Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. Overview of The Hartford The Hartford Financial Services Group, Inc. November 2017
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
Overview of The Hartford
The Hartford Financial Services Group, Inc.
November 2017
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
Certain statements made in this presentation 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 The Hartford’s news releases issued on October 23, 2017, The Hartford’s Quarterly Reports on Form 10-Q, The Hartford’s 2016 Annual Report on Form 10-K, and other filings we make with the U.S. Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today’s date. The discussion in this presentation of The Hartford’s financial performance includes financial measures that are not derived from generally accepted accounting principles (GAAP). Information regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, is provided in the Appendix, the news releases issued on October 23, 2017 and The Hartford’s Investor Financial Supplement for third quarter 2017 which is available at the Investor Relations section of The Hartford’s website at https://ir.thehartford.com.
From time to time, The Hartford may use its website to disseminate material company information. Financial and other important information regarding The Hartford is routinely accessible through and posted on our website at https://ir.thehartford.com. In addition, you may automatically receive email alerts and other information about The Hartford when you enroll your email address by visiting the “Email Alerts” section at https://ir.thehartford.com.
2
Safe harbor statement
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The Hartford is focused on several strategic priorities
Maintain strong margins and underwriting discipline in Commercial Lines
Improve Personal Lines margins through continued pricing, underwriting and
distribution initiatives and reinvigorate new business production
Smooth and timely integration of Aetna acquisition
while achieving strong margins in Group Benefits
Increase core earnings1 and core earnings ROE1, 2, excluding Talcott Resolution,
while maintaining a strong balance sheet
1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP)
2. Return on equity
3
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Mutual Funds
7% Group
Benefits 15%
Commercial and
Personal Lines 55%
Talcott Resolution
23%
4
The Hartford’s businesses have:
– Strong market positions
– Good margins and excess capital generation
– Low capital markets sensitivity
• Commercial Lines: Leader in the highly
attractive small and middle market segments
• Group Benefits: A leading provider of life
and disability protection through employers
• Personal Lines: 30+ year partnership
with AARP
• Mutual Funds: A high return business
with consistent cash flows
• Talcott Resolution: Continued runoff of
the annuity blocks and return of capital to the
holding company
Our businesses have attractive characteristics and strong competitive advantages
1. Year-to-date (YTD); denotes financial measure not calculated based on GAAP
2. Corporate core losses, which included interest expense, were $156 million, and P&C Other
core earnings were $57 million as of 2017 September YTD
2017 September YTD Core Earnings1 excluding Corporate and P&C Other2
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Group Benefits – The acquisition of Aetna’s group insurance business is a unique opportunity and solidifies our market leading position
▪ Enhances The Hartford’s distribution footprint and sales force
▪ Provides an exclusive, multi-year collaboration to sell The Hartford’s
group life and disability products through Aetna’s medical sales team
▪ Enables expanded data and advanced analytical capabilities
▪ Increases competitive advantage around recovery management,
driving improved outcomes for customers
Higher ROE
potential
Accelerates
technological
strategy
Expands data
and analytical
capabilities
Enhances
distribution
footprint
▪ Accelerates our technology strategy by adding industry-leading digital
capabilities and an integrated absence management and claims platform
▪ Reduces investment costs previously expected for digital initiatives and
enhancements of legacy systems
Stock price beta
more consistent
with peers
▪ Expected to be accretive to net income and core earnings beginning in 2018
▪ Purchase price was funded by dividends from insurance subsidiaries and
holding company resources without issuance of debt or equity
Financially
accretive
Increases
market
presence
▪ The Hartford has become #2 insurer in the group life and disability market,
up from #51
▪ Combines two complementary franchises that are both committed to
high-quality products and best-in-class customer and claims service
1. Source: LIMRA, based on in-force master contracts, certificates, total premiums collected as of Dec. 31, 2016, and annualized premiums
5
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9M171 financial highlights
▪ Net income per diluted share of $1.54, compared with $2.45 per diluted share in 9M162
reflecting the impact of pension transfer in 2Q17, partially offset by higher core earnings3
▪ Core EPS3,4 of $2.65, up 15% from 9M16, principally due to A&E5 PYD6 charges in 2Q16
and improved personal automobile (auto) results, partially offset by elevated CATs7 in 2017
▪ BVPS, ex. AOCI3,8 of $45.72, essentially flat compared with Sept. 30, 2016
▪ Core earnings ROE, excluding Talcott Resolution, of 9.7% compared with
core earnings ROE, excluding Talcott Resolution, of 9.1% in 3Q16
▪ Underlying combined ratio3,9 of 91.7, increased 1.9 points from 9M16, primarily due to
higher loss ratios in workers’ compensation, non-CAT property and commercial auto
liability and a higher expense ratio as a result of variable compensation accruals
▪ Underlying combined ratio of 92.9 improved 0.4 point from 9M16, reflecting improved
auto underwriting results; underlying auto loss ratio improved 2.1 points compared with
9M16, adjusted for subsequent reserve development for accident year 2016
▪ Core earnings of $167 million, up 15% from 9M16 due to favorable group life mortality
and improved disability incidence and recoveries
▪ Loss ratio of 76.2%, improved 2.2 points compared with 9M16
▪ Repurchased 20.2 million shares for $1.027 billion during 2017; share repurchase
suspended Oct. 13, 2017 for funding Aetna group life and disability acquisition
▪ Declared 9% increase in quarterly dividend to $0.25 per common share,
payable Jan. 2, 2018
1. First nine months of 2017 2. First nine month of 2016 3.Denotes financial measure not calculated based on GAAP 4. Earnings per diluted share 5. Asbestos & Environmental 6. prior accident year
development (PYD) 7. Catastrophes (CATs) 8.Book value per diluted share, excluding accumulated other comprehensive income 9. Combined ratio before catastrophes (CATs) and PYD
Core Earnings
BVPS and ROE
Personal Lines
Group Benefits
Capital
Management
Commercial
Lines
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P&C1 – The Hartford is a leading P&C insurer
Core Earnings
($ in millions)
1. Property & Casualty (P&C) includes Commercial Lines, Personal Lines and P&C Other Operations
2. Per A.M. Best, based on 2016 direct written premiums
*Total Net Written Premium includes all other premiums in P&C Other Operations
• Leader in highly-attractive small commercial segment
• Broad and deep commercial distribution partnerships
• Longstanding Personal Lines partnership with AARP
• Leading choice among agents
• Best-in-class technology
• Recognized for claims excellence
• Leading share in P&C Small Commercial
• #2 in Workers’ Compensation2
• #4 in Commercial Multi-Peril2
• #4 in Direct Personal Lines2
• #7 overall in P&C Commercial2
Leading Market
Positions
Strong Competitive Advantages
$872 $884 $919
$259
($12)
$15
2015 2016 3Q17, LTMUnderwriting Gain (Loss) and Fees, After-tax
Net Investment Income, After-tax
$1,131
$872
$6,625 $6,732 $6,893
$3,918 $3,837 $3,630
2015 2016 3Q17, LTM
Commercial Lines Personal Lines
Net Written Premium
($ in millions)
$10,522* $10,578* $10,568*
$934
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Commercial Lines – Continues to deliver strong results
2016 Earned Premium by Product
Diversified Premium Mix
48%
9%
10%
18%
9% 3% 3%
Workers’ Compensation
Property
Auto
Package
Liability Professional Liability
Bond
Distinctive Agent Relationships
92.6 92.8
97.7
90.0 89.4
90.8
2015 2016 3Q17, LTMCombined Ratio
Underlying Combined Ratio
Strong Underwriting and Profitability
2016 Written Premiums by Lines
$3,521
$2,343
$826 $42
Small Commercial (52%)
Middle Market (35%)
Specialty Commercial (12%)
Other Commercial (1%)
($ in millions)
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Leading Small Commercial underwriter
Strong Profitability
New Business Premium
89.0 90.3
93.6
86.6 86.6 87.4
2015 2016 3Q17, LTM
Combined Ratio
Underlying Combined Ratio
Net Written Premium
Small Commercial
$3,388 $3,521 $3,673
2015 2016 3Q17, LTM
($ in millions)
$545 $576 $586
2015 2016 3Q17, LTM
• Expanding product and underwriting
capabilities, including acquisition of
Maxum
• Best in class technology, improving
efficiency and customer/partner
experience
• Leading choice among agents
($ in millions)
9
+8% +8%
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Middle Market focused on margins and underwriting discipline
Improved Underwriting - Discipline over Growth
New Business Premium
97.3 97.4
103.0
91.4 91.5 93.6
2015 2016 3Q17, LTM
Combined Ratio
Underlying Combined Ratio
Net Written Premium
Middle Market
$2,364 $2,343 $2,349
2015 2016 3Q17, LTM
($ in millions)
$474 $459 $480
2015 2016 3Q17, LTM
• In an increasingly competitive
environment, focused on underwriting
discipline over growth
• Investing in technology and new industry
verticals to further strengthen franchise
• Introduced multinational in 1Q17
($ in millions)
10
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42% 30%
23%
5%
National
Accounts Financial
Products
Bond
Other
Full Year
Specialty Commercial results remain strong
Improving Underwriting with Strong Results
2016 Earned Premium by Product
89.9 88.0
96.8
98.8
94.5
96.7
2015 2016 3Q17, LTMCombined Ratio
Underlying Combined Ratio
Net Written Premium
Specialty Commercial
$838 $826 $825
2015 2016 3Q17, LTM
($ in millions)
• National Accounts market became
more competitive in 2016 and continues
in 2017
• Financial Products focus shifted to
private and mid-sized accounts over
the past several years
• Bond is expanding into smaller and
mid-sized accounts
11
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$1.4 $1.4 $2.4
$1.5 $1.5
$2.5
2015 2016 2016Pro Forma
Disability Life Other
Premium2
($ in billions)
12
The acquisition of Aetna’s group insurance further strengthen our leadership position
Strong Profitability Book of Business Remains Balanced
Between Disability and Life
Group Benefits Underwriting Complements The Hartford’s Workers’ Compensation Expertise
Group Benefits – A market leader in the group life and disability market, an underwriting-centric business that leverages our workers’ compensation expertise
5.6% 5.7% 6.2%
2015 2016 3Q17, LTM
Core Earnings Margin1
2. Fully insured ongoing premium, excluding buyout premiums, excluding Association –
Financial Institutions
77.4 78.0
76.2
81.6 81.4
78.3
74.7 75.7 75.0
2015 2016 9M17
Total Disability Life
Loss Ratio
(Excluding Association – Financial Institutions)
$3.1 $3.1
1. Denotes financial measure not calculated based on GAAP
$5.1
Leader in Group Life
and Disability
(in-force premium as of
12/31/16, per LIMRA)
#2
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$0.1
$2.7 $2.0
Small
(2%)
Middle
Market
(42%)
National
Accounts
(56%)
13
• Hartford Life and Accident Insurance Company
(HLA), the primary group benefits insurance
operating subsidiary of The Hartford, reinsures
on a coinsurance basis Aetna’s U.S. book of
group life and disability insurance with premiums
of approximately $2 billion
– Acquisition does not include dental, vision or
long-term care products
• Acquisition closed on November 1, 2017
– Purchase price consists principally of a $1.38 billion
ceding commission
– Funded by dividends from insurance subsidiaries and
holding company resources without issuance of debt
or equity
• Financially accretive in 2018:
– Expected to increase annual premium by
approximately $2.0 billion plus investment income
on transferred invested assets, less expenses
– Core earnings expected to rise by $80 to $100
million, after tax, including amortization of intangibles
of $20 to $30 million, after tax
– Estimated savings beginning in 2018 on run-rate
operating expenses of approximately $100 million,
before tax, expected to be largely achieved within
two years
The acquisition of Aetna’s group life and disability business is
expected to be accretive to earnings in 2018 and beyond
$1.4 $2.4
$1.5
$2.5
2016 Actual Pro Forma
Disability Life Other
49%
47%
48%
46%
Pro Forma Group Benefits Premium1
2016 Full Year ($ in billions)
1. Fully insured ongoing premium, excluding buyout premiums
2. Excludes The Hartford’s non-Employer Group Specialty business
$3.1
$5.1
Employer Group2 Premiums by Employer Size
Premiums by Product
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Group Benefits –
Summary estimated financial impacts of acquisition
Cash consideration:
Ceding commission
Purchase price for operating assets (software, equipment, etc.)
$1.45 billion
~$1.38 billion
~$0.07 billion
2018 estimates of earnings accretion1:
Net income, after tax
Core earnings, after tax
Estimated annual amortization of intangibles, after tax
+ $60 to $80 million
+ $80 to $100 million
+ $20 to $30 million
Pro forma impact to 9/30/17:
Book value per diluted share (BVPS), ex. AOCI2
Tangible BVPS ex. AOCI2
Leverage ratio3
No impact
$(3.38) or (8%) dilutive
No impact
Present value of tax benefits as a result of the acquisition4 ~$325 million
Estimated savings beginning in 2018 on run-rate operating expenses,
expected to be largely achieved within 2 years (before tax)5 ~$100 million
Estimated transaction and integration related costs over the next 24 months6 ~$80 million, before tax
~$50 million, after tax
1. Intangible amortization included in net income and core earnings; transaction and integration related costs included in net income
2. Denotes financial measures not calculated based on generally accepted accounting principles (GAAP)
3. Total rating agency adjusted debt to capitalization ratio (based on Moody’s methodology)
4. Includes ~$260 million net present value, discounted at 8%, from ceding commission and ~$65 million from accelerated utilization of existing tax attributes
5. Largest portion of the estimated total operating expense savings of ~$100 million, before tax, is ~$60 million, before tax, expected to be achieved in 2018, which is
reflected in earnings estimates
6. Transaction and integration related costs estimated to be ~$15 million, before tax, in 4Q17, ~$25 million, before tax, in 2018 and ~$40 million, before tax, in 2019,
or ~$10 million, after tax, in 4Q17, ~$15 million, after tax, in 2018 and ~$25 million, after tax, in 2019
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75%
10%
14%
1%
AARP
Direct
AARP
Agency
Other Agency Other
2016 FY
~3M
~38M
Policies in force AARP Members
15
Market Leading Position
Focused on AARP Membership for Growth
Net Written Premium by Distribution
Focused on Improving Margins in 2017 & 2018
Personal Lines – The Hartford is a leading direct personal lines
insurer with a 30+ year partnership with AARP
Opportunity to further penetrate AARP membership
Major Direct
Personal Lines
Company (per A.M. Best, 2016)
#4
97.0
104.8 101.8
92.0
95.4 94.1
2015 2016 3Q17, LTMCombined Ratio
Underlying Combined Ratio
AARP Policies AARP Members
The Hartford’s personal
lines business is focused
on AARP members, with
the goal of increasing its
penetration of this
38 million member
association
1
1. 3Q17, LTM includes 4Q16 combined ratio and underlying combined ratio adjusted for
2016 accident year development
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$101 $96 $111 $114 $110
$83
$48 $42 $38 $37
AARP Direct AARP Agency Other Agency Other
13
21 27
37
30 36
28
45
19
44
32
16
Underwriting Actions Impact on New Business
Policy Count Retention
Increased Rate Actions
Personal Lines – Auto profitability initiatives taking hold,
laying foundation for improved results in 2017 and beyond
Number of Rate Filings
Auto New Written Premium
($ in millions)
85% 86% 86% 86% 86% 86% 86% 85% 83% 84%
82%
81% 80% 78% 77% 78% 78% 78% 79%
74%
70% 66%
82% 81% 79% 80% 80% 78% 78% 79% 76% 75%
73%
AARP AARP Agency Other Agency
$70 (47%)
1
1. Includes policies that are available to renew on either a six or twelve month policy term.
The policy retention represents the percentage of policies that renewed since the last
policy term and is not annualized
99.2 99.0
104.4
98.4 97.1 99.0
103.9
2013 2014 2015 2016
Underlying Combined Ratio (2013-2015 as developedthrough Dec. 31, 2016)
Underlying Combined Ratio (as originally reported)
Underlying Combined Ratio
1
1. As developed combined ratio takes into account impact of prior accident year
development since accident year-end
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Automobile Underlying Combined Ratio
9M16 9M17 Change
Underlying combined ratio
as reported 100.7 99.1 (1.6) pts
Adjusted for 9M16:
Loss ratio on reported basis 77.9 77.7
2016 accident year development
adjustment 1.9 —
9M16 loss ratio as adjusted 79.8 77.7 (2.1) pts
Expense ratio 22.8 21.3 (1.5) pts
Underlying combined ratio with
adjusted 9M16 loss ratio 102.6 99.1 (3.5) pts
17
With improved auto rate adequacy in 2017,
increasing marketing spend for new business growth in 2018
• Personal auto results deteriorated as 2015 - 2016 auto
frequency and severity were higher than expected due
to increased miles driven with greater distracted and
highway driving
• Multiple auto profitability initiatives launched since
3Q15, which negatively impacted new business and
renewal retention ‒ Reduced agency appointments
‒ Increased prices and accelerated rate filings
‒ Decreased marketing spending
‒ 9M17 net written premiums decreased 7%
• 2017 auto losses have improved, adjusted for
subsequent development of 2016 accident year
‒ Adjusted for 2.1 points of loss ratio development related to
other periods in 2016, 9M17 underlying auto combined ratio
improved 3.5 points
‒ 9M17 expense ratio down 1.5 points due to reduced
acquisition expenses
• With improved rate adequacy, increased marketing
efforts in full motion, and expect to see year-over-year
new business growth in early 2018
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(in thousands)
$40.7 $7.3
$13.8
($ in billions) Individual Variable Annuity
Individual Fixed Annuity
Institutional Annuity
18
• Focused on running off annuity blocks
effectively and efficiently, while maintaining
Talcott Resolution’s capital self-sufficiency – Annuity assets under management decreasing
steadily through runoff
– Talcott Resolution legal entities are separate
from P&C and other businesses
• $1.75 billion of dividends paid in 2015 - 2016 – $1.4 billion paid in 2017
Talcott Resolution – Effectively and efficiently running off annuity blocks and returning capital to the holding company
$1,469
$1,000
$750
$1,400
2014 2015 2016 2017
($ in millions)
674 603
544 505
139 128
121 115
2014 2015 2016 3Q17
Variable Annuity Fixed Annuity
813 731
665 620
1. As of Sept. 30, 2017; excludes
assets associated with reinsured
businesses and Private
Placement Life Insurance
business
2. Includes Structured Settlements,
Terminal Funding, Investment
Contracts and $4.1 billion of HIG
Pension
(24%)
Capital Self-sufficiency and Generation Individual Annuity Contract Count
Talcott Resolution Return of Capital Annuity Asset Under Management1
2
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$7.0B
$4.1B
$2.6B
$0.1B
Institutional Account Value
$13.8 Billion as of September 30, 2017
HIG
Pension
30%
Investment
Contracts
1%
Terminal
Funding
18%
Structured
Settlements
51%
Structured Settlements Long duration structured payout annuities contracts
Liability Duration: 12.4
Implied Crediting Rate: 5.9%
Number of Annuitants: ~41,000
Weighted Average Life of Payout: 25.1 years
Terminal Funding • Defined benefit pension deferred/payout annuity contracts
• Liability Duration: 8.3
• Implied Crediting Rate: 5.9%
• Number of Annuitants: ~72,000
• Weighted Average Life of Payout: 13.6 years
Investment Contracts • Guaranteed Investment Products (GIPs) and Consumer Notes
• GIP Liability Duration: 2.8
• GIP Average Crediting Rate: 4.4%
• GIP Number of Cases: 11
• GIP Weighted Average Life of Payout: 3.0 years
HIG Pension • Servicing fees on a portion of HIG pension plan assets
• Number of Contracts: 3
Institutional block has very long duration contracts and is sensitive to interest rate and credit risk
19
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Capital management includes equity repurchases, common dividends, debt reduction and investment in businesses
• $1.027 billion repurchased under 2017 plan
through October 12, 2017 for a remaining
balance of $273 million used to fund cash
requirements associated with the acquisition of
Aetna’s group life and disability book – The Hartford does not currently expect to authorize
a 2018 equity repurchase plan as a result of the
additional P&C and Talcott Resolution extraordinary
dividends totaling $1.4 billion to fund the acquisition
• Aetna acquisition funded by: – Additional P&C dividends of $600 million and
additional Talcott Resolution dividends of
$800 million above 2017 prior plan
– $250 million from holding company
– No debt or equity issued to fund the acquisition
• On October 23, 2017, the board declared a 9%
increase in quarterly dividend to $0.25 per
common share, payable on January 2, 2018 – This is the fifth consecutive year we have increased
our quarterly dividend
• Debt management actions: – Repaid $416 million of senior notes at maturity
in March 2017
– Intend to call the 8.125% $500 million
junior subordinated bond redeemable at par
in June 2018
$1.3 $1.3
$1.0
$0.3 $0.3
$0.31
2015 2016 2017
Dividends Paid on Common Stock
Share Repurchases
Capital Return to Shareholders
($ in billions)
$1.6 $1.6
$1.3
1. Reflects estimated dividends for the year at 2017 quarterly dividend rate of
$0.23 per share and year-end 2016 shares outstanding
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• Book value per diluted share has grown since
Dec. 31, 2016, despite the impact of pension
settlement charge
– $47.33 BVPS at Sept. 30, 2017,
up 7% from Dec. 31, 2016
– $45.72 BVPS, ex. AOCI at Sept. 30, 2017,
up 1% from Dec. 31, 2016
• Over the last twelve months, risk reduction
transactions have reduced BVPS growth
– 4Q16 included a charge of $423 million, after tax,
resulting from a reinsurance agreement with
National Indemnity Company (NICO) covering
The Hartford’s A&E liability exposures up to
$1.5 billion for a net impact to book value per
diluted share of $1.11
– 2Q17 included a transfer of $1.6 billion of U.S.
defined benefit pension obligation to Prudential
Financial resulting in a pension settlement charge of
$488 million, after tax, ($344 million, after tax, already
in AOCI previously) for a net impact to book value per
diluted share of $0.39
Book value per diluted share growth in last twelve months
impacted by risk reduction transactions for A&E and
pension settlement charge
Book Value Per Diluted Share, ex. AOCI1,2
$40.71
$43.76 $45.24 $45.72
2014 2015 2016 9M17
Book Value Per Diluted Share
$42.84 $42.96 $44.35
$47.33
2014 2015 2016 9M17
1. Denotes financial measure not calculated based on GAAP
2. Book value per diluted share, excluding accumulated other comprehensive income
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11.0%
9.7%
4.7%
7.6%
9.1%
10.7%
12.1%
5.1%
8.2%
9.7%
3Q16 3Q17
22
2016 P&C ROEs impacted by deterioration in personal auto and A&E PYD; better underlying results in 2017, but increase in CATs
Core Earnings ROE1
1. Denotes financial measure not calculated based on GAAP; Twelve month trailing core earnings return on equity (ROE), excluding AOCI, levered
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The Hartford’s operating and financial leverage has improved and the balance sheet is strong
Reducing Leverage Ratio
27.0 25.8
24.7
Low 20s
Dec. 31,2015
Dec. 31,2016
Sep. 30,2017
Target
Rating Agency Adjusted Debt Ratio1
Financial Strength Ratings Upgraded
A.M. Best
Hartford Fire
Insurance Company
Standard
& Poor’s
Moody’s
May 1, 2015
April 17, 2015
April 23, 2015
Company Debt Ratings
1. Based on Moody’s methodology
Hartford Financial Services Group
Senior Debt Ratings
Moody’s Baa2 (Stable)
Standard & Poor’s BBB+ (Stable)
Hartford Life and
Accident Company
April 3, 2014
April 15, 2014
April 23, 2015
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Appendix - Discussion and reconciliation of GAAP
to non-GAAP financial terms
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The Hartford uses non-GAAP financial measures in this presentation to assist investors in analyzing the company's operating performance for the
periods presented herein. Because The Hartford's calculation of these measures may differ from similar measures used by other companies,
investors should be careful when comparing The Hartford's non-GAAP financial measures to those of other companies. Definitions and
calculations of non-GAAP and other financial measures used in this presentation can be found below, in The Hartford’s press releases, dated
October 23, 2017, and in The Hartford's Investor Financial Supplement for third quarter 2017, which are available on The Hartford's website,
https://ir.thehartford.com.
Book value per diluted share excluding accumulated other comprehensive income ("AOCI”): Book value per diluted share excluding AOCI
is a non-GAAP financial measure based on a GAAP financial measure. It is calculated by dividing (a) common stockholders' equity excluding
AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Hartford provides book value per diluted share
excluding AOCI to enable investors to analyze the company’s stockholders’ equity excluding the effect of changes in the value of the company’s
investment portfolio and other assets due to interest rates, currency and other factors. The Hartford believes book value per diluted share
excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based
on changes in market value. Book value per diluted share is the most directly comparable GAAP measure. A reconciliation of book value per
diluted share, including AOCI to book value per diluted share, excluding AOCI is set forth below.
Discussion and reconciliation of non-GAAP financial measures
As of As of
Sep 30
2017
Sep 30
2016
Dec 31
2016
Dec 31
2015
Dec 31
2014
Book value per diluted share, including AOCI $47.33 $48.30 $44.35 $42.96 $42.84
Less: Per diluted share impact of AOCI $1.61 $2.56 ($0.89) ($0.80) $2.13
Book value per diluted share, excluding AOCI $45.72 $45.74 $45.24 $43.76 $40.71
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 26
Discussion and reconciliation of non-GAAP financial measures –
continued
Core Earnings: The Hartford uses the non-GAAP 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 our insurance and financial services businesses that may be obscured by including the net effect of
certain realized capital gains and losses, certain restructuring charges, pension settlements, loss on extinguishment of debt, reinsurance gains
and losses on business disposition transactions, income tax benefit from reduction in valuation allowance, discontinued operations, and the
impact of Unlocks to deferred policy acquisition costs ("DAC"), sales inducement assets, unearned revenue reserves and death and other
insurance benefit reserve balances. 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 our business.
Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the effects of DAC) 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 our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit
derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment
income. Net income (loss) is the most directly comparable U.S. GAAP measure. Core earnings should not be considered as a substitute for net
income (loss) and does not reflect the overall profitability of the company’s business. Therefore, The Hartford believes that it is useful for investors
to evaluate both net income (loss) and core earnings when reviewing the company’s performance.
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 27
A reconciliation of net income (loss) to core earnings for years ended December 31, 2016 and December 31, 2015 as well as for the nine months
ended September 30, 2017 and 2016 can be found in the tables set forth below. A reconciliation of net income (loss) to core earnings for individual
reporting segments can also be found in the tables below.
Twelve Months Ended Dec 31, 2015
($ in millions)
Commercial
Lines
Personal
Lines
P&C
Other Ops
Group
Benefits
Mutual
Funds
Talcott
Resolution Corporate Consolidated
Net income (loss) $1,003 $187 ($53) $187 $86 $430 ($158) $1,682
Less: Unlock benefit, before tax - - - - - 80 - 80
Less: Net realized capital gains (losses) after DAC,
excluded from core earnings, before tax (9) 4 3 (12) - (165) 14 (165)
Less: Restructuring and other costs, before tax - - - - - - (20) (20)
Less: Loss on extinguishment of debt, before tax - - - - - - (21) (21)
Less: Net reinsurance gain on dispositions, before
tax - - - - - 28 - 28
Less: Income tax benefit (expense) 2 (2) 1 4 - 13 103 121
Less: Income from discontinued operations, after tax 7 - - - - 2 - 9
Core earnings (losses) $1,003 $185 ($57) $195 $86 $472 ($234) $1,650
Twelve Months Ended Dec 31, 2016
($ in millions)
Commercial
Lines
Personal
Lines
P&C
Other Ops
Group
Benefits
Mutual
Funds
Talcott
Resolution Corporate Consolidated
Net income (loss) $1,007 ($22) ($529) $230 $78 $244 ($112) $896
Less: Unlock benefit (charge), before tax - - - - - (2) - (2)
Less: Net realized capital gains (losses) including
DAC, excluded from core earnings, before tax 15 2 (70) 41 - (140) (104) (256)
Less: Loss on reinsurance transactions, before tax - - (650) - - - - (650)
Less: Income tax benefit (expense) (5) - 292 (15) - 3 194 469
Core earnings (losses) $997 ($24) ($101) $204 $78 $383 ($202) $1,335
Discussion and reconciliation of non-GAAP financial measures –
continued
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 28
Nine Months Ended Sep 30, 2017
($ in millions)
Commercial
Lines
Personal
Lines
P&C
Other Ops
Group
Benefits
Mutual
Funds
Talcott
Resolution Corporate Consolidated
Net income (loss) $ 579 $ 65 $ 62 $ 185 $ 73 $ 253 $ (645) $ 572
Less: Unlock benefit, before tax - - - - - 61 - 61
Less: Net realized capital gains (losses) including
DAC, excluded from core earnings, before tax 55 9 10 27 - (51) - 50
Less: Pension settlement, before tax - - - - - - (750) (750)
Less: Income tax benefit (expense) (19) (3) (5) (9) - (3) 261 222
Core earnings (losses) $ 543 $ 59 $ 57 $ 167 $ 73 $ 246 $ (156) $ 989
Nine Months Ended Sep 30, 2016
($ in millions)
Commercial
Lines
Personal
Lines
P&C
Other Ops
Group
Benefits
Mutual
Funds
Talcott
Resolution Corporate Consolidated
Net income (loss) $ 730 $ 6 $ (106) $ 167 $ 61 $ 199 $ (80) $ 977
Less: Unlock benefit, before tax - - - - - 18 - 18
Less: Net realized capital gains (losses) including
DAC, excluded from core earnings, before tax 32 4 (44) 34 - (131) (5) (110)
Less: Income tax benefit (expense) (12) (1) 54 (12) - 40 80 149
Core earnings (losses) $ 710 $ 3 $ (116) $ 145 $ 61 $ 272 $ (155) $ 920
Discussion and reconciliation of non-GAAP financial measures –
continued
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 29
Core earnings per diluted share: Core earnings per diluted share is calculated based on the non-GAAP financial measure core earnings. It is
calculated by dividing (a) core earnings, by (b) diluted common shares outstanding. The Hartford believes that the measure core earnings per
diluted share provides investors with a valuable measure of the company's operating performance for the same reasons applicable to its
underlying measure, core earnings. Net income (loss) per diluted common share is the most directly comparable GAAP measure. Core earnings
per diluted share should not be considered as a substitute for net income (loss) per diluted share and does not reflect the overall profitability of the
company's business.
Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) per diluted share and core earnings per diluted
share when reviewing the company's performance. A reconciliation of net income (loss) per diluted common share to core earnings per diluted
share for the nine months ended September 30, 2017 and 2016 is provided in the table below.
Discussion and reconciliation of non-GAAP financial measures –
continued
Nine Months
Ended
Sep 30
2017
Sep 30
2016
PER SHARE DATA
Diluted earnings (losses) per common share:
Net income per share $1.54 $2.45
Less: Unlock benefit (charge), before tax 0.16 0.05
Less: Net realized capital losses including DAC, excluded
from core earnings, before tax 0.13 (0.28)
Less: Pension settlement, before tax (2.01) -
Less: Income tax benefit (expense) on items excluded
from core earnings 0.61 0.37
Core earnings per share $2.65 $2.31
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 30
Core earnings margin: The Hartford uses the non-GAAP measure core earnings margin to evaluate, and believes it is an important measure of,
the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding
buyouts and realized gains (losses). Net income margin is the most directly comparable U.S. GAAP measure. The Company believes that core
earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that
may be obscured by the effect of buyouts and realized gains (losses). Core earnings margin should not be considered as a substitute for net
income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to
evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings
margin for the twelve months ended December 31, 2016, December 31, 2015 and December 31, 2014 as well as for the nine months ended
September 30, 2017 and 2016 is set forth below.
Nine Months Ended Twelve Months Ended
Sep 30
2017
Sep 30
2016
Dec 31
2016
Dec 31
2015
Dec 31
2014
Net income margin 6.7% 6.1% 6.3% 5.4% 5.5%
Less: Effect of net capital realized
gains, net of tax on after tax margin 0.6% 0.7% 0.6% (0.2%) 0.3%
Core earnings margin 6.1% 5.4% 5.7% 5.6% 5.2%
Discussion and reconciliation of non-GAAP financial measures –
continued
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 31
Return on Equity – Core Earnings: The Company provides different measures of the return on stockholders' equity (“ROE”). ROE - Core
earnings is calculated based on non-GAAP financial measures. ROE - Core earnings is calculated by dividing (a) core earnings for the prior four
fiscal quarters by (b) average common stockholders' equity, excluding AOCI. ROE - Net income is the most directly comparable U.S. GAAP
measure. ROE - Net income is calculated by dividing (a) net income for the prior four fiscal quarters by (b) average common stockholders' equity,
including AOCI. ROEs at the segment level and for consolidated, excluding Talcott Resolution, represent a levered view of ROE as debt financing
and related interest expense are attributed to the businesses consistent with the overall average debt to capitalization ratios of the consolidated
entity. The Company excludes AOCI in the calculation of ROE - core earnings to provide investors with a measure of how effectively the
Company is investing the portion of the Company's net worth that is primarily attributable to the Company's business operations. The Company
provides to investors return-on-equity measures based on its non-GAAP core earnings financial measures for the reasons set forth in the “Core
Earnings” discussion above. Reconciliations of ROE Net Income (Loss) to ROE Core Earnings at a segment and consolidated level as well as on
a consolidated level, excluding Talcott Resolution and A&E, for the last twelve months ended September 30, 2017 and September 30, 2016 are
set forth below.
Discussion and reconciliation of non-GAAP financial measures –
continued
Return on Equity - Last Twelve Months Ended Sep 30, 2017
P&C Group
Benefits
Mutual
Funds
Talcott
Resolution
Consolidated
excluding
Talcott
Consolidated
Net income (loss) 5.0% 11.6% 34.5% 3.4% 2.4% 2.7%
Less: Unlock benefit (charge), before tax 0.0% 0.0% 0.0% 0.6% 0.0% 0.2%
Less: Net realized capital gains (losses) after DAC,
excluded from core earnings, before tax 0.3% 1.8% 0.0% (0.9%) (0.3%) (0.5%)
Less: Loss on reinsurance transactions, before tax (7.6%) 0.0% 0.0% 0.0% (5.7%) (3.6%)
Less: Pension settlement, before tax 0.0% 0.0% 0.0% 0.0% (6.6%) (4.2%)
Less: Income tax benefit (expense) 2.6% (0.6%) 0.0% (0.6%) 5.1% 3.0%
Less: Impact of AOCI, excluded from Core ROE (1.0%) (1.7%) (0.3%) (0.8%) 0.2% (0.4%)
Core earnings (losses) 10.7% 12.1% 34.8% 5.1% 9.7% 8.2%
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 32
Discussion and reconciliation of non-GAAP financial measures –
continued
Return on Equity - Last Twelve Months Ended Sep 30, 2016
P&C Group
Benefits
Mutual
Funds
Talcott
Resolution
Consolidated
excluding
Talcott
Consolidated
excluding Talcott
and A&E
Consolidated
Net income (loss) 10.4% 9.3% 33.2% 2.1% 10.8% 12.2% 7.6%
Less: Unlock benefit (charge), before tax 0.0% 0.0% 0.0% 1.0% 0.0% 0.0% 0.4%
Less: Net realized capital gains (losses) after DAC,
excluded from core earnings, before tax 0.0% 1.5% 0.0% (3.9%) 0.0% 0.2% (1.3%)
Less: Restructuring and other costs, before tax 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0%
Less: Loss on reinsurance transactions, before tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Less: Income tax benefit (expense) 0.5% (0.5%) 0.0% 1.0% 1.2% 1.2% 1.1%
Less: Impact of AOCI, excluded from Core ROE (1.1%) (1.4%) (0.2%) (0.7%) 0.3% 0.2% (0.2%)
Core earnings (losses) 11.0% 9.7% 33.4% 4.7% 9.1% 10.6% 7.6%
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 33
Underlying combined ratio: Represents the combined ratio before catastrophes and prior accident year development (PYD) (also referred to as
Current Accident Year (CAY) combined ratio before catastrophes) and is a non-GAAP financial measure. Combined ratio is the most directly
comparable GAAP measure. The combined ratio is the sum of the loss and loss adjustment expense ratio (also known as a loss ratio), the
expense ratio and the policyholder dividend ratio. This ratio measures the cost of losses and expenses for every $100 of earned premiums. A
combined ratio below 100 demonstrates a positive underwriting result. A combined ratio above 100 indicates a negative underwriting result. The
underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes.
The company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable
catastrophe losses and prior accident year loss and loss adjustment expense reserve. A reconciliation of the combined ratio to the underlying
combined ratio for individual reporting segments for the twelve months ended December 31, 2016, December 31, 2015 and December 31, 2014
as well as for the nine months ended September 30, 2017 and 2016 can be found in the tables set forth below.
Nine Months Ended Twelve Months Ended
Sep 30 2017 Sep 30 2016 Dec 31 2016 Dec 31 2015 Dec 31 2014
Commercial Lines
Combined ratio 99.8 93.3 92.8 92.6 93.4
Impact of catastrophes and PYD on combined ratio 8.1 3.6 3.4 2.7 1.9
Underlying combined ratio 91.7 89.8 89.4 90.0 91.5
Small Commercial
Combined ratio 94.6 90.2 90.3 89.0 88.4
Impact of catastrophes and PYD on combined ratio 6.7 3.4 3.7 2.4 1.4
Underlying combined ratio 87.9 86.8 86.6 86.6 87.0
Middle Market
Combined ratio 106.6 99.2 97.4 97.3 97.5
Impact of catastrophes and PYD on combined ratio 11.4 6.9 5.9 5.9 3.0
Underlying combined ratio 95.2 92.4 91.5 91.4 94.5
Specialty Commercial
Combined ratio 99.4 87.7 88.0 89.9 99.7
Impact of catastrophes and PYD on combined ratio 2.1 (6.6) (6.5) (8.9) (0.5)
Underlying combined ratio 97.3 94.4 94.5 98.8 100.2
Discussion and reconciliation of non-GAAP financial measures –
continued
Copyright © 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 34
Nine Months Ended Twelve Months Ended
Sep 30
2017
Sep 30
2016
Dec 31
2016
Dec 31
2015
Dec 31
2014
Personal Lines
Combined ratio 101.5 104.2 104.8 97.0 95.5
Impact of catastrophes and PYD on combined ratio 8.7 10.9 9.4 4.9 4.9
Underlying combined ratio 92.9 93.3 95.4 92.0 90.6
Automobile
Combined ratio 101.5 109.5 111.6 99.4 98.4
Impact of catastrophes and PYD on combined ratio 2.5 8.7 7.7 0.4 1.3
Underlying combined ratio 99.1 100.7 103.9 99.0 97.1
Homeowners
Combined ratio 101.6 92.1 89.3 92.1 90.0
Impact of catastrophes and PYD on combined ratio 23.1 15.8 13.4 15.3 13.6
Underlying combined ratio 78.4 76.3 75.9 76.8 76.4
Discussion and reconciliation of non-GAAP financial measures –
continued