The Hartford Financial Services Group, Inc. November 2017 Overview of The Hartford

Transcription

1 The Hartford Financial Services Group, Inc. November 2017 Overview of The Hartford 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.

2 Safe harbor statement Certain statements made in this presentation should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 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 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 In addition, you may automatically receive alerts and other information about The Hartford when you enroll your address by visiting the Alerts section at 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. 2

3 The Hartford is focused on several strategic priorities Smooth and timely integration of Aetna acquisition while achieving strong margins in Group Benefits 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 Increase core earnings 1 and core earnings ROE 1, 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 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. 3

4 Our businesses have attractive characteristics and strong competitive advantages 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 2017 September YTD Core Earnings 1 excluding Corporate and P&C Other 2 Mutual Funds 7% Talcott Resolution 23% Group Benefits 15% Commercial and Personal Lines 55% 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 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. 4

5 Group Benefits The acquisition of Aetna s group insurance business is a unique opportunity and solidifies our market leading position Increases market presence Accelerates technological strategy The Hartford has become #2 insurer in the group life and disability market, up from #5 1 Combines two complementary franchises that are both committed to high-quality products and best-in-class customer and claims service 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 Enhances distribution footprint 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 Expands data and analytical capabilities Enables expanded data and advanced analytical capabilities Increases competitive advantage around recovery management, driving improved outcomes for customers Higher ROE Stock potential price beta more Financially consistent with accretive 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 1. Source: LIMRA, based on in-force master contracts, certificates, total premiums collected as of Dec. 31, 2016, and annualized premiums 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. 5

6 9M17 1 financial highlights Core Earnings BVPS and ROE Commercial Lines Net income per diluted share of $1.54, compared with $2.45 per diluted share in 9M16 2 reflecting the impact of pension transfer in 2Q17, partially offset by higher core earnings 3 Core EPS 3,4 of $2.65, up 15% from 9M16, principally due to A&E 5 PYD 6 charges in 2Q16 and improved personal automobile (auto) results, partially offset by elevated CATs 7 in 2017 BVPS, ex. AOCI 3,8 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 ratio 3,9 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 Group Benefits Personal Lines Capital Management 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 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 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, First nine months of First nine month of 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 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. 6

7 P&C 1 The Hartford is a leading P&C insurer Strong Competitive Advantages $1,131 $259 Core Earnings ($ in millions) $872 $934 $15 Leading Market Positions Leader in highlyattractive 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 $872 $884 $919 ($12) Q17, LTM Underwriting Gain (Loss) and Fees, After-tax Net Investment Income, After-tax Net Written Premium ($ in millions) $10,578* $10,568* $3,918 $3,837 $3,630 $6,625 $6,732 $6, Q17, LTM Commercial Lines $10,522* Personal Lines Leading share in P&C Small Commercial #2 in Workers Compensation 2 #4 in Commercial Multi-Peril 2 #4 in Direct Personal Lines 2 #7 overall in P&C Commercial 2 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 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. 7

8 Commercial Lines Continues to deliver strong results Package Auto Diversified Premium Mix 2016 Earned Premium by Product Property 18% 10% Liability 9% 9% Bond Professional Liability 3% 3% 48% Workers Compensation Strong Underwriting and Profitability Q17, LTM Combined Ratio Underlying Combined Ratio 2016 Written Premiums by Lines Distinctive Agent Relationships ($ in millions) $826 $42 Small Commercial (52%) $2,343 $3,521 Middle Market (35%) Specialty Commercial (12%) Other Commercial (1%) 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. 8

9 Leading Small Commercial underwriter Small Commercial Strong Profitability Expanding product and underwriting capabilities, including acquisition of Maxum Best in class technology, improving efficiency and customer/partner experience Leading choice among agents Q17, LTM Combined Ratio Underlying Combined Ratio Net Written Premium New Business Premium ($ in millions) ($ in millions) +8% +8% $3,388 $3,521 $3,673 $545 $576 $ Q17, LTM Q17, LTM 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. 9

10 Middle Market focused on margins and underwriting discipline Middle Market 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 Improved Underwriting - Discipline over Growth Q17, LTM Combined Ratio Underlying Combined Ratio Net Written Premium ($ in millions) New Business Premium ($ in millions) $2,364 $2,343 $2,349 $474 $459 $ Q17, LTM Q17, LTM 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. 10

11 Specialty Commercial results remain strong Specialty Commercial 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 Improving Underwriting with Strong Results Q17, LTM Combined Ratio Underlying Combined Ratio Net Written Premium 2016 Earned Premium by Product ($ in millions) Full Year Bond 5% Other $838 $826 $825 23% Financial Products 30% 42% National Accounts Q17, LTM 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. 11

12 Group Benefits A market leader in the group life and disability market, an underwriting-centric business that leverages our workers compensation expertise Group Benefits Underwriting Complements The Hartford s Workers Compensation Expertise Loss Ratio (Excluding Association Financial Institutions) M17 Total Disability Life 76.2 The acquisition of Aetna s group insurance further strengthen our leadership position Leader in Group Life and Disability (in-force premium as of 12/31/16, per LIMRA) #2 Strong Profitability Core Earnings Margin 1 5.6% 5.7% 6.2% Q17, LTM 1. Denotes financial measure not calculated based on GAAP 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. Book of Business Remains Balanced Between Disability and Life Premium 2 ($ in billions) $3.1 $3.1 $1.5 $1.5 $1.4 $1.4 $5.1 $2.5 $ Pro Forma Disability Life Other 2. Fully insured ongoing premium, excluding buyout premiums, excluding Association Financial Institutions 12

13 The acquisition of Aetna s group life and disability business is expected to be accretive to earnings in 2018 and beyond 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 $100 million, before tax, expected to be largely achieved within two years Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. Pro Forma Group Benefits Premium Full Year ($ in billions) Small (2%) Middle Market (42%) Premiums by Product $5.1 $3.1 $1.5 $1.4 48% 46% $0.1 $2.0 $2.7 $2.5 $ Actual Pro Forma Disability Life Other 1. Fully insured ongoing premium, excluding buyout premiums 2. Excludes The Hartford s non-employer Group Specialty business 49% 47% Employer Group 2 Premiums by Employer Size National Accounts (56%) 13

14 Group Benefits Summary estimated financial impacts of acquisition Cash consideration: Ceding commission Purchase price for operating assets (software, equipment, etc.) 2018 estimates of earnings accretion 1 : Net income, after tax Core earnings, after tax Estimated annual amortization of intangibles, after tax Pro forma impact to 9/30/17: Book value per diluted share (BVPS), ex. AOCI 2 Tangible BVPS ex. AOCI 2 Leverage ratio 3 Present value of tax benefits as a result of the acquisition 4 Estimated savings beginning in 2018 on run-rate operating expenses, expected to be largely achieved within 2 years (before tax) 5 Estimated transaction and integration related costs over the next 24 months 6 $1.45 billion ~$1.38 billion ~$0.07 billion + $60 to $80 million + $80 to $100 million + $20 to $30 million No impact $(3.38) or (8%) dilutive No impact ~$325 million ~$100 million ~$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 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. 14

15 Personal Lines The Hartford is a leading direct personal lines insurer with a 30+ year partnership with AARP Net Written Premium by Distribution Market Leading Position Other Agency AARP Agency 10% 14% 2016 FY 75% 1% Other AARP Direct Major Direct Personal Lines Company (per A.M. Best, 2016) #4 Focused on AARP Membership for Growth Focused on Improving Margins in 2017 & 2018 The Hartford s personal lines business is focused on AARP members, with the goal of increasing its penetration of this 38 million member association Opportunity to further penetrate AARP membership ~38M ~3M AARP Policies Policies in force AARP Members 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 Q17, LTM Combined Ratio Underlying Combined Ratio 1. 3Q17, LTM includes 4Q16 combined ratio and underlying combined ratio adjusted for 2016 accident year development 1 15

16 Personal Lines Auto profitability initiatives taking hold, laying foundation for improved results in 2017 and beyond Increased Rate Actions Underwriting Actions Impact on New Business Auto New Written Premium ($ in millions) $101 $96 $111 $114 $110 $83 (47%) $70 $48 $42 $38 $37 Number of Rate Filings AARP Direct AARP Agency Other Agency Other Policy Count Retention Underlying Combined Ratio 85% 86% 86% 86% 86% 86% 86% 85% 83% 84% 82% 82% 81% 79% 80% 80% 78% 78% 79% 76% 75% 81% 80% 78% 77% 78% 78% 78% 79% 73% 74% 70% 66% 1 AARP AARP Agency Other Agency 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 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 Underlying Combined Ratio ( as developed 1 through Dec. 31, 2016) Underlying Combined Ratio (as originally reported) 1. As developed combined ratio takes into account impact of prior accident year development since accident year-end 16

17 With improved auto rate adequacy in 2017, increasing marketing spend for new business growth in 2018 Personal auto results deteriorated as 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 Automobile Underlying Combined Ratio Underlying combined ratio 9M16 9M17 Change as reported (1.6) pts Adjusted for 9M16: Loss ratio on reported basis accident year development adjustment 1.9 9M16 loss ratio as adjusted (2.1) pts Expense ratio (1.5) pts Underlying combined ratio with adjusted 9M16 loss ratio (3.5) pts 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. 17

18 Talcott Resolution Effectively and efficiently running off annuity blocks and returning capital to the holding company Capital Self-sufficiency and Generation 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 $1.4 billion paid in 2017 Individual Annuity Contract Count (in thousands) (24%) Q17 Variable Annuity Fixed Annuity Annuity Asset Under Management 1 Talcott Resolution Return of Capital ($ in billions) Individual Variable Annuity Individual Fixed Annuity $1,469 ($ in millions) $1,400 Institutional Annuity 2 $13.8 $1,000 $7.3 $ 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 $ 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. 18

19 Institutional block has very long duration contracts and is sensitive to interest rate and credit risk Institutional Account Value $13.8 Billion as of September 30, 2017 Terminal Funding 18% Investment Contracts 1% $0.1B $2.6B 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 HIG Pension 30% $4.1B $7.0B 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 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. 19

20 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% $500 million junior subordinated bond redeemable at par in June 2018 Capital Return to Shareholders ($ in billions) $1.6 $1.6 $0.3 $0.3 $1.3 $1.3 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. 20 $0.3 1 $ Dividends Paid on Common Stock Share Repurchases $ Reflects estimated dividends for the year at 2017 quarterly dividend rate of $0.23 per share and year-end 2016 shares outstanding

21 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 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, ex. AOCI 1,2 $43.76 $45.24 $45.72 $ M17 Book Value Per Diluted Share $47.33 $42.84 $42.96 $ M17 1. Denotes financial measure not calculated based on GAAP 2. Book value per diluted share, excluding accumulated other comprehensive income 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. 21

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 ROE % 10.7% 9.7% 12.1% 7.6% 8.2% 9.1% 9.7% 4.7% 5.1% 3Q16 3Q17 1. Denotes financial measure not calculated based on GAAP; Twelve month trailing core earnings return on equity (ROE), excluding AOCI, levered 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. 22

23 The Hartford s operating and financial leverage has improved and the balance sheet is strong Reducing Leverage Ratio Financial Strength Ratings Upgraded Rating Agency Adjusted Debt Ratio Hartford Fire Insurance Company Hartford Life and Accident Company Low 20s A.M. Best Dec. 31, 2015 Dec. 31, 2016 Sep. 30, 2017 Target May 1, 2015 April 3, Based on Moody s methodology Company Debt Ratings Standard & Poor s Hartford Financial Services Group Senior Debt Ratings April 17, 2015 April 15, 2014 Moody s Standard & Poor s Baa2 (Stable) BBB+ (Stable) Moody s April 23, 2015 April 23, 2015 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. 23

24 Appendix - Discussion and reconciliation of GAAP to non-gaap financial terms 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.

25 Discussion and reconciliation of non-gaap financial measures 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, 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. Sep As of Sep Dec As of Dec Dec 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. 25

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. 26

27 Discussion and reconciliation of non-gaap financial measures continued 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, 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) (15) Core earnings (losses) $997 ($24) ($101) $204 $78 $383 ($202) $1,335 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Twelve Months Ended Dec 31, 2015 Group Benefits 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 Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $1,003 $187 ($53) $187 $86 $430 ($158) $1,682 Less: Unlock benefit, before tax 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 Less: Income tax benefit (expense) 2 (2) Less: Income from discontinued operations, after tax Core earnings (losses) $1,003 $185 ($57) $195 $86 $472 ($234) $1,650

28 Discussion and reconciliation of non-gaap financial measures continued 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 Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax (51) - 50 Less: Pension settlement, before tax (750) (750) Less: Income tax benefit (expense) (19) (3) (5) (9) - (3) 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 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) Core earnings (losses) $ 710 $ 3 $ (116) $ 145 $ 61 $ 272 $ (155) $ 920 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

29 Discussion and reconciliation of non-gaap financial measures continued 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. PER SHARE DATA Diluted earnings (losses) per common share: Nine Months Ended Sep 30 Sep Net income per share $1.54 $2.45 Less: Unlock benefit (charge), before tax 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 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. 29

30 Discussion and reconciliation of non-gaap financial measures continued 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 Sep Sep Twelve Months Ended Dec Dec Dec 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% 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

31 Discussion and reconciliation of non-gaap financial measures continued 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. 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. 31

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. 32

33 Discussion and reconciliation of non-gaap financial measures continued 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 Sep Dec Dec Dec Commercial Lines Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Small Commercial Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Middle Market Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Specialty Commercial Combined ratio Impact of catastrophes and PYD on combined ratio 2.1 (6.6) (6.5) (8.9) (0.5) Underlying combined ratio 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

34 Discussion and reconciliation of non-gaap financial measures continued Nine Months Ended Sep Sep Twelve Months Ended Dec Dec Dec Personal Lines Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Automobile Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Homeowners Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio 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