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Please take a moment and just look at Slide 2 here, where we make cautionary remarks about our forward-looking statements in the actual presentation. Events may materially differ going forward.So let's look at the agenda and just set everything for today. Liam will make a few opening remarks, Greg McGreevey will review the investment portfolio, and then we'll move to enterprise risk management, where we'll hear the progress we've made from Liz Zlatkus and Graham Bird, including the U.S. and Japan VA books and the hedging programs. Then I will provide an overall financial impacts for the Japan hedge, and we'll take a break. I'll come back after the break, and we'll walk through a few third quarter items and review the balance sheet and the capital position. We will hold a Q&A before the end, which will be moderated by our Head of Investor Relations, Sabra Purtill, and we'll conclude with a lunch. We have a number of other executives with us today. They will be around during the breaks as well as during lunch: Doug Elliott, Head of Commercial Markets; Andy Napoli, Head of Consumer Markets; Dave Levenson, Head of Wealth Management, cannot be with us here today due to previously scheduled travel; Alan Kreczko, our General Counsel; also from our finance organization, Beth Bombara, our Controller; Robert Paiano, our Treasurer; Ryan Greenier, Investor Relations; Pete Sanzero [ph], CFO of Annuities; and Kim Johnson, who now is with HIMCO. I'm sure some of you peeked ahead in the deck. For those who haven't, we will provide a few updates on the third quarter, namely DAC, catastrophes, and market impacts, none of which should be a surprise to you. Our real goal here is to -- is for you to leave today with a better understanding of the steps the company has taken to reduce risk across the enterprise and explain why we believe we have the capital to support our risk exposures even in adverse scenarios.
Welcome again to Hartford, and with that, I'll ask Liam to come up and make a few opening remarks.Liam E. McGee Thanks, Chris. Good morning, everyone. It's great to have you all here, and I do want to thank all of you for taking the time to travel to Hartford. We thought it was really important that you be here in our headquarters to experience us and our management team and our messages. So as Chris mentioned, we decided to hold a session like this several months ago. As he said, many of you have been quite open with us, and we do take your feedback very seriously. So I'll make just a few brief opening remarks before I turn it over to the team. As we look ahead, we are realistic about the environment in which we're operating. The U.S. economy is growing very slowly, and any recovery is fragile. Recent economic news has shown some modest improvement, but job growth and consumer confidence are very challenged. At The Hartford, we still don't see a repeat of the 2008 financial crisis, but the economy and the country have real challenges, and we are expecting slow economic growth at best for the balance of 2011 and at least through the first half of 2012. But we are not counting on an economic recovery to drive near-term results and are aggressively managing the levers within our control, census, pricing and risk management, for example, to effectively manage the company in this environment. Now as he mentioned, Chris will talk about capital in detail. We feel good about where we are, particularly when you factor in the economic headwinds, market volatility and higher cat activity. As you'll see today, even in the adverse scenarios we've modeled, The Hartford statutory capital margins remain above our minimum capital threshold. But with the markets becoming significantly more volatile since our equity repurchase announcement, which was in early August, we've chosen the path of prudence and have not yet begun buying back shares. Of course, we'll watch markets and economic developments closely to determine when to best start with repurchases, and we still expect to complete the program in early 2012.
We're down a path towards significantly transforming The Hartford into a more effective, cost-efficient and contemporary organization, one that is responsive to changing market dynamics and that takes a forward-looking, proactive approach to managing the business and its associated risks.Last week marked my 2-year anniversary with The Hartford. And when I look back at my first few weeks here, I was impressed with the company's strong brand, values, business franchises, talented employees and enduring relationships with our distribution partners. All that continues to be true today. But there were also significant challenges to be addressed. One of the most important and foundational was The Hartford's approach and expertise in risk management. Since I've been here, risk management has been a critical priority for the organization and for me, personally. When I first joined the Hartford, we had reasonable risk management processes within each of the business units, but what was lacking was a full understanding and robust management of the firm's aggregate risk, the transparency and control of risk appetite, correlations and concentrations. This deficiency was part of what contributed to the significant capital stress the organization faced and highlighted why an outstanding enterprise-wide approach is so important. And clearly, even within the specific business areas, we could have done a better job managing risk. The fact is that the company's risk mitigation strategy was challenged by the extraordinary economic environment we were facing then. And in hindsight, it is clear that the company had too much risk in the investment portfolio, particularly in real estate instruments, and there was not enough hedging in place. And as a result, the excess capital we held proved to be insufficient for the total exposure of the company. So we are now managing risk in a very different way and have developed the company's capabilities and expertise. We built a team of enterprise risk professionals, who manage market, credit, insurance and operational risks across the organization. We also formed a board-level risk committee, comprised of the entire board, that is very engaged on these important topics.
Now Liz Zlatkus will speak more about the work that we have done shortly, but under her leadership, the enterprise risk management team has made very good progress. As you know, Liz will retire before the end of the year, and I want to take a moment to personally thank her for the nearly 3 decades that she's devoted to The Hartford. Liz, thank you.I think it's important to note that we have a strong team in place under Liz, including Graham Bird, who's here with us today. Graham oversees enterprise risk management for market risks. Now you'll hear from him shortly, and both Liz and Graham will participate in the question-and-answer session. An external and internal search for Liz's successor is nearing completion, and I am confident we will complete the search in the near future. The Hartford's approach to the investment portfolio is much more sophisticated and disciplined than it was 2 years ago. You'll hear from Greg McGreevey today on the aggressive steps we've taken to successfully position the investment portfolio and build a high-performing operation at HIMCO. We now have an ongoing ability to review the portfolio under various stress scenarios, a rigorous re-underwriting process for securities and a capability to understand trends in the global economy, and we use that to take targeted, proactive actions as we've done, as you'll see in Europe and in our municipal bond portfolio as examples. Greg will share detail we believe demonstrates that investment losses, even under future market turmoil or severe stress scenarios, will be well within our capital resources. I want to make it clear: we are in a fundamentally stronger credit position compared to 2008. Another good example of how we're managing risk differently today is Japan. The program that the team has put in place was developed in conjunction with a leading risk management consulting firm, Oliver Wyman. It was developed against thousands of potential market and economic scenarios and is tested and stressed regularly. And so I have confidence today that the Japan risk is now within the appropriate risk parameters for The Hartford.
We'll close with Chris covering the balance sheet and capital strength, incorporating the data that will have been provided to you earlier in the day. We'll show why we are confident The Hartford can absorb additional capital stress while maintaining resources consistent with our current ratings.Now since this is a session focused on the balance sheet, we will not be covering the strategy and the plans for the businesses. At the Investor Day on December 8, we'll cover the actions we're taking to improve profitability and generate ROEs in excess of the cost of capital over time. Read the rest of this transcript for free on seekingalpha.com