800 or 900?

As you know, trying to project exact capital market impacts at each level is a bit challenging. What I will say that may be helpful is that on average our convexity has been reduced. So when you think back to Investor Day in December and some of the projections we were using then, we had more convexity, more steepness as market levels dropped. Now, it has flattened out a bit. That's due to both the hedging that we've put on, which has obviously improved our capital position at the lower equity market levels as well as the implementation of VA CARVM, which is somewhat of a step change. In other words, on average it just increases the reserves. So, I would say, if anything, it has just flattened out a bit.

There were some comments on ROA that we might see in the retirement segment in 2011. One of our challenges is trying to think about how the US VA business, retirement and even institutional and international will model out into those out years, 2010 and 2011. Is there any guidance we could see on ROA we might expect to see, especially in the US VA business or some of those other lines that are more in question or potentially heading towards runoff?

First of all, in Ramani's comments, I think he did give you some good earnings guidance relative to the next six quarters. In IA, we said it was going to be $85 million to $90 million. In international, we said $35 million per quarter, which includes our expectations for normal market development, normal market growth, which gets you to an ROA expectation or better than that really an earnings expectation on those businesses in a stabilized environment. The current guidance is 30 to 34 basis points ROA on IA. We do expect that the annuity ROAs that are in our guidance will improve somewhat as we go forward as we get better returns. In the investment portfolio, we do have a large fixed account there and as those returns improve somewhat, that will get better, and also the expense reductions and the impact of higher markets will improve that as well. As we go forward, we think that the numbers that Ramani shared are the right numbers for you to be thinking about and modeling toward, assuming that we get normal market environments. I also think that on the businesses where we have not continued sales, for example Japan and the UK, that we have seen very steady asset levels there so far. Redemptions, while they spiked initially, have been fairly steady since, and so we do not expect a dramatic runoff in that business. Instead, we expect it to continue to be an earnings contributor for us and then a slow runoff after that.

On the annuity front kind of how that goes into the end of '09, is that contemplating the rollout of the new product? How are you expecting now for the rollout of the new VA product to affect those returns as it is rolled out?

First of all, from a financial perspective, I would expect the rollout of the new VA product to have a very marginal impact because it will take a while for it to build up. It will take a while for it to have enough volume to really impact the some odd $70 billion that we had in existing VA assets, which is really going to drive the earnings component. That said, the new product will be different than many of the products that are in the marketplace today. As you know, everybody has been revising their products in the marketplace and we are right in the middle of that. I think we've taken a bit of a different perspective that I think will work very well over the long term, but it will take us a bit to get it established in the marketplace. Our new product platform is designed to combine value, simplicity and transparency as to all the costs, which I think will be very well received by the marketplace. We've got good indications from the key accounts that we've been calling on about their enthusiasm for the product. It will appeal to a broader range of consumers by providing a more compelling solution for retirement income that's still guaranteed without exposing us to the kind of equity market volatility that the products over the last several years have. That said, the sales rates for the fourth quarter, first quarter until we get this new product established and start to burn into the distributors are very uncertain. So the guidance that we've given is really third quarter guidance. After that, we'll be working hard to get the new product established and we'll be able to give you a better indication of what sales levels to expect as we get into the new product launch.

Your next question comes from the line of Larry Greenberg with Langen McAlenney.

There has been a lot of discussion about flight to quality in the property casualty business and understanding the issues in the specialty division. Outside of that, do you think your issues have left you as a victim of that flight to quality up until now? If so, do you think stabilization of capital and strategic plan will lessen that going forward or probably remove that issue going forward?

What I would say is that the challenge that we have faced is really the economy, not so much ratings outside of the specialty lines. If you look at our new business flows, I think that's evidence of that. For example, for the quarter, new business premium in personal lines was up about 44%. Small commercial was up about 3%. Middle market was up about 5%. So we continue to be very viable in the marketplace. We continue to see our flows improve month-over-month. We continue to be very heavily engaged with our agents and brokers who have been very loyal to us through this period of time.

Do you feel that the tone has changed meaningfully second quarter versus first quarter?

I would say that certainly it has. The greater certainty that we can provide the marketplace about the stability of our balance sheet, the better it is for our distributors and for our customers overall. We have certainly seen an increase and an uptick in flows throughout the quarter.

Is it possible, Liz, to provide us an updated estimate on risk-based capital ratio?

As you know, risk-based capital is only calculated to the end of the year. What I would say is trying to do it at 6/30, you could take the number and divide it by our old risk-based capital level of about $1.3 billion. Knowing that VA CARVM is coming into play, I just think it's not really a meaningful indicator. Clearly, our capital went up in the life operations $500 million. We do not have significant asset-based charges, et cetera. So we are more than well capitalized.

Your next question comes from the line of Eric Berg with Barclays Capital.

I have a question that will take us back to the beginning of your comments regarding the future direction of the company. It's apparent that you are reducing your exposure internationally and you are looking at options for your institutional business. As we think of the US business, I'm hoping you can sharpen my understanding of how the new Hartford, if you will, domestically, obviously lower costs, but how else will the new Hartford be different from the old or maybe the point is that it won't be different? I just wanted to be entirely clear on that important question.

First of all, the new Hartford, let me talk it through in terms of product distribution and risk. The new Hartford, from a segment perspective, is very focused on becoming more insurance protection-focused. Therefore, more of our earnings growth going forward will come from the insurance-based businesses. So as you compare ourselves to five years ago, we were the dominant player in the variable annuity market. We have obviously restructured it pretty dramatically. To that extent, a protection focus is going to be the more critical driver of both earnings composition and earnings generation. So that's issue number one. Issue number two, the new Hartford, as you think about it with respect to these protection businesses, carries forward its traditional strengths in both distribution and product innovation, which we believe has always been our strength both in terms of diversity of distribution as well as the quality of our distribution in terms of our relationships. Product innovation is naturally part of that. Our most recent one with the AARP launch through independent agents is actually a very exciting change for us because almost 20% of our new flow is coming from that particular platform. We are doing the same in our small business area. We are doing the same in the individual life and retirement areas. So I believe that product innovation is going to be a strength that we carry forward. Third, from a risk perspective, we are obviously doing a lot more in terms of restructuring our thinking about risk, both with respect to the annuity platform, as well as Greg is doing a very, very good job in ensuring that our risk management practices inside of our investment operation is going to be materially strengthened so that as we look to the future and market volatility in the future, we want to be sure that our general account performance is more stable and more dependable. So, those are the three ways in which I would say that the new Hartford is different.

My second and final question relates to the mutual fund business. It continues to do very well in terms of attracting funds, but close to a decade, I guess, after the launch of the operation, it continues not to contribute meaningfully to the earnings. What are the challenges from an earnings point of view that this business faces and what would you consider to be a reasonable timetable for it to be at an appropriate level of profits?

The mutual fund business is a very important business to us and one that we are quite proud of what we've been able to accomplish from. If everybody remembers, really a standing start in 1996. So we have come a long way in a very short relative period of time versus many of our peers. That said, we are still relatively small as a mutual fund company and this is a scale business. A lot of your expenses in mutual funds are very dependent on the average size of your account base. So, as we go through time and we are able to grow that average account size, we think there are meaningful scale benefits that we can get. We lost some of those scale benefits in the market downturn that we just had. As both cash flows and market returns bring those scale benefits back, we think we can get back to the earnings levels that we had a couple of years ago. We think that this can be one of our fastest growing earnings components, albeit off a very small base, over the next several years as we get normalized markets and good cash flow. Ultimately, where we want to take this business to is a 16 to 18 basis points ROA and I think it will take us several years to get there, but we feel like we have the pieces in place to do that.

Remember, it was not too long ago that we did have a 15 basis point ROA on this business. This recent market downturn, both with respect to the breakpoint oriented scale point that John is mentioning, as well as just the severity of the market downturn caused us to fall down and we are now expecting this to improve gradually as we move forward.

Your next question comes from the line of Mark Finkelstein with Fox-Pitt Kelton.

I may have completely missed it, but in your reconciliation of capital I didn't see anything on the at the market $750 million or whatever deal. What's the status of that? It looks like you didn't really do much through the end of July. I just want to know if that's still out there and how we should think about that.

Well, as stated in our press release announcing the offering, we launched a discretionary offering to take advantage of favorable market conditions from time-to-time. As we reported in the press release announcing the closing of the CPP investment, in light of market conditions after the launch, sales were limited to about 1.2 million shares. Soon afterwards we began preparing the Form 10-Q for the second quarter, and therefore, suspended the offering. I would say, going forward, we intend to continue to exercise our discretion in executing the offering again based on market conditions. Those would be basically the three points I would make.

Let me just clarify though. Any additional issuance is not included in the capital that I show on slide 12.

Can you just kind of give an update in terms of distribution trends on the life side? Obviously, with the ratings downgrades and the substantial decline, particularly on the VA side in terms of production levels, have the defections at the wholesaler level leveled off? What did you see kind of in the quarter? I would ask the same question at the end distributor level. Can you just give an update on where we are and what we've had to do to keep the wholesalers that we have wanted to keep?

I would say that broadly across the life company, I've been very pleased with how stable our distribution relationships have been. In every business that we have, we've been able to maintain all of the key distributors that we've had relationships over the years. I think we're prepared to start to regenerate momentum in each of those businesses as we go forward. We have had some businesses be more affected in the second quarter by the disruptions of the fourth quarter and first quarter than others. That was particularly true of kind of the longer sales cycle businesses like retirement plans and life group benefits and the high-end of the life insurance business. You see a quicker turnaround in the mutual fund business where the sales cycle is quite a bit shorter. On the wholesaler side in all of these different businesses, by and large, I would say that our wholesaler retention has been excellent. We have had very little unplanned turnover. That said, we have restructured several of our different wholesaling organizations to reflect the current market environment. The most dramatic actions have been taken in our annuity wholesale force where we have changed that and we now have about 60 wholesalers going forward in the annuity business. We are confident that these are 60 great wholesalers who can carry our message to the street very effectively with our new product and we have not had any unplanned turnover that is meaningful in that particular line of business.

Your next question comes from the line of John Hall with Wells Fargo Securities.

I was looking at the potential uses of capital on page 12 or so in the presentation. I didn't see anything explicitly identified relative to Japan or the foreign annuity businesses. I was wondering, one, are there any capital demands out there that we should be thinking about, and two, if so, is it included in that global VA number?

In terms of that global VA, it does include all impacts from our foreign businesses. In Japan, we have capital in Japan and we really have excess capital over there, so we are well capitalized. We reinsure a large portion of that business back to the US, and so that's where it gets counted. In total, that global VA number includes all impacts of our foreign operations, including kind of risk-based capital charges that we get applied to the surplus that we hold in our foreign operations. So it's a comprehensive number.

Is it possible to break out that $1.3 billion and $2.1 billion into its US and foreign components?

It really wouldn't be meaningful because, again, some of the businesses reinsure back to the US. That's why we look at it in total. So I'm not sure it would be a meaningful number.

I have another sort of CEO follow-on type of question. You've gone down a path here in which you've identified strategy, direction for the company and the like, while also seeking to bring in a new CEO. I guess how certain can we be of that strategy remaining intact? Are you looking for a CEO who basically signs on in total to what you've articulated as the direction for the company?

Here is how I would answer that question. First and foremost, remember, as I mentioned in my opening comments, the Board was actively engaged in this process right along the way. Over the last six months or nine months, I am starting to lose track of time here. We went through an exhaustive analysis of our options to ensure that we were thinking about this very, very thoroughly and rigorously from a shareholder perspective, while at the same time being mindful of our policyholder concerns too. That's the first thing. Given the Board's engagement, now not getting into any of the specifics of Board conversation, because I'm not privy to those with potential candidates, I would assume the Board and the candidates will look at the context that they are facing over the next decade and then make proper adjustments. I have to believe that the Board's conviction around this strategy was shared in this whole strategy definition.

Your next question comes from the line of John Nadel with Sterne Agee.

I have two quick ones if I could. First, also on slide 12, I was hoping we could better understand a little bit the first estimate, the $2.3 billion of capital in excess of the AA minus rating level. Liz, I think earlier you mentioned that you didn't have a second quarter risk-based capital estimate. I was wondering how we arrive at the $2.3 billion.

I think so we just don't like to be discussing a risk-based capital number that gets utilized when it's really a yearend calculation, but obviously we have excess capital as we define it sitting here at 6/30. That's primarily at the life side, but we also have access capital at PC, so we're starting the third quarter with $2.3 billion. My only point is we know that the implementation of VA CARVM and some of the other risk-based capital charges for VA at the end of the year are going to be impacting us. If we look at an RBC number and say its in the 450 or whatever range, we're just saying we know that on an apples-to-apples basis as we go to the end of the year the requirements change. So we just didn't think it was overly meaningful. That capital is able to be utilized. In other words, as we go through the end of the year, we're saying we'd start with that, and then we use it when we go to the end of the year. When we look at that global VA number, we will utilize $1.3 billion of that $2.3 billion.

Could you give us a ballpark of what the pie looks like, how much of that $2.3 billion is in the P&C company versus the life?

I would say it's in the $1.5 billion to $1.8 billion range on the life company and then plus $500 million on the P&C.

Second question is just, if memory serves correctly, I think The Hartford's impairment process over the past four to six quarters has differed a little bit in terms of the impairments you recorded on a GAAP basis versus on a statutory basis. Maybe I am wrong on that. I was wondering, first, could you just confirm if that was the case, and second, just around that, if impairments were to catch up to GAAP, how much of an incremental would that be?

The first answer is, yes, there was a difference. In the past, particularly you may remember the third quarter, we had significant impairments that we took in the third quarter on a GAAP basis that related primarily to financial services where we did not feel that they would recover to 90% of their value within a two-year period. Those rules have now changed. Now under a GAAP basis, you really look to say, is there a probability of a credit event and then you write it down to that credit. You just write it down to the amount of the credit impairment. As you see in our financials, for example, reversing some of those GAAP impairments that we took, because of that two-year rule, we reversed those under the new GAAP rules. That was $1.4 billion pre-tax or the $912 million after-tax. So, when you kind of look cumulatively, we're more in line now. On a cumulative basis, our stat impairments are more in line with GAAP. Going forward, the rules are pretty much essentially the same.

Because of that FAS 115-b or whatever it was called, that brought them back in line because of the reversal on the GAAP side?

Absolutely.

Your final question comes from the line of Ian Gutterman with Adage Capital.

On the P&C side, the new business growth you described in June and July that accelerated meaningfully. To be honest, I don't know if I should be encouraged or discouraged by that, meaning just given the competitive environment we're in, what we are hearing from others is obviously it's good that the franchise is pulling through, but on the other side I'm worried that maybe you are being aggressive in doing that or maybe there are mixed messages between the field and headquarters, something like that.

We actually feel very good about this. One thing that's important to recognize is that we do not sacrifice profitability for growth. Our underwriting discipline here at The Hartford is deeply embedded within our culture. That's clearly evidenced in the accident year ex-cat combined ratios that we've reported, so the 90.4 for this quarter, the 90.7 for the prior year quarter and the 90.2 for second quarter of '07. We're also walking away from business that we don't feel is adequately priced. Our second quarter pricing trends certainly would indicate that point. Personal lines was a plus 3 in written pricing for the quarter. Small commercial was flat compared to a minus 2 for the prior year quarter. Middle market was a minus 1 for the quarter compared to a minus 2 last quarter and a minus 7 for the prior year quarter. So we feel very good about the ability to maintain our discipline while we're increasing these flows. One thing to keep in mind too is we have put a tremendous amount of investment over the past year, so in product development, in distribution and in service, we're happy to see that that is paying off.

One last point I would add to the excellent comments that Juan has made is our pricing trends that he quoted includes both new and renewal pricing. So we measure pricing adequacy across both our new and renewal business. So we feel very confident that we are doing this very carefully and selectively. With that, I'm going to bring the call to a close. I just want to express my appreciation for you taking the time on this call. We are delighted to share the news of our quarter with you. We are building steadily and progressively as we go along in all our major businesses trying to recapture the hearts and minds of our distribution, as well as our employees and executives. So, I thank you for this opportunity. We look forward to our third quarter conference call. Thank you again.

This concludes today's Hartford second quarter 2009 earnings conference call. You may now disconnect.