The Hartford Financial Services Group, Inc. INVESTOR PRESENTATION. November 2014

Transcription

1 The Hartford Financial Services Group, Inc. November 2014 INVESTOR PRESENTATION

2 Guidelines for Creating Presentations 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 third quarter 2014 earnings press release issued on October 27, 2014, our 2013 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and other filings we make with the Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today s date. The discussion in this presentation of The Hartford s financial performance includes financial measures that are not derived from generally accepted accounting principles, or GAAP. Information regarding these non-gaap financial measures, including reconciliations to the most directly comparable GAAP financial measures, is provided in the appendix to this presentation. 2

3 THE HARTFORD HAS MADE CONSIDERABLE PROGRESS SINCE 2012 IN FOCUSING ON P&C, GROUP BENEFITS AND MUTUAL FUNDS Strategic Evolution Prior to Diversified insurance company Sold Individual Life, Retirement Plans, and the UK and Japan variable annuities (VA) businesses Focus on profitable growth in P&C, Group Benefits and Mutual Funds Increase ROE Grow book value 3

4 THE HARTFORD HAS ACHIEVED SIGNIFICANT PROGRESS IN GROWING CORE EARNINGS AND ROE Growth in Core EPS 1,2 in 2014 YTD 3 Growth in BVPS 1,4 since YE 2013 Growth in Core ROE 1,4 in 2014; Outlook low 9% range in % 1% +180 bps to 8.2% 1. Denotes financial measure not calculated based on generally accepted accounting principles 2. Core earnings per diluted share 3. September YTD 2014 compared with September YTD Book value per diluted share, excluding AOCI 5. Core earnings return on equity 4

5 ACCOMPLISHMENTS SINCE IN EXECUTING STRATEGY Delivered improved profitability 4.3 point improvement in P&C combined ratio 2 ; 4.0 point improvement in Group Benefits loss ratio 23% reduction in insurance operating costs and other expenses Reduced size and risk of Talcott Resolution Sale of Individual Life, Retirement Plans, Woodbury Financial, and U.K. and Japan annuities businesses Reduced VA policy count by 47% 3 Capital management $1 billion debt repaid 80% common dividend increase, paid $427 million in common and preferred dividends Repurchased $2.1 billion of common shares and warrants and $300 million of Allianz warrants 1. All comparisons are LTM as of Sept. 30, 2014 compared to calendar year 2012, unless otherwise noted 2. Before catastrophes and prior year development. Denotes financial measure not calculated based on generally accepted accounting principles 3. Includes reduction in policy count related to sale of Japan annuity business 5

6 S H A R E H O L D E R V A L U E C R E A T I O N ROE CONTINUES TO INCREASE 12 Month Trailing Core Earnings Return on Equity Exceed Cost of Capital 11.0% 1 7.4% 8.2% 5.6% Q14, LTM 2-3 Years 1. Based on 2 year beta of 1.2, cost of equity capital currently estimated at 11.0% 6

7 S H A R E H O L D E R V A L U E C R E A T I O N DELIVERING LEADING SHAREHOLDER RETURN Total Shareholder Return Since March 2012 Strategic Announcement 120% 100% 101% 80% 60% 69% 56% 40% 20% 0% The Hartford S&P Insurance Composite Index S&P Index Note: Based on performance between 2/29/12 and 10/31/14, and assumes dividend reinvestment in the security 7

8 S H A R E H O L D E R V A L U E C R E A T I O N FOCUSED ON FOUR KEY AREAS TO DRIVE PROFITABLE GROWTH P r o d u c t a n d U n d e r w r i t i n g C a p a b i l i t i e s + D i s t r i b u t i o n E f f e c t i v e n e s s + C u s t o m e r E x p e r i e n c e / O p e r a t i n g E f f i c i e n c y + C a p i t a l M a n a g e m e n t / Ta l c o t t R u n o f f P r o f i t a b l e G r o w t h I n c r e a s e B V P S a n d R O E 8

9 THE BUSINESS TODAY STRONG RECENT RESULTS 1 Property & Casualty Group Benefits Mutual Funds Talcott Resolution Core earnings 2 $1.1 billion, up 39% Core earnings $190 million, up 34% Core earnings $84 million, up 13% Individual VA policy count 0.7 million, down 13% 1. Last twelve month (LTM) results as of Sept. 30, 2014; all comparisons are the last twelve months as of Sept. 30, 2014 compared to last twelve months as of Sept. 30, Denotes financial measure not calculated based on generally accepted accounting principles 9

10 DELIVERED CORE EARNINGS GROWTH FROM P&C, GROUP BENEFITS AND MUTUAL FUNDS 2013 Core Earnings by Segment 1 Mutual Funds 5% Group Benefits 9% Talcott Resolution 25% Consumer Markets 12% P&C Commercial 49% Core Earnings Increase of P&C 2, Group Benefits and Mutual Funds 50% 19% 2013 YTD Core earnings excluding Corporate and P&C Other Operations 2. Excludes P&C Other Operations 3. September YTD 2014 compared with September YTD

11 INVESTMENT THESIS OUR BUSINESSES HAVE ATTRACTIVE CHARACTERISTICS Strong market positions Generate excess capital Low capital markets sensitivity Potential return improvement 11

12 INVESTMENT THESIS AND STRONG COMPETITIVE ADVANTAGES PROPERTY & CASUALTY Position in Small Commercial market 30 year relationship with AARP 1 Commercial quoting and new business technology Claims handling expertise J.D. Power service ranking (2013) MUTUAL FUNDS Strong performance two years running (Barron's/Lipper) GROUP BENEFITS Ranking in industry 2 #1 Exclusive Leading Leading #1 Top 10 Top 5 1. American Association of Retired Persons 2. LIMRA Dec. 31, 2013; Based on combined in-force premium for Group Life and Disability 12

13 S T R A T E G Y GROW ROE AND BOOK VALUE PER SHARE BY FOCUSING ON: Product and Underwriting Capabilities Distribution Effectiveness Customer Experience / Operating Efficiency Capital Management / Talcott Runoff GOALS Increase ROE Grow book value per share Achieve top-quartile total shareholder return 13

14 P&C: WELL-POSITIONED IN SMALL COMMERCIAL AND PERSONAL LINES Total P&C 2013 Earned Premiums (Total $9.9 billion) Our Sweet Spot Consumer $3.7B P&C Commercial $6.2B Small Commercial and Middle Market Over 84% of 2013 P&C Commercial earned premiums from Small Commercial and Middle Market Attractive characteristics Leverages strong distribution network Less rate pressure than major accounts High returns, particularly in Small Commercial Consumer Markets AARP 14

15 P R O D U C T A N D U N D E R W R I T I N G C A P A B I L I T I E S STRONG MARKET POSITIONS Leader in Group Disability (in-force premium as of 12/31/13, per LIMRA) #3 Top Ranking in Barron s Lipper Fund Family (one year ranking in 2013) #8 Major Direct Personal Lines Company (per A.M. Best, 2013) #4 Strong Market Position in Group Life (in-force premium as of 12/31/13, per LIMRA) #6 Leader in P&C Commercial Insurance (direct written premium in 2013, per A.M. Best) #7 Major Underwriter in Total Personal Lines (direct written premium in 2013, per A.M. Best) #11 15

16 P R O D U C T A N D U N D E R W R I T I N G C A P A B I L I T I E S EXPANDING PRODUCT UNDERWRITING CAPABILITIES Focus on expanding product areas to widen market coverage P&C Commercial: Total P&C 3Q14 LTM Earned Premiums (Total $10.0 billion) - Property - Liability Consumer Markets: - New auto class plan Consumer $3.8B P&C Commercial Group Benefits - Voluntary products - Exchanges $6.2B 16

17 S T R A T E G Y GROW ROE AND BOOK VALUE PER SHARE BY FOCUSING ON: Product and Underwriting Capabilities Distribution Effectiveness Customer Experience / Operating Efficiency Capital Management / Talcott Runoff GOALS Increase ROE Grow book value per share Achieve top-quartile total shareholder return 17

18 D I S T R I B U T I O N E F F E C T I V E N E S S BROAD NATIONAL DISTRIBUTION REACH AN IMPORTANT COMPETITIVE ADVANTAGE Business Heads P&C Commercial & Consumer Markets Commercial: 11,000+ unique distribution partners in 20,000 locations and deep relationships with national brokers Consumer: 14,000+ independent agent locations and longstanding relationship AARP; exclusive relationship through 2023 Group Benefits Leadership position with group benefit specialists; strong enterprise relationships with multi-line distributors Mutual Funds New head of distribution, digital marketing push Sales increased 28% in

19 S T R A T E G Y GROW ROE AND BOOK VALUE PER SHARE BY FOCUSING ON: Product and Underwriting Capabilities Distribution Effectiveness Customer Experience / Operating Efficiency Capital Management / Talcott Runoff GOALS Increase ROE Grow book value per share Achieve top-quartile total shareholder return 19

20 C U S T O M E R E X P E R I E N C E / O P E R A T I N G E F F I C I E N C Y SUPERIOR CLAIMS AND CUSTOMER SERVICE J.D. Power recognition: 1 Highest in Customer Satisfaction with the auto insurance purchase experience (J.D. Power, 4/29/2012) The Hartford AARP Auto and Homeowners Insurance program s Call Center: An outstanding customer service experience for seven years in a row (J.D. Power, 4/19/2012) The Hartford s small business call centers recognized for providing an outstanding customer service experience for the second year in a row (J.D. Power, 7/23/2013) First J.D. Power certified commercial lines company Recognized as one of the world s most ethical companies by Ethisphere Institute six times 1. The Hartford received the highest numerical score in the proprietary J.D. Power and Associates 2012 Insurance Shopping Study SM. Study based on 16,171 total responses, ranking 24 providers and measuring the opinions of consumers shopping for a new auto insurance policy. Proprietary study results are based on experiences and perceptions of members surveyed January and February

21 C U S T O M E R E X P E R I E N C E / O P E R A T I N G E F F I C I E N C Y INVESTING >$1B TO IMPROVE OPERATING EFFICIENCY AND EFFECTIVENESS P&C underwriting and claims management Controllable Operating Expenses Product development $3.6B -5% $3.4B More efficient business platforms E 21

22 C U S T O M E R E X P E R I E N C E / O P E R A T I N G E F F I C I E N C Y INVESTING ACROSS THE ENTERPRISE Investments By Unit > $1 Billion Cumulative In Commercial 52% Other 23% Real Estate 14% Consumer 11% Middle Market field underwriting / pricing desktop Small Commercial agency platform Group Benefits Voluntary Program Information technology, operations and finance Expense efficiency Risk management Digital capabilities Consolidate facilities Update Hartford campus Consumer pricing initiative Digital capabilities Claim platform replacement 22

23 S T R A T E G Y GROW ROE AND BOOK VALUE PER SHARE BY FOCUSING ON: Product and Underwriting Capabilities Distribution Effectiveness Customer Experience / Operating Efficiency Capital Management / Talcott Runoff GOALS Increase ROE Grow book value per share Achieve top-quartile total shareholder return 23

24 CAPITAL MANAGEMENT / TALCOTT RUNOFF $6.3 BILLION OF EXCESS CAPITAL GENERATED SINCE Diversified Sources Balanced Uses Operating company dividends to the holding company $3.3 billion Capital generated by business sales $3.0 billion $6.3 billion Interest expense $1.6 billion Net debt repayment $1.4 billion Equity repurchases ($2.4 billion) and dividends ($0.9 billion) $3.3 billion 1. FY11 through Sept. 30,

25 CAPITAL MANAGEMENT / TALCOTT RUNOFF PRINCIPAL GOAL: REDUCE SIZE AND RISK Talcott Resolution Annuity Account Value 1 $79.1 billion as of Sept. 30, 2014 Institutional 20% Talcott Resolution is comprised of the company s run-off annuity businesses Most of business placed into runoff in 2009 U.S Annuity placed into runoff in April 2012 U.K. VA business sold in June 2013 Japan annuity business sold in June 2014 Fixed Annuities 11% Variable Annuities 69% 69% of Talcott Resolution's annuity account values are VA contracts, with exposure to equity markets Remainder is not equity-market linked: Institutional Annuity: interest rate risk Fixed Annuity, retail customers: interest rate risk 1. Total account value includes the separate account and general account. Figure excludes the account value associated with private placement life insurance (PPLI) and the Retirement Plans and Individual Life businesses reinsured to third parties. The PPLI block is subject to mortality risk, while the Prudential and MassMutual reinsurance recoverables are subject to counterparty risk. 25 4

26 CAPITAL MANAGEMENT / TALCOTT RUNOFF RUNOFF OF TALCOTT RESOLUTION 41% DECLINE IN VA POLICY COUNT OVER NEXT 5 YEARS Number of VA Contracts (000s) Current Projection 2,500 Actual Projected 1 2,000 1,500-45% 1,000-41% Assumed 2014 organic attrition rate, and based on projected mortality, annuitization and surrender rates at April 30, 2014 and excludes Japan VA due to the sale of the business 26

27 CAPITAL MANAGEMENT / TALCOTT RUNOFF TALCOTT RESOLUTION NOW LESS THAN 25% OF CORE EARNINGS % of Consolidated Earnings from Talcott Resolution 1 48% 37% 25% Reducing as Talcott runs off , ex- Japan 2016 Talcott Resolution Earnings Contribution $810M $735M $412M 1. Excludes Corporate core earnings 2. Includes core earnings from Japan annuity business 27

28 S T R A T E G Y KEY DRIVERS OF ROE IMPROVEMENT GOING FORWARD 8.0% Profitable growth Top-line growth Margin expansion Increased core earnings Improved operating efficiency > $1B technology investment through 2016 Other expense initiatives Reduced cost of capital Reduction in volatility and risk in the business driving reduced beta of The Hartford s shares Capital management $4.0B current plan Stronger capital generation Exceed Cost of Capital ROE 1 3Q14, LTM ROE 2 3 Years Out 1. Figure is adjusted to exclude CATs favorable to outlook, PYD, higher limited partnership and alternative investment returns relative to 6% plan and other items. Including these items, core earnings ROE was 8.2%. 28

29 S H A R E H O L D E R V A L U E C R E A T I O N VALUATION TO BENEFIT FROM IMPROVED ROE AND LOWER BETA ROE 1 vs. Peers 2 Beta 3 vs. Peers Price to Book Value 4 vs. Peers 12.2% x 8.2% x HIG Peers HIG Peers HIG Peers 1. Sept. 30, month trailing core earnings ROE 2. Peers include ACE, Allstate, AIG, Chubb, Travelers, Cincinnati Financial, 3. 1 year beta as of 11/3/14 4. Book value per share, excluding accumulated other comprehensive income (AOCI), at Sept. 30, Denotes financial measure not calculated based on generally accepted accounting principles 29

30 BUSINESS OVERVIEW 30

31 T H E H A R T F O R D O V E R V I E W S T R E N G T H S THE HARTFORD AT A GLANCE 3Q14, LTM Core Earnings by Segment 1 Mutual Funds 5% Group Benefits Consumer 10% Markets 10% Talcott Resolution 23% P&C Commercial 52% Financial Overview 3Q14, LTM P&C Commercial $ 974 Consumer Markets 194 P&C Other (89) Property & Casualty Combined $ 1,079 Group Benefits 190 Mutual Funds 84 Sub-total $ 1,353 Talcott Resolution $ 434 Corporate $ (283) Consolidated Core Earnings $ 1, Core earnings excluding Corporate and P&C Other Operations 31

32 ORGANIZATIONAL STRUCTURE HAS BEEN SIMPLIFIED Current Ownership Structure Hartford Fire The Hartford (NYSE:HIG) Hartford Holdings Group Benefits legal restructuring completed in 1Q14; received rating agency upgrades for HLA since separation Hartford Life Inc. A.M. Best upgraded HLA to A on April 3, 2014 Standard & Poor s upgraded HLA to A (stable) on April 15, 2014 Mutual Funds Hartford Life & Accident (HLA) Hartford Life Ins. Co. Talcott Resolution business effectively separated from on-going legal entities Holding Co. Hartford Life & Annuity (HL&A) P&C, Group, Mutual Funds Talcott Resolution Graphic is a simplified version of The Hartford s organizational structure for illustrative purposes. 32

33 1. P R O P E R T Y & C A S U A L T Y SUCCESSFUL IMPROVEMENT IN P&C PRICING AND UNDERWRITING P&C Commercial: Achieving Price Increases 1 Greater than Loss Cost Trends 7% 8% 6% Consumer Markets: Achieving Disciplined Premium Growth ($ in billions) $3.6 $ YTD Focus on pricing and underwriting improvements 1. Renewal written price increases of Standard Commercial lines 2. September YTD 2014 Focus on premium growth, improving homeowners margins and maintaining auto profitability 33

34 1. P R O P E R T Y & C A S U A L T Y DRIVING IMPROVEMENTS IN OPERATING MARGINS P&C Commercial: Improved Combined Ratio 1 Consumer Markets: Maintain Strong Combined Ratio % 93.0% 90.4% 90.8% 90.6% 90.0% Q14, LTM Q14, LTM 1. Before catastrophes and prior year development. Denotes financial measure not calculated based on generally accepted accounting principles 34

35 2. G R O U P B E N E F I T S PRICING AND UNDERWRITING INITIATIVES DRIVING IMPROVED PROFITABILITY Declining Premiums Reflect Pricing Discipline Driving Improved Operating Margins Premiums 1 ($ in billions) Core Earnings Margin $4.0 $3.7 $3.3 $ % 5.4% 1.9% 2.4% Q14, LTM Q14, LTM 1. Fully insured ongoing premium, excluding buyout premiums 35

36 3. M U T U A L F U N D S CONTINUED GROWTH IN MUTUAL FUNDS BUSINESS Assets Under Management (AUM) ($ in billions) Growth $85.5 $87.6 $96.7 Total Annuity +13% -7% Retail and Retirement Mutual Fund Assets 1 +22% In 2013, 74% of Hartford Mutual Funds 2 outperformed Morningstar peers on a five year basis 1. Excludes annuity mutual fund assets that are held in separate accounts supporting The Hartford s variable insurance and investment products 2: HMF Funds only on Morningstar net of fees basis as of December 31,

37 PROPERTY & CASUALTY OVERVIEW 37

38 PROPERTY & CASUALTY Property & Casualty is comprised of three segments: P&C Commercial (63% of premiums) Consumer Markets (37% of premiums) P&C Other Operations 1 Competitive advantages in distribution relationships P&C Commercial: 11,000+ unique distribution partners in 20,000 locations and deep relationships with national brokers Consumer Markets: 14,000 independent agent locations and exclusive relationship with AARP through 2023 Recognized leader in claims and customer service Well capitalized with $10 billion net written premiums and $7.8 billion of statutory surplus A rating (A.M. Best), A rating (S&P), A2 rating (Moody s) for Hartford Fire Insurance Company Automobile Professional liability Fidelity & surety Liability 2013 Written Premium (Total $9.9 billion) Homeowners Consumer Markets $3.7B (37%) P&C Commercial $6.2B (63%) Package business Workers' compensation Property Automobile 1. Primarily run-off asbestos and environmental exposures that have discontinued writing new business 38

39 P&C COMMERCIAL

40 F O C U S THE HARTFORD IS A LEADING COMMERCIAL P&C INSURER 7 th Largest P&C Commercial Insurance Operation in the U.S Written Premium by Sector (Total $6.2 billion) P&C Commercial offers Insurance for All Sizes of Businesses Small Commercial Small Commercial 50% Specialty 15% Middle Market 35% Main Street and Emerging businesses with payrolls < $5 million; revenue & property < $15 million Middle Market Standard Commercial accounts written on a guaranteed cost basis: payrolls > $5 million; sales > $15 million; property values > $15 million Specialty Commercial Large companies with high deductibles or retained exposure 1. Per A.M. Best, based on 2013 direct written premiums 40

41 S T R E N G T H S FAVORABLE EARNINGS MOMENTUM AND DIVERSIFIED PREMIUM MIX P&C Commercial Written Premium and Core Earnings ($ in millions) 2013 Earned Premium by Product $6,176 $6,209 $6,208 $6,286 Liability Fidelity & Surety Professional Liability 9% 3% 4% $974 Package 19% $827 $389 $511 Auto 9% 8% 48% Workers Compensation Property Q14, LTM Written Premium Core Earnings 41

42 S T R E N G T H S LEVERAGING STRONG WORKERS COMPENSATION CAPABILITIES Industry leading workers compensation platform: Second largest underwriter measured by direct written premiums 1 Peer-leading performance with five year average adjusted loss ratio of 62% 1 Expertise in workers compensation provides cross-sell opportunities in property, liability and auto Workers Compensation Market Share and Adj. Loss Ratio, National Market Share 10% 8% 6% 4% 61% 62% 79% 61% 53% 90% 80% 70% 60% 50% 40% 30% Adjusted Loss Ratio 2% 20% 10% 0% Travelers The Hartford Liberty Mutual Zurich AIG 0% 1. Source: AM Best. Market share based on direct written premiums in the U.S. in Adjusted loss ratio represents five year average Adjusted loss ratio defined as direct losses incurred divided by the difference between direct premiums earned and dividends to policyholders. 42

43 S T R E N G T H S MARKET LEADERSHIP ACHIEVED THROUGH SUPERIOR EXECUTION Significant Market Positions #2 in workers compensation 1 #4 in commercial multi-peril 1 #9 in commercial auto 1 Leading share in P&C Small Commercial # 7 overall in P&C Commercial 1 Superior Sales & Underwriting Capabilities + Ranked among the top markets by national and regional agents and brokers Exceptional field sales 2013 P&C Commercial combined ratio of 96.1 vs. industry of Top Quality Claims & Service Unique claims handling skills Award winning service operations (first J.D. Power certified commercial P&C company) Outstanding loss prevention services 1. Per A.M. Best, based on 2013 direct written premiums 2. Per Conning s 4Q13 Forecast and Analysis 43

44 P E R F O R M A N C E IMPROVING MARGINS WITH TARGETED PRICING ACTIONS AND EXPENSE CONTROLS P&C Commercial Combined Ratio and Expense Ratio (Before catastrophes and prior year development) % 29.4% 29.6% 30.0% 29.8% Q14, LTM Combined Ratio Expense Ratio 44

45 P E R F O R M A N C E P&C COMMERCIAL FOCUSED ON IMPROVING UNDERWRITING MARGINS AND BUSINESS MIX Pricing increases and underwriting actions driving margin improvement Rate adequacy has improved meaningfully over the past two years Closely monitoring pricing and loss cost trends through improved analytics Enhancing property capabilities to serve multiline accounts Focusing Specialty Commercial to complement standard lines Investing heavily in technology, talent and product development P&C Standard Commercial Renewal Written Price Increases 7% 8% 8% 8% 7% 7% 7% 7% 6% 5% 45

46 P E R F O R M A N C E SMALL COMMERCIAL CONTINUES TO EXTEND LEADING CAPABILITIES FOR CUSTOMERS AND AGENTS Small Commercial 2013 Net Written Premium $3.1 billion Success Drivers Other Spectrum (Business Owner's Policy) Auto Payroll Alliances Workers' Comp. Combined Ratio 1 : 87.5 Products and services tailored to needs of small businesses Advanced use of technology Quoting and issuance with low/no touch underwriting Online service portal New ICON quoting platform improves quote turnaround time and volume Sophisticated pricing models Broad small business distribution partnerships Payroll alliances ~10% of net written premiums AARP for small commercial 1. Before catastrophes and prior year development 46

47 P E R F O R M A N C E MIDDLE MARKET FOCUS ON MORE BALANCED PRODUCT PORTFOLIO WHILE INCREASING MARGINS Middle Market 2013 Net Written Premium $2.2 billion Success Drivers Other Workers' Comp. General Liability Auto National sales office footprint providing expertise in local markets across the country Strong pricing analytics and market execution driving margin improvement Investing in new product offerings and underwriting capabilities across the business Bond Property Leading underwriting expertise Construction Marine Combined Ratio 1 : Before catastrophes and prior year development 47

48 P E R F O R M A N C E SPECIALTY COMMERCIAL S DIVERSE PORTFOLIO MEETS AGENT AND POLICYHOLDER NEEDS Specialty Commercial 2013 Net Written Premium $0.9 billion Success Drivers Other Captive and Specialty Programs Financial Products National Accounts Provide businesses with advanced casualty solutions Self-insurance layers Risk management Extend a range of financial products to businesses of all sizes Directors & Officers Errors & Omissions Employment Practices Liability Disciplined underwriting, risk selection, pricing and credit are key to profitability of diverse portfolio Combined Ratio 1 : Before catastrophes and prior year development 48

49 K E Y M E T R I C S P&C COMMERCIAL KEY METRICS ($ in millions) Written premiums $6,208 $6,209 $6,176 Current accident year catastrophes $105 $325 $320 Underwriting gain (loss) 1 $244 $(182) $(279) Combined ratio, before catastrophes and prior year development Small Commercial Middle Market Specialty Renewal written price increases (Standard Commercial) 8% 7% 4% Policy count retention: Small Commercial 81% 83% 83% Middle Market 79% 77% 78% 1. Denotes financial measure not calculated based on generally accepted accounting principles 49

50 K E Y M E T R I C S P&C COMMERCIAL KEY METRICS ($ in millions) 3Q14 3Q13 Written premiums $1,583 $1,567 Current accident year catastrophes $8 $48 Underwriting gain (loss) $151 $30 Combined ratio, before catastrophes and prior year development Small Commercial Middle Market Specialty Renewal written price increases (Standard Commercial) 5% 7% Policy count retention: Small Commercial 84% 81% Middle Market 80% 80% 50

51 K E Y T A K E A W A Y S P&C COMMERCIAL KEY TAKEAWAYS Our P&C Commercial business is an industry leader Our businesses are gaining momentum across the board We are investing for strong margins and growth 51

52 CONSUMER MARKETS

53 F O C U S BROAD DISTRIBUTION REACH Exclusive 30 year auto and home partnership with AARP under contract until 2023 Agency Non-Member Agency Distribute auto and home through 14,000 independent agent locations, including over 7,000 AARP agents Improve profitability and return to growth 2013 Written Premium By Channel $55 2% ($ in millions) 2013 Written Premium By Product ($ in millions) $717 19% $2,722 73% $2,562 69% $1,157 31% $225 6% AARP Direct Other Agency AARP Agency Other Auto Homeowners 53

54 I M P R O V E M A R G I N S A N D E A R N I N G S FOCUSED ON TOP LINE GROWTH AND MAINTAINING AUTO MARGINS Achieve above average industry growth while continuing to expand margins New business growth across AARP Direct, AARP Agency and non-member Agency channels Refresh of auto product rolling out in 2014, including next generation of Truelane (telematics) Improve homeowners margins and maintain auto profitability Homeowners Accident Year Combined Ratio Auto Accident Year Combined Ratio Q14, LTM Q14, LTM 1. Before catastrophes and prior year development 54

55 S T R E N G T H S MARKET LEADING DIRECT AFFINITY BUSINESS 30 year partnership with AARP through 2023 and expanded AARP Agency distribution Best-in-class product for AARP members, or mature, preferred customers Direct channel distribution and service Deep expertise in targeting, marketing, selling and servicing the mature, preferred market Award-winning customer service and claims handling Digital sales capabilities Market-leading online sales capabilities (including auto insurance package options and coverage counseling) 55

56 P E R F O R M A N C E DISCIPLINED FOCUS ON BALANCING GROWTH AND PROFITABILITY Written Premium and Combined Ratio 1 ($ in millions) Auto Written Premium and Combined Ratio 1 ($ in millions) Homeowners Written Premium and Combined Ratio 1 ($ in millions) $3,675 $3,630 $3,719 $3,835 $2,562 $2,514 $2,562 $2,638 $1,113 $1,116 $1,157 $1, Q14, LTM Written Premium Combined Ratio Q14, LTM Written Premium Combined Ratio Q14, LTM Written Premium Combined Ratio 1. Excludes catastrophes and prior year development 56

57 P E R F O R M A N C E STRATEGIC OBJECTIVE TO ACHIEVE ABOVE INDUSTRY GROWTH AND PROFITABILITY Four channels AARP Direct with distinct priorities Maintain balanced growth and profitability AARP Agency Continued growth with disciplined focus on profitability Non-Member Agency Improve profitability and return to growth Targeted Direct Test and learn laboratory for future growth and diversification opportunities 57

58 P E R F O R M A N C E ACHIEVING ABOVE INDUSTRY UNDERWRITING RESULTS The Hartford s combined ratios for the last five years have outperformed the industry Strong pricing and underwriting initiatives continue to improve profitability, particularly in homeowners The Hartford Versus Industry 1 Auto Combined Ratio Homeowners Combined Ratio The Hartford Industry The Hartford Industry 1. Per Conning s 4Q13 Forecast & Analysis 58

59 K E Y M E T R I C S CONSUMER MARKETS KEY METRICS ($ in millions) Written premiums $3,719 $3,630 $3,675 Current accident year catastrophes $207 $381 $425 Underwriting gain (loss) $177 $93 $(48) Combined ratio, before catastrophes and prior year development Auto Homeowners Renewal written price increases Auto 5% 4% 5% Homeowners 7% 6% 8% Policy count retention Premium retention Auto 86% 88% 85% 86% 83% 84% Homeowners 87% 92% 86% 90% 84% 90% New business premium Auto $374 $332 $298 Homeowners $131 $117 $91 59

60 K E Y M E T R I C S CONSUMER MARKETS KEY METRICS ($ in millions) 3Q14 3Q13 Written premiums $1,019 $988 Current accident year catastrophes $32 $18 Underwriting gain $85 $75 Combined ratio, before catastrophes and prior year development Auto Homeowners Renewal written price increases Auto 5% 5% Homeowners 7% 8% Policy count retention Premium retention Auto 85% 87% 86% 88% Homeowners 86% 91% 86% 92% New business premium Auto $108 $100 Homeowners $34 $35 60

61 K E Y T A K E A W A Y S CONSUMER MARKETS KEY TAKEAWAYS Key competitive advantage in distribution Market leading direct affinity businesses Disciplined focus on balancing growth and profitability 61

62 GROUP BENEFITS

63 F O C U S MULTI-YEAR PRICING AND UNDERWRITING INITIATIVES TO IMPROVE PROFITABILITY Fully Insured Ongoing Premium 1 & After-Tax Margin ($ in millions) $4, % $3, % $3,272 $3, % 5.4% Q14, LTM Fully Insured Ongoing Premium After-Tax Margin (core earnings) Initiatives began in 2011 to improve profitability through: Pricing discipline Underwriting execution Claims management Decline in 2012 and 2013 fully insured ongoing premiums due to pricing discipline, the runoff of a third party marketing relationship in Association Financial Institutions block of business Investing in growth opportunities Introduction of new voluntary benefit products Small business segment Investment in technology infrastructure to improve efficiency and customer experience 1. Represents fully insured ongoing premium, excluding buyout premiums 63

64 F O C U S MARKET SHARE LEADER IN GROUP LIFE AND DISABILITY 3 rd Largest Group Disability & 6 th Largest Group Life Operation in the U.S. 1 Other 5% 2013 Earned Premium 2 (Total $3.3 billion) Group Disability 43% Group Life 52% Group life Product & Services: Short-term and long-term group disability Accident death and disability (AD&D) Employer paid and voluntary products Retiree health medical & prescriptions Reinsurance excess life and private label disability Absence/leave management services Administrative services only 1. In-force premium per LIMRA as of Dec.31, Represents fully insured ongoing premium, excluding buyouts 64

65 P E R F O R M A N C E OPPORTUNITY TO GROW IN BOTH EMPLOYER PAID AND VOLUNTARY PRODUCTS IN ALL MARKET SEGMENTS Employer Group 2013 Premium 1 (Account Size By Number of Employees) Success Drivers: National > 4,999 51% Priority < % Regional 500-4,999 32% Strong distribution partnerships Leadership position with Group Benefit specialists Deep enterprise relationships with multi-line distributors National field office network providing local contacts Broad product portfolio with growing voluntary offerings Strong presence in private, public and education buyer markets Currently participating in key industry private exchanges 1. Represents fully insured ongoing premium, excluding buyout premiums 65

66 K E Y M E T R I C S GROUP BENEFITS KEY METRICS ($ in millions) Total fully insured ongoing premiums $3,272 $3,745 $4,036 Group disability 1,395 1,673 1,818 Group life 1,716 1,878 2,024 Other Total fully insured ongoing sales $393 $405 $505 Group disability Group life Other Loss ratio 75.6% 79.5% 79.5% Group disability 84.0% 92.2% 92.7% Group life 69.5% 69.0% 68.6% Core earnings $158 $101 $86 After-tax margin (core earnings) 4.3% 2.4% 1.9% Note: Premium, sales, loss ratio and after-tax margin (core earnings) exclude buyout premiums 66

67 K E Y M E T R I C S GROUP BENEFITS KEY METRICS ($ in millions) 3Q14 3Q13 Total fully insured ongoing premiums $738 $817 Group disability Group life Other Total fully insured ongoing sales $57 $63 Group disability Group life Other 5 3 Loss ratio 77.6% 76.7% Group disability 85.7% 87.9% Group life 71.7% 68.2% Core earnings $38 $36 After-tax margin (core earnings) 4.5% 3.9% Note: Premium, sales, loss ratio and after-tax margin (core earnings) exclude buyout premiums 67

68 K E Y T A K E A W A Y S GROUP BENEFITS KEY TAKEAWAYS Leading provider of group life and group disability products Focus on underwriting and pricing is driving margin and profit improvement Investing in growth opportunities with particular emphasis on expanding voluntary products and capabilities 68

69 MUTUAL FUNDS

70 F O C U S FOCUSED ON GROWTH 2013 Mutual Funds 1 AUM by Asset Class ($ in billions) Fixed $14.6 Multi- Strategy $13.9 Equity $42.4 Key Drivers: Solid long-term fund performance Attractive suite of investment solutions appropriate for varying market cycles Increasing sales force productivity Increasing focus on key distribution partners Currently distributed through major wirehouses and broker dealers including Edward Jones, Raymond James, Merrill Lynch, Morgan Stanley, LPL, UBS and Wells Fargo Ranked #8 overall in the 2013 Barron s / Lipper Fund Family one-year rankings, one of four firms to be in the Top 10 two years in a row Market Share 2 : 1.22% market share in retail gross sales for full-year 2013 With $70.9 billion of AUM, ranked #21 out of 116 fund families by retail AUM size 1. Excludes annuity mutual fund assets (company-sponsored mutual fund assets that are held in a separate accounts supporting variable insurance and investment products.) 2. Source: ICI, Strategic Insight, 12/31/2013 excludes money market funds and direct distributors 70

71 I M P R O V E M A R G I N S A N D E A R N I N G S FOCUSED ON IMPROVING NET FLOWS AND GROWING SALES $85.5 $87.6 $27.6 $57.9 $61.6 Growth in AUM ($ in billions) $26.0 $96.7 $96.2 $25.8 $22.9 $70.9 $73.3 Annuity Assets Mutual Fund Assets 1 Diversified fund family with offerings including: Equity Fixed income Asset allocation Funds primarily distributed through brokerdealers, banks and other financial institutions, independent financial advisors and registered investment advisors Focused on improving net flows and earnings growth with Wellington Management as sole sub-advisor Core earnings growth driven by improved earnings in retail and defined contribution mutual funds, partially offset by the runoff of VA mutual fund assets Q14 1. Mutual Funds excludes annuity mutual fund assets that are held in separate accounts supporting The Hartford s variable insurance and investment products 71

72 P E R F O R M A N C E DELIVERING ON SOLID LONG-TERM FUND PERFORMANCE Percent of Hartford Mutual Funds 1 Outperforming Morningstar Peers One Year Basis Three Year Basis Five Year Basis 32% 74% 68% 50% 78% 42% 67% 44% 65% 65% 60% 60% 54% 54% 74% 76% 60% 51% 48% 50% 36% Q Q Q14 1. HMF Funds only on Morningstar net of fees basis as of Sept. 30,

73 P E R F O R M A N C E FOCUS ON IMPROVING SALES AND FLOWS Mutual Funds 1 AUM ($ in billions) Mutual Funds 1 Sales and Redemptions ($ in billions) $57.9 $61.6 $70.9 $73.3 $16.6 $11.8 $15.2 $14.9 Sales $(0.8) Net Flows $(4.8) $(4.4) $(4.5) Redemptions Q14 $(21.5) $(16.3) $(19.7) $(15.7) Q14, LTM 1. Excludes annuity mutual fund assets (company-sponsored mutual fund assets that are held in separate accounts supporting variable insurance and investment products.) 73

74 P E R F O R M A N C E GROWTH IN ALL ASSET CLASSES Mutual Funds 1 AUM by Asset Class ($ in billions) $9.4 $11.2 $13.1 $14.5 $13.9 $14.6 Multi-Strategy Fixed $35.4 $35.9 $42.4 Equity Excludes annuity mutual fund assets (company sponsored mutual fund assets that are held in separate accounts supporting variable insurance and investment products.) 74

75 K E Y M E T R I C S MUTUAL FUNDS KEY METRICS ($ in millions) Mutual Funds 1 AUM, end of period $70,918 $61,611 $57,925 Sales $15,172 $11,841 $16,631 Redemptions $(19,696) $(16,258) $(21,453) Net flows $(4,524) $(4,417) $(4,822) Total AUM, end of period $96,735 $87,647 $85,538 Core earnings $78 $74 $98 Core earnings return on assets (bps) Mutual Funds excludes annuity mutual fund assets that are held in separate accounts supporting variable insurance and investment products 2. Denotes financial measure not calculated based on generally accepted accounting principles 75

76 K E Y M E T R I C S MUTUAL FUNDS KEY METRICS ($ in millions) 3Q14 3Q13 Mutual Funds 1 AUM, end of period $73,295 $66,759 Sales $3,753 $3,787 Redemptions ($3,660) ($4,432) Net flows $93 ($645) Total AUM, end of period $96,162 $92,397 Core earnings $22 $18 Core earnings return on assets (bps) Mutual Funds excludes annuity mutual fund assets that are held in separate accounts supporting variable insurance and investment products 2. Denotes financial measure not calculated based on generally accepted accounting principles 76

77 K E Y T A K E A W A Y S MUTUAL FUNDS KEY TAKEAWAYS Strong fund family with investment solutions appropriate for varying market cycles Enhanced distribution and marketing Positioned to improve net flows and grow earnings 77

78 TALCOTT RESOLUTION

79 F O C U S PRINCIPAL GOAL: REDUCE SIZE AND RISK Talcott Resolution Annuity Account Value 1 $79.1 billion as of Sept. 30, 2014 Institutional 20% Talcott Resolution is comprised of the company s run-off annuity businesses Most of business placed into runoff in 2009 U.S. Annuity placed into run-off in April 2012 U.K. annuity business sold in June 2013 Japan annuity business sold in June 2014 Fixed Annuities 11% Variable Annuities 69% 69% of Talcott Resolution's annuity account values are VA contracts, with exposure to equity markets Remainder is not equity-market linked: Institutional Annuity: interest rate risk Fixed Annuity, retail customers: interest rate risk 1. Total account value includes separate and general accounts. Figure excludes the account value associated with PPLI, as well as the Retirement Plans and Individual Life businesses reinsured to third parties. The PPLI block is subject to mortality risk, while the Prudential and MassMutual reinsurance recoverables are subject to counterparty risk. 79 4

80 P E R F O R M A N C E REDUCING SIZE AND RISK OF ANNUITY BLOCKS Principal goal is to reduce the size and risk of annuity blocks Japan annuity business sold in June 2014, permanently eliminated Japan VA risk VA Enhanced Surrender Value (ESV) program launched in 2013 had a cumulative acceptance rate of 42%; new ESV program launched in June 2014 and fixed annuity Increased Surrender Value (ISV) program launched in March 2014 Enforcing limitations within VA contracts to reduce risk VA and fixed annuity policy counts declined 13% and 19%, respectively, since Sept. 30, 2013 Retained net amount at risk (NAR) declined significantly; living benefits retained NAR of $0.1 billion at Sept. 30, 2014, down 35% compared to Sept. 30, % of guaranteed minimum withdrawal benefit (GMWB) contracts out-of-the-money as of Sept. 30, 2014 with average moneyness of 10% Individual Annuity Policy Counts -14% 978, , , , , , , , , ,000 Fixed Annuity 802, , , , ,000 Variable Annuity 3Q13 4Q13 1Q14 2Q14 3Q14 80

81 P E R F O R M A N C E ACCOUNT VALUES DECREASING EVEN WITH MARKET APPRECIATION Individual Annuity Account Value ($ in billions) -21% $11.6 $68.8 $10.8 $10.1 $64.8 $61.8 $9.0 $54.3 Fixed Annuity Variable Annuity Q Q14 Fixed Policy Counts 202, , , ,000 VA Policy Counts 1,016, , , ,000 81

82 P E R F O R M A N C E VA GUARANTEES RETAINED NAR AND PERCENTAGE OF CONTRACTS IN-THE-MONEY IMPROVING U.S. Individual Annuity GMWB U.S. Individual Annuity GMDB 1 77% 45% 48% $1.6 23% $5.1 $0.5 5% 6% $0.1 $0.1 $2.2 16% $1.0 $0.9 27% Q Q14 Retained NAR % of contracts ITM Retained NAR % of contracts ITM 1. Guaranteed minimum death benefit 82

83 P E R F O R M A N C E INDIVIDUAL ANNUITY GMDB IS SIGNIFICANTLY REINSURED Individual Annuity VA: GMDB Guarantee by Type $61.8 Billion of Account Value as of Dec. 31, 2013 ($ in billions) ($ in billions) $3.3 (5%) $2.2 (4%) $13.2 (21%) $4.3 77% of GMDB NAR is reinsured $24.5 (40%) $18.6 (30%) $1.0 Gross NAR Retained NAR Resets Rollups Return on Premium Capped Step Ups Full Step Ups 83

84 K E Y M E T R I C S TALCOTT RESOLUTION KEY METRICS ($ in millions) Total Talcott Resolution core earnings, after tax 1 $412 $546 Variable Annuity: Net flows $(14,598) $(11,388) Account value $61,812 $64,824 Full surrender rate 16.7% 11.1% Fixed Annuity: Net flows $(1,176) $(1,265) Account value $10,142 $10,848 Full surrender rate 9.3% 8.4% Individual Annuity core earnings return on assets (ROA), after tax (bps) Total Talcott Resolution account value 2 $195,936 $194, Excludes earnings from the Japan and U.K. businesses. 2. Total account value includes the separate account and general account. Figure excludes Japan and U.K. account value, but includes the account value associated with the Retirement Plans and Individual Life businesses reinsured to third parties 84

85 K E Y M E T R I C S TALCOTT RESOLUTION KEY METRICS ($ in millions) 3Q14 3Q13 Total Talcott Resolution core earnings, after tax $122 $115 Variable Annuity: Net flows $(3,231) $(4,170) Account value $54,349 $61,512 Full surrender rate 16.5% 20.3% Fixed Annuity: Net flows $(544) $(330) Account value $8,959 $10,455 Full surrender rate 31.2% 11.2% Individual Annuity core earnings ROA, after tax (bps) Total Talcott Resolution account value 1 $186,406 $197, Total account value includes the separate account and general account. Figure excludes Japan and U.K account value, but includes the account value for U.S. Annuity, Institutional, PPLI and the account value associated with the Retirement Plans and Individual Life businesses reinsured to third parties 85

86 K E Y T A K E A W A Y S TALCOTT RESOLUTION KEY TAKEAWAYS Focus on reducing size and risk Natural run off of block over the next several years Capital self-sufficient Robust risk management 86

87 CAPITAL RESOURCES AND INVESTMENTS

88 F O C U S STRONG CAPITAL POSITION ($ in millions) Debt Sept. 30, 2014 Dec. 30, 2013 Dec. 31, 2012 Dec. 31, 2011 Short-term debt $289 $438 $320 $ - Senior notes 4,719 5,006 5,706 4,481 Junior subordinated debentures 1,100 1,100 1,100 1,735 Total debt $6,108 $6,544 $7,126 $6,216 Stockholders equity Common stockholders equity, ex-aoci $17,758 $18,984 $19,048 $19,679 Preferred stock AOCI 1,077 (79) 2,843 1,251 [1] The leverage calculation reflects adjustments related to the Company s defined benefit plans unfunded pension liability and the Company's rental expense on operating leases for total adjustments of $1.3 billion, $1.3 billion, $1.3 billion, $1.4 billion, and $1.6 billion for the three months ended September 30, 2014, June 20, 2014, March 31, 2014, December 31, 2013, and September 30, 2013, respectively. [2] Reflects 25% equity credit for the junior subordinated debentures. Reflects 100% equity credit for preferred stock which converted to common equity on April 1, Total stockholders equity $18,835 $18,905 $22,447 $21,486 Capitalization Total capitalization, incl. AOCI, after tax $24,943 $25,449 $29,573 $27,702 Total capitalization, excl. AOCI, after tax $23,866 $25,528 $26,730 $26,451 Debt to capitalization ratios Total debt to capitalization, incl. AOCI 24.5% 25.7% 24.1% 22.4% Total debt to capitalization, excl. AOCI 25.6% 25.6% 26.7% 23.5% Total rating agency adj. debt to capitalization 1,2 27.1% 28.4% 27.4% 26.5% 88

89 P E R F O R M A N C E STRONG CAPITAL RESOURCES Capital Resources: ($ in billions) Dec Sept U.S. P&C subsidiaries $7.4 $7.8 U.S. Life subsidiaries U.S. statutory surplus $14.8 $14.9 Holding company resources Total capital resources $17.7 $17.3 Totals may not add due to rounding Capital resources totaled $17.3 billion at Sept. 30, 2014 Relatively flat compared to capital resources at Dec $5.0 billion of debt payments (net), equity repurchases, common and preferred stock dividends, and interest expense, before tax, made during the period Holding company resources of $2.4 billion 1. Cash and investments. 89

90 P E R F O R M A N C E FINANCIAL STRENGTH AND DEBT RATINGS As of October 22, 2014 Insurance Financial Strength Ratings: A.M. Best Standard & Poor s Moody s Hartford Fire Insurance Company A A A2 Hartford Life and Accident Insurance Company A A A3 Hartford Life Insurance Company A- BBB+ Baa2 Hartford Life and Annuity Insurance Company A- BBB+ Baa2 Other Ratings: The Hartford Financial Services Group, Inc.: Senior debt bbb+ BBB Baa3 Commercial paper AMB-2 A-2 P-3 90

91 P E R F O R M A N C E THE HARTFORD MAINTAINS A HIGH QUALITY INVESTMENT PORTFOLIO General Account Invested Assets by Sector (Book Value of $71.1 billion as of Sept. 30, 2014) CMBS 6% Short-term 7% RMBS 6% Govt/govt agencies 8% Limited Partnerships 4% CDOS 3% Mortgage Loans 8% ABS 3% Equity 1% Municipal Bonds 17% Corporate 37% The general account portfolio of The Hartford is strong, highly diversified, and well positioned for an uncertain economy The general account portfolio is designed to emphasize prudent balancing of net investment income and total returns within asset-liability management, risk, and capital parameters Fixed Maturities by Rating: (Book Value in $ millions) Sept. 30, U.S. Government $7,590 $8,231 $10,481 AAA 6,820 6,215 8,646 AA 9,352 12,054 14,939 A 14,836 14,777 20,396 BBB 13,797 15,555 20,833 BB & Below 3,503 3,809 4,452 Total Fixed Maturities, AFS $55,898 $60,641 $79,747 Weighted average credit quality A+ A A 91

92 K E Y T A K E A W A Y S CAPITAL RESOURCES KEY TAKEAWAYS Strong capital position Improved investment quality Balanced capital management program Talcott Resolution capital self-sufficient in stress scenarios 92

93 NON-GAAP FINANCIAL MEASURES 93

94 APPENDIX DISCUSSION OF NON-GAAP FINANCIAL MEASURES The Hartford uses non-gaap financial measures in this presentationto 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 other financial measures used in this presentation can be found below and in The Hartford's Investor Financial Supplement for third quarter 2014, which is available on The Hartford's website, Book value per diluted common share excluding accumulated other comprehensive income ("AOCI ): Book value per diluted common 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 common 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 common 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 common share is the most directly comparable GAAP measure. A reconciliation of book value per diluted common share, including AOCI to book value per diluted common share, excluding AOCI is set forth below. As of Sept Dec Change Book value per diluted common share, including AOCI $42.23 $ % Less: Per diluted share impact of AOCI $2.41 $(0.16) NM Book value per diluted common share, excluding AOCI $39.82 $ % Combined ratio before catastrophes and prior year development: Combined ratio before catastrophes and prior year development (PYD) 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, 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 combined ratio before catastrophes and PYD 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 combined ratio before catastrophes and PYD is provided in the table below. Three Months Ended P&C Commercial Sept Sept Combined ratio Catastrophe and non-catastrophe PYD Combined ratio, excl. catastrophes and PYD Consumer Markets Combined ratio Catastrophe and non-catastrophe PYD Combined ratio, excl. catastrophes and PYD