The Hartford Financial Services Group, Inc. March 2018 Overview of The Hartford

Transcription

1 The Hartford Financial Services Group, Inc. March 2018 Overview of The Hartford Copyright 2018 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 release issued on February 8, 2018, The Hartford s Quarterly Reports on Form 10-Q, The Hartford s 2017 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 news release issued on February 8, 2018 and The Hartford s Investor Financial Supplement for fourth 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 2018 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 a leader in property and casualty insurance, group benefits and mutual funds with attractive characteristics The Hartford s businesses have: Leading 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 FY 2017 Premiums Pro Forma 1 Group Benefits 33% Commercial Lines 44% Personal Lines 23% 1. Includes written premiums for Commercial Lines and Personal Lines, fully insured ongoing premiums for Group Benefits, and the pro forma impact of the 4Q17 acquisition of Aetna s $2.0 billion premium of U.S. group life and disability business Copyright 2018 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 With leading market positions and strong competitive advantages Leading U.S. Market Positions Leading share in P&C Small Commercial #2 in Workers Compensation 1 #2 in Group Life and Disability 2 #4 in Commercial Multi-Peril 1 #4 in Direct Personal Lines 1 #7 overall in P&C Commercial 1 $1,326 $195 P&C 3 and Group Benefits $1,131 $1,133 $1,076 $204 $234 $872 $ P&C Group Benefits $3,069 $3,148 $3,586 $10,416 $10,549 $10, P&C Core Earnings 4 ($ in millions) Earned Premium ($ in millions) $13,485 $13, Per A.M. Best, based on 2016 direct written premiums 2. In-force premium as of 12/31/16, per LIMRA, including the acquisition of Aetna s U.S. group life and disability business 3. P&C includes Commercial Lines, Personal Lines and P&C Other Operations 4. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) $14,141 Group Benefits With Strong Competitive Advantages Broad and deep commercial distribution partnerships Longstanding Personal Lines partnership with AARP Top choice among agents Best-in-class technology, with significant investments in underwriting, claims and customer service Recognized for claims excellence Copyright 2018 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 FY17 1 key financial highlights Core Earnings Property & Casualty Commercial Lines FY17 core earnings 2 of $1.0 billion, up 11% from FY16 3 principally due to a change to net favorable PYD 4, improved underlying Personal Lines auto results and higher Mutual Funds and Group Benefits earnings, partially offset by higher catastrophe losses and lower Commercial Lines underlying underwriting results Core earnings of $899 million, up $27 million from FY16, as a change to net favorable PYD and no net unfavorable PYD on A&E 5 was largely offset by higher CATs 6 Underlying combined ratio 2,7 of 92.5 increased 0.7 point versus 91.8 in FY16 due to 0.8 point increase in the expense ratio partially offset by 0.3 point reduction in the loss ratio Underlying combined ratio of 92.0 increased 2.6 points from FY16 primarily due to a 1.3 point increase in the expense ratio largely from variable compensation expenses and a 1.1 point increase in the loss ratio due to expected margin deterioration in workers' compensation and general liability Personal Lines Underlying combined ratio of 93.0 improved 2.4 points from FY16 reflecting a 4.2 point improvement in auto including lower marketing and operations expenses due to profitability improvement initiatives, partially offset by a higher homeowners underlying combined ratio Group Benefits Core earnings of $234 million, up 15% from FY16 primarily due to better group disability results Loss ratio of 76.1% improved 1.9 points and expense ratio increased 0.6 point to 25.7% BVPS and ROE BVPS, ex. AOCI, 2,8 of $35.29, decreased 22% from Dec. 31, 2016 primarily due to the loss on sale of Talcott Resolution and the charges from tax reform and the pension transfer ROE - Core earnings 2,9 of 6.7% compared with 5.2% for FY16 1. Full year 2017 (FY17) 2. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 3. Full year 2016 (FY16) 4. Prior accident year development (PYD) 5. Asbestos and Environmental (A&E) 6. Catastrophes (CATs) 7. Combined ratio before CATs and PYD 8. Book value per diluted share, excluding accumulated other comprehensive income 9. Return on equity Copyright 2018 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 The Hartford s primary goals in 2018 Maintain strong margins and underwriting discipline in Commercial Lines and Group Benefits Improve Personal Lines margins while reinvigorating new business production Increase core earnings 1 and ROE - Core earnings 1 while maintaining a strong balance sheet and redeploying excess capital Close the sale of Talcott Resolution and integrate Aetna s group life and disability business efficiently according to schedule 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) Copyright 2018 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 MAINTAIN STRONG MARGINS IN COMMERCIAL LINES AND GROUP BENEFITS Commercial Lines Continues to deliver strong results Package Auto Diversified Premium Mix 2017 Earned Premium by Product Property 19% 9% Liability 9% 9% Bond Professional Liability 3% 4% 47% Workers Compensation 2017 Written Premiums by Lines Strong Underwriting and Profitability Combined Ratio Underlying Combined Ratio 1. Denotes financial measure not calculated based on GAAP Distinctive Agent Relationships 1 ($ in millions) $831 $46 Small Commercial (53%) $2,370 $3,709 Middle Market (34%) Specialty Commercial (12%) Other Commercial (1%) Copyright 2018 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 MAINTAIN STRONG MARGINS IN COMMERCIAL LINES AND GROUP BENEFITS Group Benefits A market leader in group life and disability; a business that leverages our workers compensation expertise Group Benefits Underwriting Complements The Hartford s Workers Compensation Expertise Loss Ratio Total Disability Life 1. Excludes Association Financial Institutions The Acquisition of Aetna s Group Insurance Business Further Strengthens 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 2 5.6% 5.7% 5.8% Denotes financial measure not calculated based on GAAP Copyright 2018 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 $3.1 $3.1 Premium 3 ($ in billions) $3.6 $1.5 $1.5 $1.7 $1.4 $1.4 $1.6 $5.2 $2.6 $ Pro Forma Disability Life Other 3. Fully insured ongoing premium, excluding buyout premiums, excluding Association Financial Institutions 4. The pro forma impact of the 4Q17 acquisition of Aetna s $2.0 billion premium of U.S. group life and disability business 4 8

9 IMPROVE PERSONAL LINES MARGINS Personal Lines The Hartford is a leading direct personal lines insurer with a 30+ year partnership with AARP 2017 Net Written Premium by Distribution Market Leading Position Other Agency 11% AARP Agency 9% 1% Other 79% AARP Direct Major Direct Personal Lines Company (per A.M. Best, 2016) #4 Focused on AARP for Growth The Hartford's personal lines business is focused on maximizing its AARP relationship 50+ US Population* Growth Rate 15% 111M 128M * Source: US Census Bureau 2014 National Projections; Entire US population projected to grow 8% while 50+ population (AARP membership eligible group) projected to grow 15% from Focused on Continued Improvement in Combined Ratio Underlying Combined Ratio Copyright 2018 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 IMPROVE PERSONAL LINES MARGINS Personal Lines Auto profitability initiatives taking hold; anticipate continued improvement in 2018 and beyond Increased Rate Actions Underwriting Actions Impact on New Business $101 $96 $111 $114 $110 Auto New Written Premium ($ in millions) $83 $70 $48 (27%) $42 $38 $37 $35 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% 82% 81% 79% 80% 80% 78% 78% 79% 76% 75% 81% 80% 78% 77% 78% 78% 78% 79% 73% 73% 74% 70% 66% 67% AARP AARP Agency Other Agency 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 Copyright 2018 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 2 through Dec. 31, 2016) Underlying Combined Ratio (as originally reported) 2. As developed combined ratio takes into account impact of prior accident year development since accident year-end 10

11 INVESTING FOR PROFITABLE GROWTH Numerous initiatives investing in talent, technology and data for profitable growth Small Commercial : Integrated Excess & Surplus product capabilities with our ICON quoting platform, becoming a one-stop provider to more customers, including an integrated billing option Simplified quoting process to make more quotes bindable with fewer underwriting questions by using advanced data and analytics; with the expanded functionality, allow over 30% of all service transactions to be completed online Started offering automatic quotes through ICON for Group Benefits products at point-of-sale Middle Market: Introduced new multinational capabilities, allowing us to win more accounts with exposures outside the U.S. Stood up an energy vertical, achieving solid new business premium and a growing pipeline of opportunities Developed a construction practice that matured into a strong business, delivering double-digit written premium growth in 2017 Personal Lines: Increasing new business marketing in AARP Direct, returning to new business growth in direct auto as momentum builds throughout the year Group Benefits: Integrating Aetna s group life and disability business with more than 1,800 new employees and the newly acquired claims management system Workability, further strengthening our market-leading capabilities Making investments in technology, data and analytics across the enterprise Expanding our digital portals in Commercial Lines, Personal Lines and Group Benefits to give agents and customers greater access and flexibility in managing their coverage, billing and claims Deploying robotics in operations, allowing us, for example, to process ed requests for certificates of insurance in minutes Copyright 2018 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 INCREASE CORE EARNINGS AND ROE CORE EARNINGS Going forward, The Hartford is focused on increasing core earnings and ROE Core earnings The sale of Talcott Resolution has eliminated the impact of Talcott Resolution s lower ROE and earnings run-off on consolidated ROE and earnings 2017 consolidated ROE - core earnings of 6.7% improved 1.5 points from 2016; improvement understated due to timing of agreement to sell Talcott Resolution and other strategic actions; adjusting beginning equity for loss on discontinued operations and tax and pension transfer charges 3, pro forma 2017, ROE Core earnings was at 7.8% 2017 P&C ROE - Core earnings of 11.1% up from 9.8% in 2016 primarily due to lack of A&E charge in 2017 and improved personal auto results 2017 Group Benefits ROE - Core earnings of 8.6% down from 10.6% in 2016 due to higher equity resulting from the Aetna acquisition, but limited additional earnings due to timing of acquisition Expect 2018 consolidated ROE to improve to a range of 11% to 12% ROE - Core Earnings 1,2 1. Denotes financial measure not calculated based on GAAP 2. Twelve month trailing core earnings ROE, excluding AOCI, levered 3. Adjustment reduced 12/31/16 beginning equity by approximately $4.2 billion for loss on discontinued operations of $2.9 billion, pension transfer charge of $488 million and tax charge of $877 million Copyright 2018 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% 7.8% Adjusted $1,131 Core Earnings 1 ($ in millions) $912 11% - 12% 2018E $1,

13 FOCUS ON CLOSING THE SALE OF TALCOTT RESOLUTION AND INTEGRATING AETNA S GROUP BENEFITS BUSINESS The Hartford has successfully executed its strategy announced in March 2012 to focus on underwriting-centric businesses The Strategy Announced In March 2012 Sell Individual Life and Retirement Plans books Put annuity business into runoff (Talcott Resolution) Focus on P&C, Group Benefits and Mutual Funds The Execution Steps, Sold Individual Life, Retirement Plans and Japan variable annuity businesses Group Benefits separated from Talcott Resolution Nov. 2017: Acquired Aetna s group life and disability book Dec. 2017: Announced agreement to sell Talcott Resolution The Results Generated $7.6 billion in cash proceeds and consideration through sales and dividends from Talcott Resolution Reduced debt levels and improved financial flexibility, including A&E reinsurance cover and pension transfer in 2017 Improved results in P&C, Group Benefits and Mutual Funds with goal of profitable growth Mutual Mutual Funds 9% P&C Other 9% Funds Operations 5% Personal Lines 1% 2017 Core Earnings excluding Corporate Group Benefits 19% Commercial Lines 66% Copyright 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 13

14 FOCUS ON CLOSING THE SALE OF TALCOTT RESOLUTION AND INTEGRATING AETNA S GROUP BENEFITS BUSINESS Talcott Resolution sale completes The Hartford s exit from annuity business; closing expected by June 30, 2018 Talcott Resolution sale completes The Hartford s exit from annuity business and provides future strategic and financial benefits The sale and separation process is on schedule and expected to close by June 30, 2018 Benefits of the transaction: Copyright 2018 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 FOCUS ON CLOSING THE SALE OF TALCOTT RESOLUTION AND INTEGRATING AETNA S GROUP BENEFITS BUSINESS Acquisition of Aetna s group life and disability business on track and expected to be accretive to earnings in 2018 and beyond Successful integration of the Aetna s U.S. group life and disability business is a top priority in 2018 and remains on schedule with new employees on-boarded and all aspects of the project moving forward as planned On target to achieve estimated $100 million savings on run-rate operating expenses Benefits of the acquisition: Copyright 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 15

16 The Hartford will also focus on reducing debt leverage as a result of the Aetna acquisition and Talcott Resolution sale Due to acquisition of Aetna s group benefits business and loss on sale of Talcott Resolution, rating agency adjusted debt to capitalization ratio at Dec. 31, 2017 increased to 28.8% from 25.3% at Dec. 31, 2016 Expect to reduce leverage by about 3 points through debt repayment in 2018 and 2019: Refinancing of $320 million debt that matures in March 2018 Call of $500 million junior subordinated debt at par in June 2018 (previously announced) Repayment of 2019 debt maturity of $413 million In addition, increasing retained earnings will help improve leverage ratios Long-term goal of leverage ratio in low to mid-twenties However, future share repurchases would increase the debt to total capital ratio 27.0% Leverage Ratio 1 Company Debt Ratings Hartford Financial Services Group Senior Debt Ratings Moody s 2 Baa2 (On review for upgrade 3 ) Standard & Poor s 25.3% 28.8% ~3 points Long-term Goal Impact of 2018 and 2019 debt to be repaid BBB+ (Stable) Low to Mid-20 s 1. Total rating agency adjusted debt to capitalization ratio (based on Moody s methodology) 2. Hartford Financial Services Group, Inc. senior debt is under review for upgrade at Moody's 3. On December 4th, 2017 Moody s announced it is reviewing The Hartford s long-term debt (senior at Baa2) for upgrade following announced divesture of Talcott Resolution Copyright 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 16

17 Also focused on book value growth BVPS 1 and BVPS, ex. AOCI, of $37.11 and $35.29, respectively Sale of Talcott Resolution resulted in a reduction in BVPS, but is expected to improve ROE and earnings growth profile, reduce risk and volatility and increase financial flexibility Other risk reduction transactions that have reduced BVPS growth over the past couple years: 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 4Q17 included a tax charge of $877 million due to the reduction in the U.S. corporate tax rate 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 Book Value Per Diluted Share $42.96 $44.35 $ Book Value Per Diluted Share, ex. AOCI 2,3 $43.76 $45.24 $ Book value per diluted share (BVPS) 2. Denotes financial measure not calculated based on GAAP 3. Book value per diluted share, excluding accumulated other comprehensive income Copyright 2018 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 Appendix - Discussion and Reconciliation of GAAP to Non-GAAP Financial Terms Copyright 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.

19 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 release, dated February 8, 2018 and in The Hartford's Investor Financial Supplement for fourth 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 can be found on a reported basis for the specified periods in the tables set forth below. Dec As of Dec Dec Book value per diluted share, including AOCI $37.11 $44.35 $42.96 Less: Per diluted share impact of AOCI $1.82 ($0.89) ($0.80) Book value per diluted share, excluding AOCI $35.29 $45.24 $43.76 Copyright 2018 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 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 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 20

21 Discussion and reconciliation of non-gaap financial measures continued A reconciliation of net income (loss) to core earnings (losses) for individual reporting segments on a reported basis are provided for the specified periods in the tables set forth below. ($ in millions) Commercial Lines Personal Lines Twelve Months Ended Dec 31, 2017 P&C Other Ops Group Benefits Mutual Funds Corporate Consolidated Net income (loss) $865 ($9) $69 $294 $106 ($4,456) ($3,131) Less: Net realized capital gains (losses), excluded from core earnings, before tax (1) 160 Less: Pension settlement, before tax (750) (750) Less: Integration and transaction costs associated with acquired business, before tax (17) - - (17) Less: Income tax benefit (expense) (60) (38) (6) 46 (4) (607) (669) Less: Income (loss) from discontinued operations, after tax (2,869) (2,869) Core earnings (losses) $825 $13 $61 $234 $110 ($229) $1,014 ($ in millions) Commercial Lines Personal Lines Twelve Months Ended Dec 31, 2016 P&C Other Ops Group Benefits Mutual Funds Corporate Consolidated Net income (loss) $994 ($9) ($529) $230 $78 $132 $896 Less: Net realized capital gains (losses), excluded from core earnings, before tax 15 2 (70) 41 - (100) (112) Less: Loss on reinsurance transactions, before tax - - (650) (650) Less: Income tax benefit (expense) (5) (15) Less: Income (loss) from discontinued operations, after tax Core earnings (losses) $984 ($11) ($101) $204 $78 ($242) $912 Copyright 2018 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 Discussion and reconciliation of non-gaap financial measures continued Twelve Months Ended Dec 31, 2015 Commercial Personal P&C Group Mutual Corporate Consolidated ($ in millions) Lines Lines Other Ops Benefits Funds Net income (loss) $991 $199 ($53) $187 $86 $272 $1,682 Less: Net realized capital gains (losses), excluded from core earnings, before tax (9) 4 3 (12) - (1) (15) 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) $991 $197 ($57) $195 $86 ($281) $1,131 Copyright 2018 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 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 can be found on a reported basis for the specified periods in the tables set forth below. Twelve Months Ended PER SHARE DATA Diluted earnings (losses) per common share: Dec Dec Net income (loss) per share 1 ($8.61) $2.27 Add: Difference arising from shares used for the denominator between net loss and core earnings (0.16) - Less: Net realized capital losses, excluded from core earnings, before tax 0.43 (0.28) Less: Loss on reinsurance transaction, before tax - (1.65) Less: Pension settlement, before tax (2.02) - Less: Integration and transaction costs associated with acquired business, before tax (0.05) - Less: Income tax benefit (expense) on items excluded from core earnings (1.81) 1.17 Less: (Loss) income from discontinued operations, after tax (7.74) 0.72 Core earnings per share 1 $2.74 $ For the twelve months ended Dec. 31, 2017, weighted average shares outstanding used in calculating net loss per share excludes the effect of dilutive securities of 6.8 million shares. The calculation of core earnings per share includes the effect of dilutive securities in all periods presented. In periods where a net loss before discontinued operations or a core loss is recognized, inclusion of incremental dilution is antidilutive Copyright 2018 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 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 can be found on a reported basis for the periods in the tables set forth below. Twelve Months Ended Dec Dec Dec Net income margin 7.2% 6.3% 5.4% Less: Net realized capital gains (losses) excluded from core earnings, after tax 0.4% 0.6% (0.2%) Less: Integration and transaction coasts associated with acquired business, after tax (0.3%) (0.0%) (0.0%) Less: Income tax benefit 1.3% (0.0%) (0.0%) Core earnings margin 5.8% 5.7% 5.6% Copyright 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 24

25 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 (losses) at a segment and consolidated level as well as on a consolidated level, excluding A&E, can be found on a reported basis for the specified periods in the tables set forth below. Return on Equity (ROE) - P&C Last Twelve Months Ended Dec 31, 2017 Group Benefits Mutual Funds Consolidated Net income (loss) 10.7% 10.5% 40.9% (20.6%) Less: Unlock benefit (charge), before tax 0.0% 0.0% 0.0% 0.0% Less: Net realized capital gains (losses), excluded from core earnings, before tax 1.7% 1.2% 0.0% 1.1% Less: Integration cost 0.0% (0.7%) 0.0% (0.1%) Less: Pension settlement, before tax 0.0% 0.0% 0.0% (4.9%) Less: Income tax benefit (expense) (1.4%) 1.8% (1.6%) (4.4%) Less: Income from discontinued operations, after tax 0.0% 0.0% 0.0% (18.9%) Less: Impact of AOCI, excluded from Core ROE (0.7%) (0.4%) (0.1%) (0.1%) Core earnings (losses) 11.1% 8.6% 42.6% 6.7% Copyright 2018 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 Last Twelve Months Ended Dec 31, 2016 Return on Equity (ROE) - P&C Group Benefits Mutual Funds Consolidated excluding A&E Consolidated Net income (loss) 4.3% 11.1% 31.5% 6.2% 5.2% Less: Net realized capital gains (losses), excluded from core earnings, before tax (0.6%) 2.2% 0.0% (0.6%) (0.6%) Less: Loss on reinsurance transactions, before tax (7.9%) 0.0% 0.0% (3.7%) (3.8%) Less: Income tax benefit (expense) 3.5% (0.8%) 0.0% 2.7% 2.7% Less: Income from discontinued operations, after tax 0.0% 0.0% 0.0% 1.6% 1.6% Less: Impact of AOCI, excluded from Core ROE (0.5%) (0.9%) 0.1% 0.1% 0.1% Core earnings (losses) 9.8% 10.6% 31.4% 6.1% 5.2% Last Twelve Months Ended Dec 31, 2015 Return on Equity (ROE) - P&C Group Benefits Mutual Funds Consolidated excluding A&E Consolidated Net income (loss) 12.5% 8.5% 37.2% 10.0% 9.3% Less: Net realized capital gains (losses), excluded from core earnings, before tax 0.0% (0.6%) 0.0% (0.1%) (0.1%) Less: Restructuring and other costs, before tax 0.0% 0.0% 0.0% (0.1%) (0.1%) Less: Loss on extinguishment of debt, before-tax 0.0% 0.0% 0.0% (0.1%) (0.1%) Less: Income tax benefit (expense) 0.0% 0.0% 0.0% 0.6% 0.6% Less: Income from discontinued operations, after tax 0.1% 0.2% 0.0% 2.7% 2.7% Less: Impact of AOCI, excluded from Core ROE (1.1%) (1.4%) (0.1%) (0.1%) 0.0% Core earnings (losses) 13.5% 10.3% 37.3% 7.0% 6.3% Copyright 2018 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 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 can be found on a reported basis for the specified periods in the tables set forth below. Twelve Months Ended 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 1.9 (6.5) (8.9) Underlying combined ratio Copyright 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 27

28 Discussion and reconciliation of non-gaap financial measures continued Twelve Months Ended Dec Dec 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 2018 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 28