The Hartford Financial Services Group, Inc. May 2018 Investor Overview of The Hartford

Transcription

1 The Hartford Financial Services Group, Inc. May 2018 Investor 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 April 26, 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 April 26, 2018 and The Hartford s Investor Financial Supplement for first quarter 2018 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 The Hartford s businesses have: Well-known and admired brand built over the Company s 200+ year history Leading market positions Strong margins and excess capital generation National distribution footprint Commercial Lines: Leader in the highly attractive small and mid-sized business sectors Group Benefits: Leading provider of life and disability protection to 20 million individuals through their employers Personal Lines: 30+ year exclusive auto and homeowners partnership with AARP, focused on 50 year old+ demographic Mutual Funds: A high return business with a unique sub-advisory business model FY 2017 Pro Forma Premiums 1 Group Benefits 33% Commercial Lines 44% Personal Lines 23% $15.8 billion 1. Includes 2017 written premiums for Commercial Lines and Personal Lines and 2017 pro forma Group Benefits premiums which comprised of 2017 premiums contributed by The Hartford s Group Benefits segment (excluding the impact of the 4Q17 acquisition) and 2016 full year premiums from the U.S. group life and disability business acquired 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 The Hartford has successfully executed its strategy to focus on underwriting-centric businesses The Strategy Announced In March 2012 Sell Individual Life and Retirement Plans Put U.S. annuity business into runoff (Talcott Resolution) Sharpen focus on Property and Casualty (P&C), Group Benefits and Mutual Funds The Execution Steps, Sold Individual Life, Retirement Plans and Japan annuity businesses Group Benefits separated from Talcott Resolution legal entities May 31, 2018: Closed sale of Talcott Resolution P&C Other Operations 5% Personal Lines 1% 2017 Core Earnings 1 (excluding Corporate) Mutual Funds 9% $1.2 billion Group Benefits 19% The Results Generated $7.6 billion for the holding company from these transactions Reduced notional debt by about $1.4 billion 2 since Mar. 21, 2012 Strengthened financial flexibility and reduced balance sheet volatility, including A&E 3 reinsurance cover and pension settlement Improved underwriting results in P&C and Group Benefits Commercial Lines 66% 1. Denotes financial measure not calculated based on GAAP 2. Does not include previously announced plans to call $500 million of junior subordinated debt in June 2018 and to repay $413 million senior note maturing in Jan Asbestos and Environmental ( A&E ) 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 The Hartford has leading market positions and strong competitive advantages with national brand recognition Leading U.S. Market Positions Leader in P&C Small Commercial #2 in Workers Compensation 1 #2 in Group Life and Disability 2 #6 in Commercial Multi-peril 1 #4 in Direct Personal Lines 1 #9 overall in P&C Commercial Lines 1 P&C and Group Benefits $1,326 $195 $1,131 $1,076 $1,133 $204 $234 $872 $ P&C Group Benefits $3,069 $3,148 $3,586 $10,416 $10,549 $10, P&C Core Earnings 3 ($ in millions) Earned Premiums ($ in millions) $13,485 $13,697 $14,141 Group Benefits With Strong Competitive Advantages Well-known and admired brand developed over our 200+ year history Top choice by agents Broad and deep national distribution partnerships Advanced technology, with significant investments in underwriting, claims and customer service Recognized for claims excellence 1. Per A.M. Best, based on 2017 direct written premiums 2. In-force premiums as of December 31, 2017, per LIMRA 3. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 4. P&C includes Commercial Lines, Personal Lines and P&C Other Operations 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 1Q18 key financial highlights Core Earnings Property & Casualty Core EPS 1,2 of $1.27, up from $0.76 in 1Q17 due to a 60% increase in core earnings and a 4% decrease in weighted average common diluted shares outstanding Core earnings increased principally due to higher P&C underwriting results, increased consolidated net investment income and lower income taxes; 1Q18 income before income taxes of $519 million, up $118 million with growth in all major business segments Core earnings of $408 million, up $131 million from 1Q17 due to better underwriting results including lower CAY CATs 3 and favorable PYD 4, higher net investment income and a lower tax rate Underlying combined ratio 1 of 90.3 improved 0.9 point from 1Q17 with better underwriting results in both Commercial Lines and Personal Lines Commercial Lines Higher underwriting gain 1 primarily due to net favorable PYD in 1Q18 from continued favorable workers' compensation trends and better underlying underwriting results Underlying combined ratio of 90.4 improved 0.5 point from 1Q17 primarily due to margin improvement in commercial auto Personal Lines Group Benefits Higher underwriting gain included lower CAY CATs in 1Q18 and net favorable PYD in homeowners Underlying combined ratio of 89.8 improved 1.4 points from 1Q17 primarily from better auto loss results, partially offset by a higher expense ratio mainly from increased marketing spend Core earnings of $85 million, up $32 million adjusted for a state guaranty fund assessment of $13 million, after tax, in 1Q17; growth due principally to the acquisition and a lower tax rate Loss ratio of 77.4% improved 0.3 point from 1Q17 and expense ratio decreased 1.2 points adjusted for state guaranty fund assessment of 2.5 points in 1Q17 BVPS and ROE BVPS, ex. AOCI 1,5, of $36.71, up 4% compared with Dec. 31, 2017 Core earnings ROE 1,6 of 7.8% improved 2.7 points compared with 5.1% in 1Q17 1. Denotes financial measure not calculated based on GAAP 2. Earnings per diluted share 3. Current accident year (CAY) catastrophes (CAT) 4. Prior accident year development (PYD) 5. Book value per diluted share, excluding accumulated other comprehensive income (AOCI) 6. Return on equity (ROE) twelve month trailing core earnings ROE, excluding AOCI, levered 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 The Hartford s primary financial 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 core earnings ROE 1 while maintaining a strong balance sheet and redeploying excess capital Integrate the Group Benefits acquisition efficiently and on schedule To close the sale 2 and complete the separation of Talcott Resolution 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Closed sale of Talcott Resolution May 31, 2018 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 Commercial Lines High quality underwriting standards that continue to deliver strong results Package Auto Diversified Premium Mix 2017 Earned Premium by Product Property General Liability 19% 9% 9% 9% Bond Professional Liability 3% 4% 47% Workers Compensation 2017 Written Premiums by Business Strong Underwriting and Profitability Combined Ratio Underlying Combined Ratio 1. Denotes financial measure not calculated based on GAAP National Agent and Operations Footprint 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. 8

9 MAINTAIN STRONG MARGINS IN COMMERCIAL LINES AND GROUP BENEFITS Group Benefits A market leader in group life and disability, a complementary business to our workers compensation expertise Better Disability Loss Trends Drive Continued Improvement in Loss Ratio Loss Ratio Total Disability Life 1. Excludes Association Financial Institutions The 4Q17 Acquisition Further Strengthens Our Market Leadership Position Leader in Group Life and Disability (in-force premium as of 12/31/17, per LIMRA) #2 Stable and Strong Margins Core Earnings Margin 2 5.6% 5.7% 5.8% Balanced Book of Business 2017 Pro Forma Premium 3,4 $5.2 billion $0.2 Life 50% $2.4 $2.6 Disability 46% Other 4% Denotes financial measure not calculated based on GAAP 3. Fully insured ongoing premium, excluding buyout premiums pro forma Group Benefits premiums comprised of 2017 premiums contributed by The Hartford s Group Benefits segment (excluding the impact of the 4Q17 acquisition) and 2016 full year premiums from the U.S. group life and disability business acquired 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 Significant improvement in underlying results since 2015, focus now on new business growth AARP Agency Focused on AARP Relationship 2017 Net Written Premium by Distribution Other Agency 9% 11% 1% Other 79% AARP Direct Leading Direct Personal Lines Insurer Major Direct Personal Lines Company (per A.M. Best, 2017) #4 Retiree Segment Expected to Grow Faster than Market Improvement in Auto Underlying Results Due to Multiple Profitability Initiatives The Hartford's personal lines business is focused on the retiree segment via AARP 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 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 Combined Ratio Underlying Combined Ratio 10

11 INVESTING FOR PROFITABLE GROWTH Multiple initiatives investing in talent, technology and data for profitable growth Small Commercial: Expanded product offerings and distribution through the acquisition of Maxum and the renewal rights agreement with Foremost Integrated excess and surplus products onto our ICON quoting platform, becoming a one-stop provider to more customers, including an integrated billing option Simplified quoting process made the majority of quotes bindable, while requiring fewer underwriting questions due to integration of third party data and advanced analytics Customer service centers manage more than 50% of in-force block; expanding digital capabilities allow over 30% of all service transactions to be completed online Now offering Group Benefits quotes through ICON Middle Market: Expanded multinational capabilities, allowing us to win more accounts with exposures outside the U.S. as well as enabling cross-sale opportunities in the U.S. domestic market Launched energy vertical in 2016, achieving solid new business premium and a growing pipeline of opportunities Continued enhancements and momentum in construction vertical, resulting in double-digit written premium growth in 2017 Personal Lines: Increased new business marketing in AARP Direct in late 2017, with expected new business growth in direct auto during 2018 Group Benefits: Integration of 4Q17 group life and disability acquisition, including implementation of claims and policy management system, is on schedule $60 million of expense reduction achieved in 1Q18, on track for $100 million in 2018 Making investments in technology, data and analytics across the enterprise Expanding our digital portals in Commercial Lines, Personal Lines and Group Benefits to provide agents and customers greater access and flexibility in managing their coverage, billing and claims Deploying robotics in operations, enabling requests for certificates of insurance to be processed 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 CORE EARNINGS ROE With the sale of Talcott Resolution, The Hartford s primary financial goals are to grow core earnings and improve core earnings ROE Talcott Resolution sale eliminates the impact of Talcott Resolution s lower ROE and earnings run-off on consolidated ROE and net income 2017 core earnings ROE 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 core earnings ROE was 7.8% 1Q18 core earnings ROE was 7.8%, which includes impact of CATs and higher tax rates in last nine months of 2017 P&C core earnings ROE of 12.3% Group Benefits core earnings ROE of 10.3% Expect 2018 consolidated core earnings ROE to improve to a range of 11% to 12%, including the benefit of lower U.S. corporate tax rate 5.2% Core Earnings ROE 6.7% 7.8% 7.8% Adjusted Key Business Metrics: ($ in millions) 3 11% - 12% 1Q Goal 2018 Outlook Commercial Lines combined ratio 2, Commercial Lines underlying combined ratio Personal Lines combined ratio Personal Lines underlying combined ratio P&C catastrophe loss ratio P&C net investment income 4 $1,125 - $1,175 Group Benefits net income 5 $275 - $295 Group Benefits core earnings 5 $310 - $ 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 outlook includes total P&C catastrophe loss ratio of 3.6 points or 2.6 points in Commercial Lines and 5.6 points in Personal Lines; actual catastrophes are likely to be different and will fluctuate quarterly due to seasonal variations. P&C CAT ratio equates to approximately $375 million, before tax, in 2018 or $75 million in 1Q18, $135 million in 2Q18, $110 million in 3Q18 and $55 million in 4Q18 3. Commercial Lines 2018 outlook includes 0.5 point of unfavorable PYD from the accretion of discount on workers' compensation loss reserves 4. Before tax and includes an estimated 6% return on LPs versus 11% in FY17; actual results are likely to be different and will fluctuate quarterly 5. Net income and core earnings include amortization of intangibles of $45 million to $50 million, after tax, and net income also includes integration costs of approximately $35 million, after tax 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. 12

13 The Hartford s goal is to reduce rating agency adjusted debt to capitalization ratio to the low to mid-20 s, over time Rating agency adjusted debt to capitalization ratio at Dec. 31, 2017 increased to 28.8% as a result of 2017 strategic actions and the impact of U.S. tax reform Expect to reduce debt leverage through net debt repayment in 2018 and 2019: Repaid $320 million debt maturity in Mar Issued $500 million due Mar Expect to call $500 million junior subordinated debt at par in June 2018 (previously announced) Intend to repay $413 million debt maturity in Jan In addition, growth in retained earnings would help improve leverage ratios Future share repurchases would negatively impact retained earnings Goal is to achieve rating agency adjusted debt to capitalization ratio in low to mid-20s over time 27.0% Leverage Ratio % 28.8% 29.9% Company Debt Ratings Hartford Financial Services Group Senior Debt Ratings Low to Mid-20 s Q18 Long-term Goal Moody s Baa2 (On review for upgrade 2 ) Standard & Poor s BBB+ (Stable) 1. Rating agency adjusted debt to capitalization ratio (based on Moody s methodology) 2. On December 4th, 2017 Moody s announced that The Hartford s long-term debt (senior at Baa2) is under review for upgrade 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 Book value per share impacted by 2017 results and strategic actions BVPS, ex. AOCI, of $36.71 as of Mar. 31, 2018, rose 4% from Dec. 31, 2017, primarily due to higher net income from all major business segments in 1Q18 BVPS of $36.06 decreased 3% from Dec. 31, 2017 due to impact on AOCI of higher interest rates and wider credit spreads, reducing unrealized capital gains on investment portfolio Strategic actions in 2016 and 2017 reduced book value, however, as a result, The Hartford s exposure to capital tail risk and A&E have been reduced A&E adverse development cover charge of $423 million, after tax, in 4Q16 Talcott net loss on discontinued operations $2.9 billion, after tax Pension settlement of $488 million, after tax, in 2Q17 Tax charge of $877 million due to tax reform Book Value Per Diluted Share, ex. AOCI $43.76 $45.24 $35.29 $ Q18 Book Value Per Diluted Share $42.96 $44.35 $37.11 $ Q18 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 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.

16 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 April 26, 2018 and in The Hartford's Investor Financial Supplement for first quarter 2018, 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. Book value per diluted share, including AOCI Mar Mar As of Dec Dec Dec $36.06 $45.25 $37.11 $44.35 $42.96 Less: Per diluted share impact of AOCI ($0.65) ($0.55) $1.82 ($0.89) ($0.80) Book value per diluted share, excluding AOCI $36.71 $45.80 $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. 16

17 Discussion and reconciliation of non-gaap financial measures continued Core Earnings: 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 and other costs, integration and transaction costs in connection with an acquired business, pension settlements, loss on extinguishment of debt, gains and losses on reinsurance transactions, income tax benefit from reduction in deferred income tax valuation allowance, impact of tax reform on net deferred tax assets, and results of discontinued operations. 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. Results from discontinued operations are excluded from core earnings for businesses held for sale because such results could obscure trends in our ongoing businesses that are valuable to our investors' ability to assess the company's financial performance. Net income (loss) and income from continuing operations (during periods when the company reports significant discontinued operations) are the most directly comparable U.S. GAAP measures to core earnings. Income from continuing operations is net income, excluding the income (loss) from discontinued operations. Core earnings should not be considered as a substitute for net income (loss) or income (loss) from continuing operations and does not reflect the overall profitability of the company s business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), income (loss) from continuing operations 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. 17

18 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 Three Months Ended Mar 31, 2018 P&C Other Ops Group Benefits Mutual Funds Corporate Consolidated Net income (loss) $298 $89 $17 $54 $34 $105 $ 597 Less: Net realized capital gains (losses), excluded from core earnings, before tax (6) (1) (1) (26) - 4 (30) Less: Integration and transaction costs associated with acquired business, before tax (12) - - (12) Less: Income tax benefit (expense) (2) 9 Less: Income (loss) from discontinued operations, after tax Core earnings (losses) $302 $89 $17 $85 $34 ($66) $461 ($ in millions) Commercial Lines Personal Lines Three Months Ended Mar 31, 2017 P&C Other Ops Group Benefits Mutual Funds Corporate Consolidated Net income (loss) $231 $33 $24 $45 $23 $22 $378 Less: Net realized capital gains (losses), excluded from core earnings, before tax (1) 23 Less: Income tax benefit (expense) (4) (1) (1) (2) - - (8) Less: Income (loss) from discontinued operations, after tax Core earnings (losses) $224 $32 $21 $40 $23 ($52) $288 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. 18

19 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. 19

20 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: 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. 20

21 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. PER SHARE DATA Diluted earnings (losses) per common share: Three Months Ended Mar Mar Net income (loss) per share $1.64 $1.00 Less: Net realized gains (losses), excluded from core earnings, before tax (0.08) 0.06 Less: Integration and transaction costs associated with acquired business, before tax (0.03) - Less: Income tax benefit (expense) on items excluded from core earnings 0.02 (0.02) Less: Income (loss) from discontinued operations, after tax Core earnings per share $1.27 $0.76 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. 21

22 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. Three Months Ended Twelve Months Ended Mar Mar Dec Dec Dec Net income margin 3.6% 4.9% 7.2% 6.3% 5.4% Less: Net realized capital gains (losses) excluded from core earnings, after tax (1.4%) 0.6% 0.4% 0.6% (0.2%) Less: Integration and transaction costs associated with acquired business, after tax (0.6%) 0.0% (0.3%) (0.0%) (0.0%) Less: Income tax benefit 0.0% 0.0% 1.3% (0.0%) (0.0%) Core earnings margin 5.6% 4.3% 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. 22

23 Discussion and reconciliation of non-gaap financial measures continued Core Earnings ROE (Core Earnings Return on Equity): The company provides different measures of the return on stockholders' equity ( ROE ). Net income ROE is calculated by dividing (a) net income for the prior four fiscal quarters by (b) average common stockholders' equity, including AOCI. Core earnings ROE is calculated based on non-gaap financial measures. Core earnings ROE is calculated by dividing (a) core earnings for the prior four fiscal quarters by (b) average common stockholders' equity, excluding AOCI. Net income ROE is the most directly comparable U.S. GAAP measure. The company excludes AOCI in the calculation of Core earnings ROE 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 related discussion above. Reconciliations of Net income (loss) ROE to Core earnings (losses) ROE 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. P&C Last Three Months Ended Mar 31, 2018 Group Benefits Mutual Funds Consolidated Net income (loss) ROE 11.9% 10.9% 44.3% (19.3%) Less: Net realized capital gains (losses), excluded from core earnings, before tax 1.4% (0.1%) 0.0% 0.7% Less: Pension settlement, before tax 0.0% 0.0% 0.0% (5.0%) Less: Integration and transaction costs associated with acquired business, after tax 0.0% (1.2%) 0.0% (0.2%) Less: Income tax benefit (expense) (1.2%) 2.3% (1.6%) (4.3%) Less: Income from discontinued operations, after tax 0.0% 0.0% 0.0% (18.4%) Less: Impact of AOCI, excluded from Core ROE (0.6%) (0.4%) 0.2% 0.1% Core earnings ROE 12.3% 10.3% 45.7% 7.8% 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 P&C Last Three Months Ended Mar 31, 2017 Group Benefits Mutual Funds Consolidated Net income ROE 4.5% 10.7% 32.0% 5.4% Less: Net realized capital gains (losses), excluded from core earnings, before tax 0.0% 2.4% 0.0% (0.3%) Less: Loss on reinsurance transactions, before tax (7.7%) 0.0% 0.0% (3.7%) Less: Income tax benefit (expense) 3.2% (0.9%) 0.0% 2.4% Less: Income from discontinued operations, after tax 0.0% 0.0% 0.0% 1.9% Less: Impact of AOCI, excluded from Core ROE (0.6%) (1.0%) 0.0% 0.0% Core earnings ROE 9.6% 10.2% 32.0% 5.1% P&C Last Twelve Months Ended Dec 31, 2017 Group Benefits Mutual Funds Consolidated Net income (loss) ROE 10.7% 10.5% 40.9% (20.6%) Less: Net realized capital gains (losses), excluded from core earnings, before tax 1.7% 1.2% 0.0% 1.1% Less: Integration and transaction costs associated with acquired business, after tax 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 ROE 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. 24

25 Discussion and reconciliation of non-gaap financial measures continued Last Twelve Months Ended Dec 31, 2016 P&C Group Benefits Mutual Funds Consolidated excluding A&E Consolidated Net income ROE 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 ROE 9.8% 10.6% 31.4% 6.1% 5.2% 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 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. Three Months Ended Twelve Months Ended Mar Mar 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 (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. 26

27 Discussion and reconciliation of non-gaap financial measures continued Three Months Ended Twelve Months Ended Mar Mar 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 (1.1) Underlying combined ratio Homeowners Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio P&C Three Months Ended Mar Mar Twelve Months Ended Dec Dec Combined ratio Impact of catastrophes and PYD on combined ratio Dec 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