The Hartford Financial Services Group, Inc.

Transcription

1 Second Quarter 2011 Investor Presentation The Hartford Financial Services Group, Inc. August 4, 2011

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 press release issued on August 3, 2011, our Quarterly Reports on Form 10-Q, our 2010 Annual Report on Form 10-K 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 Investor Relations section of The Hartford s website at ir.thehartford.com/financials.cfm. 2

3 Second Quarter 2011 Investor Presentation The Hartford Financial Services Group, Inc. Liam E. McGee Chairman, President and Chief Executive Officer

4 Capital management initiatives since 2009 March 2010: $3.2 billion capital raise Repaid $3.4 billion CPP Prefunded $675 million 2010 and 2011 debt maturities February 2011: Doubled quarterly common stock dividend to $0.10 August 2011: Announced $500 million share repurchase program Expect to be completed by early

5 Second Quarter 2011 Investor Presentation The Hartford Financial Services Group, Inc. Christopher J. Swift Executive Vice President and Chief Financial Officer

6 Second quarter core earnings of $12 million consistent with July 13 th preannouncement Core Earnings 1 ($ in millions, after-tax) 2Q11 Net Income $ 24 Loss from Discontinued Operations, net of tax Net realized capital gains/(losses), net of tax and DAC, excluded from core earnings (80) Core Earnings $ 12 Core Earnings per diluted share $ Q11 core earnings were $12 million, or $0.00 per diluted common share 2Q11 core earnings included certain items that affected results totaling $538 million, or $1.12 per share: o Current accident year CAT losses of $290 million, or $0.60 per share, after-tax o Asbestos reserve strengthening of $189 million, or $0.39 per share, after-tax o o Software charge of $73 million, or $0.15 per share, after-tax A tax benefit of $52 million, or $0.11 per share, after-tax o DAC unlock charge of $21 million, or $0.05 per share, after-tax o Net prior year reserve strengthening of $17 million, or $0.04 per share, after-tax 6 [1] Denotes financial measure not calculated based on generally accepted accounting principles

7 [1] Excludes catastrophes and prior year development (PYD) [2] Denotes financial measure not calculated based on generally accepted accounting principles [3] Excludes buyout premiums Commercial Markets P&C results reflect top line growth and solid profitability, excluding catastrophes P&C Commercial Markets Written Premium & Combined Ratio 1,2 $1, % $1,447 $1, % ($ in millions) $1, % 94.9% $1, % 2Q10 3Q10 4Q10 1Q11 2Q11 Written Premium Combined Ratio Group Benefits Fully Insured Premium & Loss Ratio 3 $1,041 $1,043 $1,030 $1,028 $1, % 77.1% ($ in millions) 79.1% 79.3% 78.0% 2Q10 3Q10 4Q10 1Q11 2Q11 Fully Insured Premium Loss Ratio P&C Commercial 2Q11 written premium up 8% vs. 2Q10 Strong retention, higher pricing and increased exposures drove growth Significant improvements in audit premiums and endorsements Standard Commercial lines renewal written pricing up 3% P&C Commercial 2Q11 combined ratio 2 ex-cat, ex-pyd was 92.8% versus 93.6% in 2Q10 Current accident year catastrophes were 11.0 points on the combined ratio versus 5.9 points in 2Q10 2Q11 had 2.1 points of prior year reserve strengthening versus favorable development of 9.9 points in 2Q10 Small Commercial ex-cats, ex-pyd profitability remained strong Group Benefits fully insured sales in 2Q11 decreased by 9% versus 2Q10 Group Benefits loss ratio was 78.0% in 2Q11 2Q11 loss ratio improved sequentially and year-over-year Disability incidence trends are stabilizing 7

8 Consumer Markets Continued margin improvement on auto offset by high catastrophes ($ in millions) $1,033 $1, % 93.3% Written Premium and Combined Ratio 1,2 $896 $ % 88.7% $ % 2Q10 3Q10 4Q10 1Q11 2Q11 Written Premium Combined Ratio Pre-tax underwriting results, ex-cats and ex-prior year development, improved by $12 million vs. 2Q10 Q211 combined ratio of 91.6% excludes 29.9 points of current accident year catastrophes The ex-cat, ex-pyd loss & LAE ratio improved 2.5 points driven by earned pricing increases outpacing loss costs for auto Auto loss & LAE ex-cats, ex-pyd improved 4.1 points over 2Q10. Rate increases in a price sensitive environment affect retention and written premium growth Policy retention declined 2 points for auto and 1 point for home vs. 2Q10 and written premium declined 6% AARP auto new business written premium turned positive in 2Q11 Signed Sierra Club in 2Q11; American Kennel Club program gaining traction 2Q11 core loss of $179 million includes a $73 million after-tax write-off of capitalized software 8 [1] Excludes catastrophes and PYD [2] Denotes financial measure not calculated based on generally accepted accounting principles

9 AUM Wealth Management Continued sales momentum and new, innovative product introduction Assets Under Management & Deposits ($ in billions) $325.0 $315 $10.0 $309 $310 $9.0 $300.0 $297 $8.4 $8.0 $280 $7.0 $275.0 $7.1 $7.0 $6.7 $6.0 $5.9 $5.0 $250.0 $4.0 2Q10 3Q10 4Q10 1Q11 2Q11 AUM Total Deposits Core Earnings, Excluding DAC 1 $333 $277 $268 $252 $233 2Q10 3Q10 4Q10 1Q11 2Q11 Deposits Continued sales momentum Individual Life sales up 14% over prior year; Sales in Monarch program more than doubled Retirement Plan deposits up 5% over prior year with record AUM of $56B Growing sales through P&C channel New product solutions in 2Q11 New U.S. variable annuity, Hartford Personal Retirement Manager, launched Three new global mutual funds launched Access suite of life insurance living benefits continue to differentiate The Hartford in the marketplace Core earnings growth ex-dac unlock of $333 million up 32% over 2Q10 Includes $52 million of tax benefit related to DRD and $18 million of Japan annuity reserve release Excluding these two items, there was broad growth in year-over-year earnings Global Annuity earnings, ex-dac, up 5% Retirement Plans earnings, ex-dac, up 23% Mutual Fund earnings up 17% 9 [1] Denotes financial measure not calculated based on generally accepted accounting principles

10 Efficiency improvement On track to achieve 200 basis points improvement in the efficiency ratio by year-end 2012 Savings Initiatives $200 million by year end 2012 Outsourcing Process Optimization YTD efficiency ratio at 17.5% 18% 21% Achieved 90 basis points improvement over 2009 efficiency ratio of 18.4% Real Estate, Print & Postage 12% 24% 25% Organization Efficiency Initiatives under way to reduce pre-tax run rate expenses by $200 million by year end 2012 Expense Management 10

11 The investment portfolio resulted in a net unrealized gain position and low impairment levels Net Unrealized Gains/(Losses), Pre-tax CMBS CDOs Non-Financial Corporates and Other Financials Subprime $1.2B $0.8B $1.6 $3.1 $1.8 $1.0 $0.9 $(0.1) $(0.1) $(0.6) $(0.4) $(0.4) $(0.4) $(1.1) $(0.5) $(0.2) $(0.1) $(0.6) $(0.4) $(0.4) $(0.3) $(0.9) $(0.2) ($0.2B) $(0.4) $(0.5) $(0.6B) $(0.6) $(0.5) $(1.5B) 06/30/10 09/30/10 12/31/10 03/31/11 06/30/11 ($ in millions) Jun. 30, 2010 Sept. 30, 2010 Dec. 31, 2010 Mar. 31, 2011 Jun. 30, 2011 Other-than-temporary impairments $ (108) $ (115) $ (59) $ (55) $ (23) Valuation allowances on mortgage loans (40) (4) 2 (3) 26 Total credit (losses)/reversals $ (148) $ (119) $ (57) $ (58) $ 3 2Q11 net unrealized gain position was driven by declining interest rates Net unrealized gain of $819 million, an improvement of almost $1.0 billion since 1Q11 Gross unrealized losses improved, falling from $3.0 billion to $2.5 billion Impairment losses of $23 million, the lowest level since 2007, continue to trend lower and were more than offset by a mortgage loan valuation allowance reversal of $26 million 11

12 Book value per diluted common share rose 13% in 2Q11 Book Value per Diluted Common Share Including AOCI $38.16 $42.11 $40.40 $41.57 $43.11 Book value per diluted common share, including AOCI, ended 2Q11 at $43.11, up 13% yearover-year 2Q10 3Q10 4Q10 1Q11 2Q11 Excluding AOCI 1 $40.95 $41.72 $42.40 $43.09 $43.26 Book value per diluted common share, excluding AOCI 1, ended 2Q11 at $43.26, up 6% yearover-year 2Q10 3Q10 4Q10 1Q11 2Q11 12 [1] Denotes financial measure not calculated based on generally accepted accounting principles

13 U.S. statutory surplus was $15.6 billion at June 30, 2011 ($ in billions) $ Statutory DTA 0.1 Other Impacts 0.1 Life Statutory Earnings (ex. Annuities & Credit) 0.1 (0.2) Credit- Related Impacts P&C Dividends to holding company (0.2) VA Surplus Impacts (0.3) $15.6 P&C Statutory Earnings (ex. Credit) U.S. Life and P&C Statutory Surplus March 31, 2011 U.S. Life and P&C Statutory Surplus June 30,

14 The Hartford s upcoming events Balance Sheet Overview October 6, 2011 in Hartford, CT Investor Day December 8, 2011 in New York City 14

15 Second Quarter 2011 Investor Presentation Questions & Answers The Hartford Financial Services Group, Inc.

16 Second Quarter 2011 Investor Presentation Appendix The Hartford Financial Services Group, Inc.

17 Primary Catastrophe Reinsurance Protection $ (Millions) $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $125 Primary Property Cat Program Foundation Re III 67.5% of $200 xs $1,400 Foundation Re III 90% of $200 xs $1,200 90% of $750m xs $350m Retention of $350 million Our catastrophe reinsurance program is principally comprised of the following: Property Catastrophe Treaty Provides coverage for 90% of $750 million in per occurrence catastrophe losses in excess of $350 million retention; January 1 st renewal Foundation Re III The Hartford purchases multiyear, fully collateralized reinsurance from Foundation Re III, an independent reinsurer that financed the coverage through the issuance of catastrophe bonds. In 2010, The Hartford purchased coverage for $180 million in losses in excess of a loss trigger that approximated $1.2 billion; expires in February 2014 In 2011, The Hartford purchased coverage for $135 million in losses in excess of a loss trigger that approximated $1.4 billion; expires in February 2015 HIG Retained Risk Ceded Risk 17

18 Efficiency ratio reconciliation ($ in millions) Year ended Year-to-Date Dec. 31, June 30, 2011 Expenses Insurance operating costs and expenses $ 4,635 $ 2,344 Plus/(Less): Deferred expenses 2,853 1,331 Commissions and wholesaling expenses (2,912) (1,415) Premium taxes and other (495) (284) Commission and taxes, net of deferrals: (554) (368) Claim expenses Net periodic pension costs (137) (107) Discontinued operations (256) - Restructuring costs (139) (7) Discontinued software program - (113) All other adjustments, net [2] Managed expenses $ 4,302 $ 2, Revenues Earned premiums $ 14,424 $ 7,064 Fee income 4,576 2,428 Net investment income on AFS securities 4,031 2,212 Other revenue Subtotal 23,523 11,829 Add back investment expenses Exclude discontinued operations (274) - Revenues used in efficiency ratio $ 23,361 $ 11,885 Efficiency Ratio 18.4% 17.5% [1] We have restated the efficiency ratio to exclude the impact of Federal Trust Corporation, which is now part of discontinued operations. [2] Primarily includes investment expenses, plus commissions to internal wholesalers, less certain non-managed items included in insurance operating costs and other expenses.